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Print Edition: September 2012

Money Today experts answer personal finance queries -

INSURANCE

Q. I currently live in New Delhi and will soon be shifting to Bengaluru. I plan to take my car with me as it's relatively new and will get it registered there. Do I have to inform my insurance company that I am moving? My policy will expire in 10 months. -Harita Ahmed, New Delhi
A. As motor insurance is a pan-India cover, you need not inform your insurance company on the change in your residence. Your Insurance policy will cover you anywhere in India and will also cover your car in transit from one city to another whether you plan to drive it over or transport it any other way. However, it is recommended that you update your new communication address and the name and address of the RTA where you plan to register your vehicle so that the insurance company can update its records.

Q. I am studying to be a dentist and will finish the course soon. One of our lecturers mentioned that professional negligence policies can protect me in case I make a mistake. Are such policies available in India? What determines the premium? -Yashwant Krishna, Hyderabad

A. Yes, insurance to protect you in case of a professional error is available in India. The cover is generally known as professional indemnity insurance for medical professionals. Such covers can be purchased from most insurance companies just like any other cover. You will have to fill a proposal form, choose the amount for which you wish to be insured and a premium will have to be paid. The premium would depend on the details disclosed in the proposal form, including the amount of indemnity chosen by you.

Q. I live in a housing society and the housing association already has an insurance policy for the society. Should I still need to opt for home insurance? -Joseph Jonathan, Kochi
A. The group insurance cover takes care of the overall structure and common amenities in the society. A loss that occurs in a house due to fire, including damaged or destroyed contents or interior structure, is not covered under the society insurance. Also, most home owners renovate their houses, which results in changes to the floors, ceiling etc.

These changes are also not covered under the society insurance. It is therefore advisable to protect your investment with an individual home insurance policy. It is a comprehensive policy and offers various covers such as burglary and theft cover, world wide cover for jewellry and valuables, cover for breakdown of appliances, loss of rent cover, etc.

Q. I had bought an unfurnished old house in Noida three years ago and insured it as well. Recently, I spent Rs 10 lakh on renovations. Is it possible to increase the sum insured accordingly? How would I do this? -Sujata Arora, e-mail
A. While buying a policy, the covers required and the type of cover selected by the customer is mentioned in the policy schedule. During the policy period if the customer makes any renovation or adds to the existing items in the house, he can contact the insurance company to include it in the existing policy. If a renovation is to the tune of Rs 10 lakh, then the insurance company will ask for the broad listing of the items added with their values, the basis on which the premium will be amended and the new items included.

If you have bought electronic goods, such as a television, then you can inform the insurance company about it with the value of the item, based on which the insurer will calculate the additional premium payable for the balance period of the policy. In case the item added is a valuable, such as jewellry, the customer would have to submit a copy of the bill to the insurance company.


TAXATION

Q. For tax deduction A on mediclaim premium, if the assessee himself is a senior citizen and he has a parent who is a super senior citizen, what will be the deduction limits under Section 80D? Also, what is the tax on the maturity redemption on my UTI Ulip scheme? -Sunil Dixit, Jabalpur
A. If the assessee is a senior citizen and has paid the premium on a mediclaim policy for himself, then a deduction of Rs 20,000 will be available to him. And, in case the assessee has also paid the mediclaim premium for his parents, who are super-senior citizen, an additional deduction of Rs 20,000 will be available to him. Thus, the total deduction that would be available to you is Rs 40,000.

Second, the total amount received on the maturity of a UIip is exempt from tax as per Section 10(10D).

Q. I have an endowment policy and a pension plan (from 2005), which I want to surrender. Are the returns taxable? Also, my interest from FD is Rs 16,000 and TDS of 10% was deducted by the bank. Now, while filing returns, I have to pay the balance tax with penalty. How do I avoid penalty in future? -Mahanti Venkatarao, Rajahmundry
A. The return from the endowment policy is tax free as you are surrendering it after five years. The return on the pension plan is taxable.

In case your tax liability after deduction of TDS comes to Rs 10,000, then you are required to pay advance tax on the prescribed dates as mentioned in the IT Act. So paying installments of the advance tax is the only way to avoid penalty.

