Query Corner

     Print Edition: January 2013

Money Today experts answer your financial queries -

INVESTING

Q. I want to invest in tax-saving instruments as the financial year will come to a close soon. Could you suggest a few investment options. I am 33 years old and I invest between Rs 30,000 and Rs 40,000 in PPF every year and an additional Rs 30,000 in EPF. - Raghu Byati, e-mail

A. You can save up to Rs 1 lakh under Section 80C of the Income Tax Act. EPF is one option or, if you have children, tuition fee is deductible. A combination of avenues is preferable. You're already investing in PPF, which is a top debt option. If you're low on life insurance, take out a policy now. You can also choose an ELSS fund, but this carries slightly more risk. It would be best to opt for a Systematic Investment Plan. National Pension System (NPS) investments also come under 80C. This is a good option for retirement investments.

Q. I have been investing in LIC Bima Gold, a money back policy, for the past 4 years. I will receive my first installment of payment in April next year. Should I close my policy after that as I found out that the 5-6% annual return that LIC pays does not even cover the yearly inflation? -Ravi Joshi, New Delhi

A. This is a traditional plan that offers life cover. It also offers a tax benefit as the premium can be claimed for tax deduction under Section 80C of the I-T Act and the maturity benefit is tax free. If we compare it with a bank fixed deposit, the post-tax yield will come to the same if you are in a relatively high tax bracket. This is not considering that the fixed deposit does not offer life cover. Giving up the policy depends on your risk profile as this is a low-risk investment. If you are an aggressive investor, we do not recommend this option. Currently, you could keep the scheme as a part of your debt portfolio. Also, foreclosure of the policy may result in high charges.

Q. A foreign bank is offering me a co-branded credit card. Should I accept it? What are the benefits of a co-branded card over a normal one? -Subhasis Mukherjee, Mumbai

A. Co-branded cards is a new concept in India. It is a partnership between an issuer of a card, usually a bank, and a retail service provider or a goods provider. It comes down to the cost associated with each type of card. Co-branded cards offer extra benefits in association with the 'co-brand'. The offers are usually for travel, entertainment and lifestyle products and services. If you frequently use your credit card to pay for such services and could benefit from the offers associated with it, you can opt to keep the co-branded card. But, we insist you do a cost-benefit analysis before you decide. Ensure that the co-branded card is being offered without any extra costs.


INSURANCE

Q. I have had a family floater plan for the past six years, which also covers my father. He was hospitalised last month and the insurer is refusing to pay as there was a policy lapse two years ago. According to the company, my health policy was treated as a new one from then and since my father's hospitalisation was due to a preexisting condition, it is not eligible for a claim. Is this true? -Adil A Khan, e-mail

A. The insurance company can cancel your old policy and issue a fresh plan if there was a policy lapse, but only on your request (issue a new policy). If this was done, then all conditions that are applicable would be as per the new policy. Your accumulated benefits, such as coverage for a pre-existing condition, on your old policy would cease and a new waiting period would be applicable.

However, since you say that you have had the family floater plan for the past six years, it is not clear if there was a policy lapse. Make sure to identify what lapse your insurer is referring to and see if there is something that can be done. You can also seek advice from your insurance advisor.

Q. I underwent a kidney transplant in February 2012 and the expenses were covered by the mediclaim policy offered by my company. Now, I'm planning to take a separate health policy. Do you suggest an indemnity plan or will a critical illness plan be sufficient? -Sandeep Gaurav, Mumbai

A. An indemnity plan provides coverage for hospitalisation, while a critical illness policy covers expenses for treatment of a specific list of illnesses included in the policy. A critical illness rider is not a substitute for an indemnity plan. Given your recent medical history, consider an indemnity plan with a critical illness rider.

Q. Is the tax benefit of Rs 20,000 for paying premium of a health plan for my parents available for my in-laws as well? -Guruprasad Narayanan, Chennai

A. Under Section 80D of the Income Tax Act, the premium paid for a health insurance policy can be deducted from total earnings for the year. The amount of deduction available for self, spouse and dependent children is up to Rs 15,000 and a further deduction of Rs 20,000 for premium paid for one's parents. However, it does not extend to a health plan for the in-laws.

