Category: Analysis

A deep dive for better insights

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Health insurance coverage for Corona Virus

One of the biggest impact of any medical treatment is on the personal finance of the individual and their family. The rapid spread of the corona virus across the globe and its appearance in India has prompted people to take a closer look at the protection that they possess. Medical expenses are taken care of by health insurance policies and it is important to see what kind of coverage these provide in India.

Any person who has a health insurance cover under existing policies in India will be covered if they take treatment for corona virus through hopitalisation. This condition is very important because the health insurance policies provide for payment only when there is a minimum hospital stay of 24 hours. Once this is present then even pre and post hospitalisation expenses are covered under the policy.

This will be a relief for people who have protected themselves by buying a health insurance cover. For all those who do not have such a cover this is one thing in their financial portfolio that is essential. Having such a policy in force before any illness occurs is crucial for the claim to be passed.

The Insurance regulator IRDAI has also asked insurance companies to ensure that claims related to corona virus are paid out efficiently and without problems for the policyholders. It has also clearly specified that the claims review committee has to verify the details of a claim before it is rejected. This is meant to ensure that there is a proper study done of the situation before a decision is taken to not pay a claim.

In addition the insurance companies can also launch specific policies for the corona virus. There are specific policies that cover diseases like dengue, malaria etc and any such policy related to corona virus would be similar in terms of its operation.

Overall this provides a big mental relief for people because if they have a health insurance policy they know that this will be eligible for coverage for treatment of corona virus. The claims will be settled quickly plus all expenses will be paid out including those during the quarantine period according to the terms of the policies issued.

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Claiming the correct tax benefit under NPS

The National Pension Scheme (NPS) has tax benefits in the form of a deduction when an amount is invested into it. There are two parts to the whole deduction and those who are making use of the benefits can ensure that they are making the most of their investments.

Initial amount

There is a deduction of Rs 1.5 lakh available to an individual who puts money into the NPS under Section 80CCD. This is the base deduction as this is part of the Rs 1.5 lakh overall limit that the individual has available under Section 80C plus this and an additional Section 80CCC which covers premium for pension plans.The Income tax act says that the overall tax benefit for Section 80C investments plus NPS plus premium for pension products from insurance companies should not exceed Rs 1.5 lakh. Thus if there is a shortfall under Section 80C then the individual can use their investments under the NPS to cover up the shortfall and reach the Rs 1.5 lakh limit.

Additional amount
If you are not using the NPS then the investment deduction ends at Rs 1.5 lakh because that is the overall limit available for other instruments under Section 80C. However if you are using the NPS then there is an extra Rs 50,000 deduction available under Section 80CCD(1B). This is a benefit that is over and above the Rs 1.5 lakh limit. The individual can use this only for the NPS.

The good part of this deduction is that the individual need not invest Rs 2 lakh to claim the extra benefit under the NPS. For example if they invest just Rs 50,000 and the existing investments cover the Rs 1.5 lakh limit under Section 80C then they can shift this extra Rs 50,000 to the additional benefit. In this case they would thus be able to take a total deduction of Rs 2 lakh which will help to reduce the tax effectively.

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Tax benefit at the time of investing in NPS explained

The National Pension Scheme (NPS) has tax benefits in the form of a deduction when an amount is invested into it. There are two parts to the whole deduction and those who are making use of the benefits can ensure that they are making the most of their investments.

Initial amount

There is a deduction of Rs 1.5 lakh available to an individual who puts money into the NPS under Section 80CCD. This is the base deduction as this is part of the Rs 1.5 lakh overall limit that the individual has available under Section 80C plus this and an additional Section 80CCC which covers premium for pension plans. Thus if there is a shortfall under Section 80C then the individual can use their investments under the NPS to cover up the shortfall and reach the Rs 1.5 lakh limit.

Additional amount
If you are not using the NPS then the investment deduction ends at Rs 1.5 lakh because that is the overall limit available for other instruments under Section 80C. However if you are using the NPS then there is an extra Rs 50,000 deduction available under Section 80CCD(1B). This is a benefit that is over and above the Rs 1.5 lakh limit. The individual can use this only for the NPS.

The good part of this deduction is that the individual need not invest Rs 2 lakh to claim the extra benefit under the NPS. For example if they invest just Rs 50,000 and the existing investments cover the Rs 1.5 lakh limit under Section 80C then they can shift this extra Rs 50,000 to the additional benefit. In this case they would thus be able to take a total deduction of Rs 2 lakh which will help to reduce the tax effectively.

