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Money Matters

Managing your money can be tricky. Send your queries, and personal finance experts will help you resolve any issue

Money Matters

Mutual Fund

Suresh Aggarwal: I redeemed the units of a mutual fund as it was not doing well and want to invest in another fund. Should I make a lump sum payment or go for a systematic transfer plan (STP)? I have already invested in equities.

Sanjiv Singhal, Founder and COO of Scripbox, replies:

If you are already in equities, you should change funds within the same asset class and go for lump sum investing. Opting for STP usually means you are looking to change the asset class from equity to cash for a few months and the money will be there in your bank account or liquid fund.


Taxation

Sheetal Kadam: After my father's death, my mother inherited a flat, and we sold it in February 2019. The flat was in a redeveloped building, with a carpet area of 225 sq. ft. But it was originally (in 2001) a 100 sq. ft chawl room. We got possession in 2008 and an agreement was made in 2014. So, what is the nature of this property now - should we consider this as a chawl room or a redeveloped flat? What will be the fair market value or should we consider the index cost of 2001? If it is considered a chawl room, capital gains will be more and the tax will be higher.

Amit Maheshwari, Partner, Ashok Maheshwary & Associates, replies:

Property transfer for the purpose of calculating capital gains under the Income Tax Act, 1961, includes exchange, and in your case, the flat received in exchange for the old chawl room will be considered a transfer, thus attracting capital gains tax. Hence, you were liable to pay capital gains tax on such a transaction in the year of such exchange - it means when you gave your old chawl room for the construction of a flat. But such capital gains are exempt under Section 54 if the money received from the sale of the old house is invested for the purchase of another within two years from the date of transfer or for construction of a new house within three years of the sale. In your process of exchange, the condition of investing in a new house was met. Hence, your capital gains would have been exempt at the time of such transaction.

The date of transfer of possession of the chawl room will be considered the date of its transfer, and the sales consideration will be the fair market value of the flat on the date of possession. (Stamp duty value will not be considered as it seems no agreement had been made on which stamp duty was paid, while the provision for considering assessable stamp duty value became effective from October 1, 2009.

For the new flat sold in February 2019, capital gains will be calculated by deducting the index cost of acquisition of such a flat from the sale amount received by you. The sale consideration at the time of transfer of the old chawl room will be considered the cost of acquisition at the time of exchange, and such cost will be indexed by multiplying it with the Cost Inflation Index (CII) of the year of sale and then dividing it by CII of the year of purchase.


Life Insurance

Arvind Bhatnagar: I am a 32-year-old married man with a three-year-old daughter. As of now, I only have a Rs 5 lakh endowment plan . Will a term plan of Rs  1 crore be adequate for us?

Anjali Malhotra, Chief Customer, Marketing and Digital Officer, Aviva Life Insurance, replies:

You have made the right decision as term plans offer life cover at the lowest cost. But decide on the amount carefully as the life cover should be able to take care of the family's financial needs in case anything happens to you. The amount should be 10 times the annual income of the main earner. But requirements always vary, and you should calculate the amount needed, based on your income, assets and liabilities.