Q. I have invested in the HDFC Tax Saver Fund for the next two years. However, after the implementation of the Direct Taxes Code (DTC), equity-linked savings schemes may not get a tax rebate. If this happens, how will my income from this scheme be taxed? —Sandeep Kumar, Amritsar
A. The DTC does not mention equity-linked savings schemes (ELSS) among the approved tax-saving options. It proposes to give tax deduction only to contributions for long-term investment plans, such as the Public Provident Fund, insurance policies and pension plans. If the ELSS option is scrapped, your fund house could convert it into an equity diversified fund after its lock-in period ends.
The DTC proposes to tax long-term capital gains from equities and equity mutual funds. However, the revised draft has hinted that the existing investments will continue to get tax benefits till they mature. So the gains from your ELSS fund may be exempt from tax on withdrawal. Do keep in mind that the DTC is a proposal and discussions are still on regarding the final bill.
Q. I purchased a house in Lucknow, in 2003, with my mother as co-owner. We sold it in August 2009 and used the money to buy a flat in Bengaluru. The flat is registered in my mother’s name, who is a housewife and has no source of income. Does she need to file income-tax returns? Am I eligible for tax benefits? —Rajat Kulshrestha, Bengaluru
A. Under Section 54 of the Income Tax Act, exemption is available to an individual who sells a residential property that results in a long-term gain and then invests these gains in a new house. As the flat has been purchased in your mother’s name, you cannot avail of this exemption. Your mother will have to compute her total taxable income to determine whether she needs to file her return. The total taxable income will be calculated by deducting the exemption under Section 54 from the long-term gains that accrue from the sale of the house in Lucknow. If the amount exceeds the basic exemption limit (Rs 1.9 lakh for women and Rs 2.25 lakh for senior citizens), she will have to file her return.
Home Loan
Q. I have taken a loan for constructing a house. The bank gives me partial disbursement as per the builder’s requirement. It has now offered the option of an interim EMI. The benefit is that I’ll repay against the principal before full disbursement. Can I avail of tax benefits under Section 80C for the repayment of principal and interest? —Viral Rana, Mumbai
A. According to tax laws, you are eligible for benefits on repayment only after you begin living in the house. Till then, the interest can be accumulated for up to five years and repaid over the next five years. This can be paid over and above the normal EMI interest. Both the interest (under Section 24) and principal (under Section 80C) become eligible for tax benefits up to the stipulated limits of Rs 1.5 lakh and Rs 1 lakh, respectively. However, lenient tax authorities sometimes accept payments through EMIs the way you are doing. It is a risk that you should take after consulting with your auditor.
Q. I have booked a flat, for which I need a loan of Rs 17 lakh. I plan to take one for 15-20 years. Should I go in for a loan with a monthly reducing balance or a daily reducing balance? How do the two differ? —Soumen Kar, New Delhi
A. Under the monthly reducing scheme, the EMI is deducted from the loan amount a month after the payment, while in the daily reducing plan, the EMI is deducted the next day itself. So the interest calculated on the balance loan amount is usually lower in the latter case. Some banks are trying to woo customers through attractive, low interest rates on home loans. Don’t let these teaser rates guide your decision as they are applicable only for a short period of 6-12 months, after which the normal rates apply. What you need to keep in mind is that a 20-year plan can be very costly. The shorter the period, the lower is the interest burden. If you take a loan for 15 years, you can save almost Rs 5 lakh.
Q. My husband wants to buy a term insurance plan. However, as he is a type-1 diabetic, most insurance companies have rejected his application. Can you suggest a company that will issue him a policy? Will the premium be more than that in normal circumstances due to his condition?
—Krina T., Pune
A. Unfortunately, no life insurance company covers a person diagnosed with type-1 diabetes. The only alternative is to create a safety corpus for medical emergencies and expenses. You could also approach Kotak Life Insurance. Though it does not cover this condition, it could consider a medical test before making an exception if your husband is less than 50 years of age.
Q. I am 24 years old and was recently commissioned in the Indian Army. Are there any accidental death/disability plans available for me? I want a cover of Rs 30 lakh. Are there specific policies for soldiers and what kind of cover can I expect? Will this amount be payable to me over and above the benefits I get from the army?
—Mani Kandan, Karaikal
A. All general insurance companies have accident insurance plans under which soldiers are covered. You will be requested to fill an additional occupational questionnaire to assess your risk. Life insurance companies also offer accident covers as riders along with their plans. You could take a term plan with an accident rider. In case of an accident or death, multiple claims can be filed, both with the army as well as the insurance company. However, none of the plans from insurance companies cover accidents during a war. In case of death or injuries sustained during a war, only the army benefit can be claimed.
Q. I want to buy a health insurance cover for my mother, who is 65 years old. Apart from hypertension, she doesn’t have any other medical problem. What kind of policy should I take for her?
—Raj Bhardwaj, Mumbai
A. The majority of the existing health insurance policies set a maximum age limit of 65 years for entry. However, some insurers, including the four public sector insurance firms, offer specific plans for senior citizens. One of them is the Varistha Mediclaim offered by the National Insurance Company.
Fresh entry in the scheme is allowed from 60 years to 80 years of age. For renewal, the age limit is extended to 90 years. You could also opt for a family floater plan in your name, which has the option to include dependants. These plans are offered by all insurers and cover dependants aged between three months and 80 years. Regarding your mother’s medical problem, it would be advisable to approach an insurer who can help you in taking a suitable health cover.
Taxspanner.comwill answer queries on tax; Antony Jacob, CEO of Apollo Munich, will answer on health insurance; Karthikeyan Jawahar, CFP, will tackle financial planning issues. Log on to www.moneytoday.in and submit your questions.