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Replying to income tax notices

There are times when an individual receives a notice from the Income Tax Department about a tax liability that needs to be paid. There is usually dismay at receiving such a notice followed by fear. This situation can be tackled by looking at the nature of the notice.

Always reply
Any communication from the Income Tax Department should be addressed. Several people often tend to ignore such communication thinking this will end the matter but that does not happen. Unless the issue is tackled and a solution arrived at, it remains open in the records of the Income Tax Department. This will lead to interest and penalty piling up if there is any amount of tax demanded.

Wrong details
There are times when the notice is wrongly sent. This could be cases like a person not having high income but still sent a notice for high tax payment. If there is a mistake from the Income Tax Department then they should be informed about this and the records corrected.

Often there are some actions taken by the individual like high spends while their income tax return shows a lower income that triggers the notice. These should be replied to in detail explaining why this situation has occurred. It could also be that the Permanent Account Number (PAN) of the individual has been misused by someone else to open entities and conduct activities using it. This is a serious situation that has to be brought to the notice of the Income Tax Department.

Dispute of amount
The details that are filed in the Income Tax return might not be accepted by the tax department and some benefits might be disallowed. The other case is where additional income might be added to the individuals name and taxed. These also trigger a notice and higher demand of tax. If the changed amount and classification is acceptable then the individual should pay up the amount. If not then this should be disputed and the tax department should be informed accordingly.

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Navigating the new protection guidelines for your cards

Come March 16, 2020 there will be new guidelines in place for protecting your debit and credit cards online. The Reserve Bank of India (RBI) has asked banks to put in place a new system for the protection of cardholders. This will result in some inconvenience initially for cardholders but they are in the best interest of the users so it is important to understand the implication of these new rules.

Applicability

This will be applicable for all debit cards as well as credit cards. Often people think about online shopping and relate it to credit cards but even debit cards would have the same rules applicable. Prepaid gift cards like the ones that can be bought at stores and other places that are loaded with money and can be used at specific places are not covered. Neither are cards that are used in mass transit systems like buses and local trains.

New cards
All new cards that are either issued or even renewed after March 16, 2020 can be used automatically at only contact based points of usage. Contact based points of usage means those places where the card actually comes into contact with the machine to clear the usage. This would cover ATMs where the card has to be usually inserted or the Point of Sale (PoS) machines that are found in shops and other establishments where the chip based card has to be inserted.

This means that the new or renewed cards will not be automatically enabled for use online in India. There will have to be a process followed to enable this facility. There will be a facility offered through multiple channels which includes online plus mobile applications plus ATMs or Interactive Voice Response. The facility will also be available at the bank branches.

This will enable the card holder to activate their use for online both in India and abroad plus even for physical use abroad and even contactless use in India. Most new cards issued now have this contactless facility whereby for small amounts they need not be brought into contact with the Point of Sale machine but waving it nearby enables the transaction.

Existing cards
Existing cardholders can find that some of their transactions are cut off because banks have been given the permission to decide whether they should disable the contactless, international and online usage. Banks will be able to do this based on their risk perception of the cardholder. Some users could find this facility withdrawn but they can get it back by following the authorisation process through the system set up by using any of the multiple channels.

Those cardholders who have never used the online, international or contactless facility on their card will find this cancelled automatically from March 16, 2020. So they will need to follow the required process to get the facility working again. There are likely to be many instances where people have multiple cards but they do not use all of them both online or offline. This could lead to having to do the work to get the online facility working again.

Set limits
The real benefit will be in the ability of the cardholder to set the limit for spends online or offline and that too in India as well as internationally. For example a person can set a daily ATM limit of say Rs 5,000 and a Rs 8,000 limit for online transactions on their debit card. The only requirement is that this cannot be more than the maximum limit that has been set by the bank. It in effect gives the cardholder a lot of freedom to reduce the risk on their cards.

The other benefit is that they can switch on or off the facility of usage online or internationally as they want. Plus they can change or modify the limits that they have set earlier so there will be a lot of flexibility present.

Security
This change will enable a higher level of security for the cardholders. The ease of doing these changes will be the key to ensure that the entire process becomes smooth for the cardholder and not a distressing experience. There will also be alerts received on email and SMS when such changes are made so the cardholder will also be able to track if any changes have been made.