Q. I have a commercial property (single ownership) to be given on rent. What are the various taxes on the rental income and how much would I have to pay? Will it be deducted at source if I rent it out as office space? I am 70 years old and so is there any deduction available for senior citizens? -CS Sharma, Bengaluru
A. The rental income is taxable as per your tax slabs after 30% deduction for repairs and maintenance from the rental sum. TDS is required to be deducted only if the amount of rent paid or credited during the concerned year exceeds Rs 1.8 lakh (assessment year 2012-13). This is irrespective of whether it is taxable under business income or under income from house property.

There is no specific deduction available to senior citizens with regard to rental income. However, a higher exemption limit of Rs 2.5 lakh (assessment year 2012-2013) out of net taxable income is allowed for senior citizens.


INVESTING

Q. I have two flats in Bengaluru, with home loans being taken for the purchase of both. The loans are being repaid. Values of both flats have appreciated after over three years of occupation. If I sell one of the flats, I'll be able to settle the outstanding loan for both apartments. But I would be subjected to long-term capital gains tax. Would settling the loan as prepayment be accepted for saving capital gains tax? What would be the best thing to do, should I keep the properties and use rental value from one to pay part, albeit only a small part, of the loan EMIs? -Savera Singh, Bengaluru
A. You cannot save on long-term capital gains tax through repayment of the loan. You can invest in capital bonds or purchase property if you wish to save tax. But, repayment can save interest and make you debt free.

Also consider how the value of the property will appreciate. If you expect high appreciation, you can let it out and use the rent to pay a part of the EMIs. You will also get a tax benefit on the interest paid. If on the other hand, you are certain that the price of the property is not going to appreciate by a significant amount, you can consider selling the property and closing your loan.

I would go one step further and suggest you also start an SIP into a combination of mid-cap and large-cap funds so that you diversify and build up a combination of assets.

Q. I invest heavily in stocks and 40% my portfolio is invested in real estate and capital goods sectors (Crompton Greaves, Larson & Toubro, BHEL, DLF and Oberoi Realty). For the past three years, I have suffered huge losses on these investments. Recently, I have read that experts believe these two sectors would make a comeback. Should I hold these stocks for another couple of years or should I move my money to other sectors? Which sectors and stocks would be the most suitable for long-term holding? -Deepak KM, New Delhi
A. The sectors that you have invested in have faced macro-economic opposition and the situation could persist over the medium term (one to two years).

Though the stocks that you have invested in are of good quality, any immediate expectation on these scrips is limited and this is particularly true for real estate stocks such as Oberoi and DLF. It would be better to divest from names such as DLF and Oberoi during a market uptick as it would lower the losses that you might have sustained, even marginally.

Currently, it would be better to invest in large caps (Nifty names) such as ICICI Bank, since there are positive expectations from such stocks. This would be a balanced approach.

In case markets get the momentum, your capital goods stocks will do well and if markets continue to be weak, large cap stocks such as ICICI Bank are likely to hold and not correct sharply.

Q. Should I invest in commodities now? I have a healthy risk appetite as I am still young and have an income that allows high savings. I already have a little debt, equity and own an apartment. Also, what would be the best way to invest in commodities right now? -Mahesh Raghuram, e-mail
A. Of course, commodities can be considered for investment. However, since it appears you have not invested in the past in this avenue (and may not have any particular expertise in the area), it is better to track and gain some knowledge before actually taking the plunge. Most equity brokers allow commodity investing as well.

Q. I am 36 and I want to start saving for my retirement. At present, other than the EPF (current value about Rs 7 lakh), I do not have any other retirement savings. Should I go for life insurance pension plans? Is NPS (new pension scheme) also a good option? -KB Mohanty, e-mail
A. We would prefer NPS to a pension plan. However, it is still better to invest in a combination of instruments, particularly keeping in mind that both these options are taxable. Since you have invested some amount into EPF, which is a low-risk option, you can start SIPs into equity mutual funds.


Anil Rego, Chief Executive Officer, Right Horizons has tackled financial planning issues; Gaurav D Garg, MD & CEO, Tata AIG General Insurance, has advised on insurance; and Taxspanner.com has answered tax queries.

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