The SBI Life Smart Income Protect advertisement claims to give tax-free returns with fine print saying “consult your tax advisor for details”. Find out what kind of returns you can expect and whether the product will really give tax-free benefits?
SBI Life Smart Income Protect is a traditional life insurance plan which gives guaranteed annual payouts of 11% of Sum Assured (SA) over a period of 15 years after plan maturity. While the guarantee itself is insignificant considering that assured returns will be less than 2.5% per annum (pa). A lot will depend on the non-guaranteed bonuses to give decent returns. But, will your returns really be tax-free as claimed in the advertisement?
There is fine print which says “consult your tax advisor for details”. It seems to be a standard disclaimer from insurance companies which want to claim tax-free returns, but don’t want to be held responsible for it. The ad claims "Delights guaranteed. Year after year". You don't want "Regrets guaranteed. Year after year". Moreover, in this product, SBI Life probably knows that policy term of five and 10 years can never give tax-free returns, but will not make such an open declaration as it helps them to remain vague about it.
It is only in the case of a policy term of 15 years that the product will qualify for tax benefits under Section 10 (10D). This is because only in this case the insurance cover is more than 10 times of the premium to be paid. The caveat here is standard health. If you are not healthy, your premium will be loaded and you may not even meet the requirement of tax-free benefit.
The Finance Bill 2012 had made it mandatory that the sum assured should be 10 times the annual premiums (the earlier limit was five times) for insurance policies to enjoy the tax benefits on contributions under Section 80C and on maturity under Section 10(10D).
The product offers policy terms of five, 10 and 15 years. At the policy maturity the customer will get vested bonuses and terminal bonus, but both are non-guaranteed. The payout period will pay guaranteed 11% of SA every year for 15 years. Considering just the guaranteed payout, the returns will be less than 2.5% pa. Assuming 6% pa non-guaranteed returns during the policy term, the real returns will be less than 4% pa; with 10% pa non-guaranteed returns, the real returns will be 5% pa. This is in sync with traditional products wherein the actual returns will be low.
Even 80C tax benefits at entry cannot be claimed in full for SBI Life Smart Income Protect policy term of five and 10 years. If the insurance cover is less than the minimum amount specified, the amount that can be claimed for tax savings under Section 80C reduces proportionately. It means your premium has to be sufficiently higher to be able to claim Rs1 lakh 80C taxable income deduction.
For example, a customer of age 33 years buying the product for policy term of 10 years will have annual premium of Rs119,390 for a SA of Rs10 lakh. The SA is only 8.37 times the premium and hence the amount claimed under 80C will be Rs99,929 for premium payment of Rs119,390. But, you will not get any tax benefit on maturity under Section 10 (10D).
Read the latest Moneylife cover story (issue dated 21 March 2013) “Pension & Life Plan: Tax-traps?” for some secrets on pension and life insurance taxation that insurers will not tell you about. The magazine will be available in the market on 7 March 2013.
NSE said the members opting for the ‘T+0’ facility would need to make the payments by 8.30am on the next settlement day, before the opening of the next trading session
The National Stock Exchange (NSE) has introduced a same-day settlement scheme ‘T+0’, under which members can save on additional margins if the payments for trades are made before the opening of the next trading session.
In a circular to come into effect from 15th March, NSE said members opting for this ‘T+0’ facility (which refers to settlement on same day of the trading) would need to make the payments by 8.30am on the next settlement day. The day’s trading begins at about 9.00am on the bourses.
Normally, the members are allowed to make the payments after the opening of trading hours in the next trading session under the T+1 settlement.
However, any major crash in stock prices exposes the members to the risk of paying scaled-up margins, if the existing margins become insufficient to meet the payment obligations under the existing facility. The new facility would mitigate this risk of additional margin payment obligations.
NSE said that the members can opt for ‘T+0’ facility at any time, but they need to intimate the Clearing Corporation in advance about the same in a specified format, while they also need to give a prior intimation for revoking this facility.
“The pay-in of T+0 settlement obligation for such clearing members shall be done at 8:30am on the next settlement day,” NSE said in the circular.
“Clearing members who opt for pay-in on T+0 basis would not be levied scaled-up margins,” it added.
The exchange said that non-payment or partial payment of settlement obligation by the scheduled time would be construed as non-compliance and penalties applicable for fund shortages from time to time would be levied.
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