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Query Corner

Print Edition: November 2012

Money Today experts answer your queries related to the personal finance sector -

TAXATION:

Q. I recently read an article on how gifts can be used to save tax as well. If I gift a sum to my married daughter, what is the deduction available? Also, is it different for nonmonetary gifts, such as a car or a house? -Ganesh Nair, Hyderabad

A. While your daughter can receive gifts of any amount from relatives, including you, without paying income tax on it, gifts above Rs 50,000 from a non-relative is taxable in the hands of the recipient. Income from the gift (cash or asset) will be taxed with her income assuming she is older than 18 years. This can result in tax saving for you if you are on a higher tax slab than your daughter.

Gifts received in kind, such as property, bonds, debentures, jewellery and art, from relatives is also not taxable in the hands of the recipient. There are special clauses for certain cases, such as a gift to a minor child or daughter-in-law. Please consult a tax consultant before you make any such decisions.

Q. I transferred some money from my account to my wife's account, which she used to invest in stocks (including day trading). She managed to make a profit of Rs 12,000 in 2011-12. She does not have any other income. How will this amount be taxed? -Pradeep Lakhumna, Bengaluru

A. The income from investment in stock will be clubbed to your income and taxed as per the applicable tax slab under the head business income. Now, if the profit (Rs 12,000) is invested and your wife earns an income from it, it will be taxed in your wife's hands. However, if the amount given to your wife is shown as a loan, then the income from it will be taxed in only her hands.

Q.  My wife and I have a house in Pune, which we gifted to our son. He now intends to buy another house from the sale proceeds of our house (gifted property) and his own flat. Will capital gains tax be levied from either us or our son? What can be done to avoid tax? -Gaurav Vyas, Mumbai

A. Your son will have to pay capital gains tax . In case of property gifted, cost to the previous owner is the cost of acquisition to the assessee (your son). To save on tax, don't sell before three years or invest the capital gained to buy another residential property. If the sum is not fully invested, deposit the balance in a capital gain scheme account and use it to buy a new house within two years or construct a house within three years. You can also invest in specified assets (as per Section 54EC) up to Rs 50 lakh per annum.


INVESTING:

Q. Markets have moved up in India following the government announcement on reforms. Despite what will happen, would this be a good time to reevaluate my equity portfolio and take on a bit of risk? Which sectors would make good investments? -Harshad Patil, Ahmedabad

A. It is early and execution of the reforms will be key to market movement over the next several months. Further, the next earnings season would be a critical driver for market consolidation . Defensive sectors will continue to do well in the short term. Consumption sectors such as FMCG, pharma and sectors such as media and entertainment offer high downside protection. Markets should move up significantly in the next 12-18 months owing to improving fundamentals and a better macro-economic situation.

Q. I am 35 years old and earn about Rs 60,000 a month. I've been planning to quit and start a business of my own. I have both mutual funds and equity investments. I have to raise half of the funds required (the rest is being put in by an investor). Would it be better to sell my equity holdings (or funds) or dip into my savings and get a loan (if possible)? -Samira Saran, Lucknow

A. Self-sufficiency is a common trait among entrepreneurs. Of course, it is also difficult to get a loan for a startup. You already have half of the funds required from an investor. So, you can safely invest your funds in the venture. However, you should exit investments such that you increase yield (maximise returns and lower risk).

Exit investments with low returns compared with others, say dormant funds in savings accounts that earn only 4% per annum. The second option should be equity as this will reduce risk. Mutual funds should be the last. Maximise returns from your overall portfolio by doing so.

If you decide to go in alone, you need ask yourself some important questions, such as how long before you can pay yourself back from the venture? Will you be able to beat the returns from investments you're exiting to raise funds? What if you can't pay yourself back? What will be the impact on goals such as funding children's education or building a retirement corpus.

Q. I want to invest in infrastructure bonds to save on income tax for this financial year. Please suggest the best funds for the purpose. -Ramesh Manjunath, Chennai

A. In 2010-11, a deduction of Rs 20,000 was introduced to encourage investment in infrastructure bonds. This was an additional benefit excluding the Rs 1 lakh allowed under Section 80C, meaning total savings of up to Rs 1.2 lakh. It was structured such that it was to be applicable for just one financial year (2010-11). It was later extended for an extra year (2011-12). However, Budget 2012-13 has no mention of this option, meaning the tax benefit on investing in infrastructure bonds is no longer available.

