“Convenience Tax?" When was this tax imposed? Government has no other business than to impose new taxes everyday?” might be a normal reaction after reading the title. Well, the good news is, this tax is not really levied by the Government. Rather, it is a self-imposed tax by the citizens like us who are too “Convenience Seeking” and thus have to pay this tax because of their own short-sightedness. Let's have a look in detail:
1. Investing for tax saving u/s 80C
Although most of us know and agree that ELSS is one of the best avenue for tax savings and investment growth, most of us are driven away with the new regulations that have come in; “KYC Mandatory”, “No Third Party Cheques” etc etc to name a few. All these make us think that ELSS investment is too complicated and too much of a headache. Let me go the convenient way of taking an insurance-cum-investment plan.
Convenience: Insurance-cum-investment plans still come with lot of convenience. The agent is available at any hour of the day (thanks to the hefty commissions), no KYC hassles (at least less than ELSS) and the premium can also be paid in cash. Occasionally, a hard bargain could also fetch some pass back. What could be better than this one?
Tax: All these “insurance-cum-investment” plans come with huge hidden costs which defeat you on all fronts i.e. insurance as well as investments. Even if you find them convenient in the short term, they might deprive you of a substantial amount when you need it the most (death claim, retirement etc).
Remedy: Though it might appear a little painful, it is advisable to go for ELSS even if it requires more regulations. Remember, the regulations are in your interest. If you find a Security Check to be a hassle, may be you are inviting intrusion.
2. Taking Life Risk Cover
Term plan or the pure life risk cover is itself a bitter bite for most of us as there are no “returns” from it. Moreover, people are seen reluctant to go for higher risk cover as it might involve a compulsory “medical test”.
Convenience: Either take a low life risk cover wherein a medical test is not needed. Or else go for a higher risk cover and sign the declarations given by the company. Much convenient than to go for a medical test. After all, who has the time to go through all this?
Tax: Taking a low risk cover is almost like having no cover. Similarly, if you sign too many declarations with the insurance company, they basically put the ball in your court. Today, it might hand over the policy document to you conveniently, but in future your family might have to undergo a lot of painful procedures if the need of claim arises.
Remedy: Assess the right amount of risk cover you need and go for a medical test for the policy. This way you have put the ball in insurance company’s court. They might offer you the policy at somewhat higher premium (if your health report is below par), but at least there won't be trouble at the time of claim. Now it's up to you to decide, whether you want a policy document in your hand or you want the claim settlement to be smoother.
3. Getting the Life / Health insurance forms filled up by the agent
We might feel like a king when the agent tells us that he will fill up the Life / Health insurance form on your behalf. But have we ever been careful of what actually he is filling up?
Convenience: The Life / Health Insurance forms are lengthy and are full of mind-boggling questions. It is lot convenient when the agent fills it up for me.
Tax: The agent might say a generic “Yes” to all the questions which expect a Yes and a generic “No” to all the questions which expect a No. He might not have taken into account the reality, and a not-so-factual data is submitted as information provided by you and in case some information is found to be incorrect, it is you and your family who suffers.
Remedy: Insist on filling up the form yourself. If you need help, the agent might help you to fill it up. Also, better to disclose all the facts so that the chances of claim repudiation are minimized.
There is an old saying “No Pains No Gains”. May be what we are trying to suggest here is similar. The above remedies might sound a little more painful in the short term; But in the long run, they will prove to be the best strategies.
Already we are burdened with so many taxes. Let's not allow this “Convenience Tax” to get on our nerves.
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(The views mentioned in the article are personal opinion of the author. The readers are advised to use their own judgment and consult their investment advisor before making any investment decisions.)