experts answer your personal finance queries -INVESTINGQ. Dividend distribution tax on debt funds was increased in the Budget. I have invested Rs 10 lakh in monthly income plans (MIP). The dividend from the MIP supplements my pension. What are my options to optimise my investment in such a scheme? -Manoj Bhoj, Vadodara
A. You can opt for growth option but capital gains tax will be applicable; short-term if fund is held for less than one year, otherwise long-term. You can then replace the dividend payouts with a systematic withdrawal plan (SWP). But, if the scheme fails to generate returns to meet the pre-determined payouts, you will be paid from the principal amount. Short-term capital gains is taxed along with your income while long-term gains on non-equity funds are taxed at 10% without indexation and 20% with indexation.Q. I am a US citizen but I have been residing in India for the past year. I will continue to stay in India for another couple of years. Should I continue to hold my NRE and FCNR accounts? What are the laws in this regard? Are there advantages (or disadvantages) of doing so? -Alan Philip, e-mail
A. The FCNR (Foreign Currency Non-Resident) account ensures that NRIs (Non-resident Indians) are not exposed to foreign exchange risk. NRIs can invest in India (only fixed deposits) in foreign currency through an FCNR account but not through an NRE account. The interest earned is not taxable in India and the principal thereof is not considered when levying wealth tax.
NRE accounts help in repatriation of funds. Again, the interest earned is free from income tax and wealth tax and deposits can be withdrawn prematurely. Considering these benefits, it would be best to to continue with the accounts if you plan to make investments in India.Q. Is there a way to convert my gold holdings (gold coins bought from banks) into gold ETF? What are the best ways to sell my gold holdings? -Manpreet Kaur, New Delhi
A. An exchange-traded fund (ETF) can be converted to physical gold based on the number of units held in the scheme. However, if you want to convert physical gold to an investment in a gold ETF, you will have to sell the metal and invest the proceeds into the fund. There are no charges on selling gold, while the sale price will depend on the price at which gold is traded on the day of the sale.Q. I am 28 and earn Rs 6 lakh per annum. My husband started a small business last year. We have a 20-year home loan of Rs 10 lakh (EMI Rs 8,210). I have Rs 1 lakh to invest right now. Should I increase my EMI and reduce the loan tenure to 10 years or invest elsewhere? The business income might be irregular and we cannot afford risky investments now. -Shikha Dhawan, Goa
A. Cash flow and profit is likely to be unsteady in the initial stages of an enterprise. So, utilise the savings to invest in debt or low-risk funds and partial loan closure at regular intervals. Increasing the EMI may not be a viable option as you will have to bear a higher monthly commitment.Q. I'm a single parent (33 years old) with a 5-yearold son. It is only recently that my income as a consultant has afforded reasonable savings. I currently have a lump sum of Rs 50,000 and can set apart about Rs 10,000 every month. I have no debts, own a house (inherited) and my only dependant is my son. What are my best investment options? -Pralaad Kak, e-mail
A. Wealth is built over time through regular and disciplined investment. In your case, your son's education (school, graduation and specialisation) and your retirement would be the most obvious goals. Considering the above, you can start investing in mutual funds through a systematic investment plan (SIP). You can invest Rs 10,000 every month. These investments will have to be diversified across schemes and funds to reduce risk. Also consider a risk cover, which will cover your child's needs if something were to happen to you.
INSURANCEQ. My wife and I are planning to have a child next year. My wife's family has a history of pregnancy-related complications. I already have a family floater health plan for the two of us. Are such complications covered under family plans? More importantly, what about coverage for the baby if there is need for hospitalisation or emergency care right after birth? -M Manjunath, Chennai
A. Most health insurance policies available in the market cover maternity expenses and expenses related to complications thereof. You will need to check your health insurance policy documents to confirm that your wife is covered for such complications. There are only few stand-alone health insurance providers who cover newborns and related medical or emergency expenses. Other insurers provide coverage for babies after 90 days of birth till the age of 18 years.