Q. I have been granted NRI status and hope to emigrate to New Zealand by next year. I have investments in India, including mutual funds and stock holdings. Should I liquidate and start fresh investments abroad or would it be better to let them be and manage these from abroad? I also own a flat. I hope to sell that but it has been less than three years since I bought it. Should I retain it? -Pradip Bansal, e-mail

A. As an NRI, you can invest in India and stay invested in mutual fund and stocks. All you need to do is update your KYC status. Once you become an NRI, your residential status should be changed for all your existing investments. You cannot continue with your savings account and will need to open a NRO account and details of this will have to be updated for all investments. All these changes require you put in the effort just once.

Exiting from real estate investments before three years results in short-term capital gain. The income from such a transaction will be added to your total income and taxed as per the applicable slab. You will not benefit from indexation as it is applicable only if the property is sold after three years. So, it would advisable to keep the property for at least this period.


INSURANCE:

Q. My daughter has gotten used to homeopathic treatment after staying in Kerala. Now she wishes to go for naturopathy or homeopathy in Mumbai as well. Are these treatments covered under a normal health policy? Is porting to a firm that covers such treatments a good idea? -Sangeetha Cherian, Mumbai

A. Insurance companies have started including naturopathy, homeopathy and ayurveda treatments in their health insurance policies over the past few years. As your daughter wishes to continue such treatments, then it would be advisable to port your daughter's current health plan to an insurance policy under which claims for inpatient ayurveda, unani, sidha and homoeopathy treatments will be covered. Check the details of the new policy you choose to buy on the concerned insurer's website or seek advice from your insurance agent before making the final decision.

Q. My parents are covered under a family floater health policy. My father had an angioplasty in March 2011 and we were reimbursed the expense. Now, his doctor has advised us to go for an angiography after he complained of pain. Though the company paid for the angioplasty, they have denied the claim for the angiography saying it is a 'process of evaluation' and not 'treatment'. Is this a valid basis to repudiate the claim? Are there any health policies that cover these procedures as well? -Sunita Oberoi, Chandigarh

A. Angiography helps doctors in checking for blockages, enlargements or narrowing of blood vessels. As it is only an evaluation procedure and not treatment per se, all health policies may not cover it. Please check the policy document thoroughly to be sure. There are insurance providers that cover angiography as a 'day care' procedure, wherein customers can claim the cost incurred even without being admitted at the hospital.

Q. I already have a critical illness plan with a sum insured of Rs 5 lakh (the maximum that the insurer offers). However, I want to double the sum insured. Is it advisable to take a critical illness policy from two separate insurers or should I talk to my existing insurer? What should I look for before finalising such a policy? -Shravan Awasthy, Kanpur

A. A critical illness policy lets you claim a lump sum upon detection of critical illnesses insured against in the plan. It would be better to go for an indemnity health cover and top up it up with a critical illness cover. But, if you already have adequate health cover and want to enhance critical illness cover, ask your insurer if there is a way to increase the sum insured. If your insurer is unable to do so, you can purchase an additional critical illness plan. Ensure that common critical ailments are covered under the plan.


REAL ESTATE

Q. Which is better in the current market- a down payment or construction-linked payment? While one can get a discount of 13-15% on a down payment, construction-linked plans offer a lower monthly EMI. Which would be better in the long term? -Nikhil Yadav, Patna

A. Construction-linked plans ensure your exposure is in proportion to the development of the property. Irrespective of availing a one-time disbursed loan or a construction-linked plan, you will not be able to claim tax deduction on either until construction is completed.

The discount available on a down payment will rarely justify the risk of project delay. If paying EMI is a concern, most banks will start off your EMI on each disbursement with it being suitably adjusted after every disbursement. This will help you save on pre-EMI interest.


Anil Rego, Chief Executive Officer, Right Horizons has tackled financial planning issues; Harsh Roongta, CEO,Apnapaisa.com has responded to real estate financing queries; Antony Jacob, CEO, Apollo Munich Health Insurance, has advised on insurance; and Taxspanner.com has answered tax queries.

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