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Do I need to report dividends in my ITR?

Dividends from Indian companies are exempt because they pay a Dividend Distribution Tax (DDT) of 15%.

Q. Do I need to report dividends in my ITR? I own shares of a company that declared dividends on 18 February 2009, but I received them in April. For which financial year should I report the income?
- Sanjay Khera, Ranchi

Dividends from Indian companies are exempt because they pay a Dividend Distribution Tax (DDT) of 15%. Though exempt dividend is not a part of your income computation, there is a specific schedule in the ITR forms where you need to mention all your exempt sources of income, such as long-term capital gains on equities, PPF, etc.

However, dividends received from a foreign company are taxable in the hands of the shareholder. If you are working with an MNC and have the company’s shares that are listed overseas, then you will have to declare the dividend. This can be done under the heading ‘other sources of income’ in the ITR form for the year in which the dividend was paid to you, that is, for 2009-10.

Insurance
Q. I want to buy separate term plans for myself and my wife, along with critical illness riders. Should we go for individual plans or a joint one? What are the benefits of a joint life plan?
- Diwakar, Delhi

Joint life plans cover the lives of both the spouses and serve the dual purpose of providing income and offering risk protection. If one of the partners dies during the tenure of the policy, the insurance company pays the surviving partner the sum insured. After this, the policy terminates. In some policies, however, the surviving partner has the option to continue the cover on his/her individual life and pay the adjusted premiums.

Life covers vary according to the age of the insured and the life stage they are in. So, depending on your age profile, compare the costs of joint plans with individual term plans before deciding on the one that works best for you.

Q. I want to buy accidental insurance to cover permanent total disability, permanent partial disability and temporary total disability. Is there any insurance company that offers all the above under one cover?
- Akhtar Zaman, e-mail

Standalone accidental insurance cover is provided by general insurance companies that offer non-life products. Traditionally, the cover provided is limited to permanent total disability and permanent partial disability. In case of permanent total disability, 100% of the sum insured is paid as claim amount. However, in case of permanent partial disability, a varying percentage of sum insured (as per the policy) is paid. Most companies offer a cover only for these two types of disabilities.

However, some firms, such as the United India Insurance Company, offer temporary total disability cover in their personal accident policies. The payout in this case is limited to 1% of the sum insured per week, subject to a maximum of Rs 3,000 per week. The payment is made for a maximum period of 100 weeks. Similarly, the Bajaj Allianz General Insurance Personal Guard offers temporary total disability cover.

Under this plan, 1% of the sum insured or Rs 5,000 per week (whichever is lesser) is payable up to 100 weeks. Other companies that have similar offerings include the New India Assurance and the HDFC ERGO (Accident Protection Plan).

Q. My wife and I work in the private sector. She earns Rs 27,000 a month, while my salary is Rs 44,000 a month. We plan to start a family soon. We have a health cover of Rs 3 lakh each from our respective employers. Is this sufficient?
- Shyam, Jaipur

The health insurance coverage provided by your employer may not be sufficient if you are hospitalised. Study both the policies in detail and find out the areas that are not covered. Then go for a private health insurance policy that provides these. You will need additional cover to take care of medical emergencies during termination or break in employment and to avoid any exclusions or delays. Also, if you ever change your jobs, it is quite probable that your new employer may not have a health plan.

In your case, it will be better if you buy a family floater plan, which will be more costeffective than buying individual plans. Some of the plans you can consider include Apollo DKV’s Easy Health Insurance, Reliance Health Wise-Silver Plan, National Insurance-Parivaar and Star Health-Family Health Optima.

However, make sure that you retain your employer group plan. You could be entitled to maternity benefits and a cover for pre-existing diseases that will be difficult to include in an individual plan.

Mutual Funds
Q. I plan to start SIPs in three equity funds —Birla Frontline Equity, Sundaram BNP Tax Saver and DSP BlackRock Top 100— from next month. Are these good options or should I pick others?
- Sandeep Kumar, Amritsar

Before investing in any fund, consider the following aspects—your age and time horizon for the investments, your risk profile, the financial goals for which you are making this investment and your liquidity needs, that is, when you need this money. You will have to provide us this information before we can give you the right advice.

In any case, these are all good funds that are large-cap oriented, but they have overlapping portfolios. You might want to choose two large-cap funds like Sundaram Tax Saver and DSP BlackRock Top 100 and add a diversified equity fund like ICICI Prudential Dynamic or DSP BlackRock Equity Fund. But before you start your SIP, make sure you understand the above-mentioned four criteria.

Pension Scheme
Q. I am 35 years old and need a good pension plan. Should I buy one from an insurance company or invest in the New Pension Scheme?
- Amit Shah, Nadiad

The New Pension Scheme (NPS) has very low charges compared with the pension plans offered by insurance companies. However, the NPS has certain limitations. There are no agents to help you and no Webbased policy servicing. You will need to make at least four transactions annually to keep your account active and there will be a time lag of seven days between deposit and credit of units.

In comparison, insurance companies provide good policy servicing and offer service at your doorstep. Currently, the tax treatment of personal pension plans is more favourable than the NPS. So it may be beneficial if you split your pension funds between the NPS and a personal pension plan.