Review your current policy and check for benefits related to pregnancy-related expenses and cover for infants. If these are not available as addon features, consider porting to another insurer.Q. I am 53 and already own a health policy. However, now I wish to increase the cover by subscribing for a top-up plan. But, will the insurer charge me extra because of my recent medical history? Also, can I get cover for conditions that were excluded earlier? -LK Wadhwa, Faridabad
A. We would need the complete details of your recent medical history to confirm if your premium will change. Of course, insurance companies do charge higher premiums based on medical history and the possibility of increased risk of ailments.
It is a very good idea to purchase a top-up cover. If there is a probability that you are susceptible to age-related ailments such as diabetes, heart diseases or kidney-related ailments, it should be considered as part of your financial planning. A top-up cover will aid in covering medical treatments and other related costs.
You will have to check with your insurance provider and determine what conditions can be covered with a top-up. You should have the option of completing waiting periods or paying a slightly higher premium to extend coverage.Q. My father is a senior citizen and he doesn't have health insurance currently. What would be a better option-a separate health policy for him or his inclusion in my family floater plan? What should I consider before making the decision? -Malini Menon, Kolkata
A. It would be better to purchase a fresh individual policy for your father as he does not have any health cover. Plans for senior citizens differ from those available for younger family members or individuals and the premium for such policies is also higher. You must consider your father's health and the type of cover he would need. You may have to go for a health insurance policy with critical illness riders that cover ailments such as diabetes, heart disease, kidney failure, etc.Q. I want to buy a family floater health plan for our joint family, including my parents, wife, two sons and a brother and his family. However, my brother and I already have separate health policies provided by our employers. Will there be a duplication of cover? What would the procedure be if I need to make a claim? Also, what are the tax implications if my brother and I share the costs of the policy, including premium? -Rajshree Roy, Noida
A. An additional family floater plan is certainly not duplication. Personal policies are essential, especially when changing jobs or during medical exigencies.
There are a limited number of policies that cover multiple generations. Check these to confirm benefits, features, waiting periods and exclusions.
When there are two health policies in place, claims are paid based on each company's contribution clause. The insurers will share the payout in the ratio of the sum assured.
You and your brother can claim tax deduction for the premium paid for the family floater plan. Under Section 80D of the Income Tax Act, you can avail an annual deduction of Rs 15,000 for health insurance premium for yourself and dependants. You can claim Rs 20,000 for covering your parents.
TAXATIONQ. I am retired and earn a pension. I live in a rented house for which I pay Rs 4,000 per month. Can a retired employee avail tax deduction on rent? -Sumina Rai, Kanpur
A. Yes, a pensioner can claim deduction on rent paid for property under Section 80GG of the Income Tax Act on the basis of following; one, as per Section 4, definition of salary also includes pension and two, on fulfilment of below mentioned conditions: the assessee has paid rent for his residence, assessee or spouse or his minor child should not own a house and a declaration on Form 10BA should be submitted to the employer (including former employer).Q. I have two demat accounts. One is registered jointly with my wife and me, while the other is an individual account. If I transfer shares from the joint account to the individual account, will my wife have to pay capital gains tax? -Sarmistha Bagchi, e-mail
A. Transfer of shares from a joint to a personal account does not represent transfer of share ownership. So, there is no possibility of capital gains. Also, if your wife has not invested from her own income, the account is considered to be yours.Q. My firm hired an A architect in January 2012. He charged a service tax of 10.3%. But the bill was paid in June. He later gave a supplementary invoice to recover additional service tax as it was increased to 12.36%. Is this in accordance with current tax laws? -Bijoy Nambiar, Bengaluru
A. As per the clarification issued by Central Board of Excise and Customs (CBEC), for certain specified services, including those offered by an architect, an invoice prepared prior to 1 April 2012 but payment received after the same date, the service tax would be charged at the rate of 12.36%.
If your architect has issued a supplementary invoice to recover additional service tax, then it is as per the law. Moreover, you can claim the same when calculating your final service tax liability.
Anil Rego, CEO, Right Horizons, has tackled financial planning; Antony Jacob, Chief Executive Officer, Apollo Munich Health Insurance, has answered insurance queries; and Sudhir Kaushik, Co-founder and CFO, Taxspanner.com, has provided tax solutions.