Q. I plan to buy a second-hand car. I want to know the process to buy a car insurance for pre-owned cars. Also, will the premiums be higher? -Rahul Das, Kolkata

A. There are two options by which you can obtain insurance for your car.

The first option is if the insurance is being sold by the current owner along with the car to the buyer. In that case, the plan will have to be transferred to your name. All you have to do is inform the insurance company and ensure that the policy is transferred as per relevant terms and conditions of the insurer.

The second option is if you have to buy a new insurance policy for the car. The insurer will then conduct an inspection, as is the norm, of the vehicle. The premium is decided on the value, model and age of the car and not on basis of how many times it has been sold.

Q. I have just moved into a rented apartment in Bengaluru. Is it possible for me to take householder's policy? -Raviprasad Rao, Bengaluru

A. You can buy a householder's policy, which will insure the contents of the apartment against risks such as fire and burglary. Though the apartment does not belong to you, its contents (should be) is owned by you and you are allowed to mitigate the risk of damage to or loss of the same.

Q. Which policy can I consider to protect my godown against fire? What are the other risks I should keep in mind? - Deepak Ranjan, Bhubaneswar
A. To mitigate the risk of loss due to fire, flooding, riot, etc., a standard fire and special perils policy should be adequate. Loss due to an earthquake can be covered as an add-on cover.

Always consider a 'package policy', which offers different covers in a single policy at a comparatively discounted price. The various risks covered are fire and allied perils, earthquake, terrorism, burglary, (loss of) money in safe and during transit, business interruption, financial loss due to employee dishonesty, public liability (third-party liability) and so on. Know the risks that are relevant to your business and opt for a cover accordingly. This will ensure you get value for money.

Compare all policies available in the market and choose a plan from a trusted brand, which has a record of financial stability.


REAL ESTATE

Q. I want a loan to buy a plot in Bengaluru. The plot is part of a housing colony and will be constructed in three years by a developer. I have no debts as of now. What other details are required for speedy verification and processing of my loan? -Rupert D'Sa, Bengaluru

A. AA lender will ask for details as per KYC (Know Your Customer) norms. This includes proof of identity, proof of residence and so on. In addition, the lender will want to know income details (salary slip, Form 16, bank statements). Bank statements are very important as it gives information on business activities (self-employed), spending habits, existing liabilities and type of investments. The lender will also check your credit history and get a credit report on you from a credit information company such as CIBIL.

Q. I have worked for two firms till August 2012 (over 35 years). I retired in September 2012 but have now been offered a senior position in a private firm. I will start in October 2012. I have put in the papers to withdraw my EPF. How is this sum going to be taxed? -Gaurav Arora, Mumbai

A. The withdrawal from the employees' provident fund (EPF) account is tax free for you as you have completed over five years of employment. However, you should inform the new company about your existing EPF account and continue using the account for tax deduction and for receiving your new employer's contribution to the EPF as part of your CTC. Both you and your company are obliged to continue EPF deduction if the firm has crossed the minimum number of employees required for provident fund registration.


TAXATION

Q. I filed my taxes online but am yet to get confirmation (of receipt of printed copy of acknowledgement). How do I verify if they've received it? What should I do if I have to revise my returns? -Kabir Dikshit, New Delhi

A. You can verify the status of ITR-V at incometaxindia. gov.in. You can send the acknowledgment form a second time or any number of times until it is accepted. You can file a revised return if it was originally filed before due date. The date and acknowledgement number of the original return should be given in the revised return. For more details: taxspanner.com/producttours/revised-return-filing/.

Q. I was recently transferred. I paid for the movers as my company promised to reimburse this amount on producing the bills. However, they're taxing this amount. Aren't such cash reimbursements non-taxable? -Preetha Surendran, Mysore

A. Section 10 (14) of the Income Tax Act grants exemption for any sum paid in connection with a transfer to meet the cost of travel, including 'packing personal effects'. This means it is non-taxable and you should be reimbursed the full amount.


DO YOU HAVE QUERIES ON TAX, INSURANCE, INVESTMENTS?
Anil Rego, CEO, Right Horizons has tackled financial planning; Harsh Roongta, CEO, Apnapaisa.com has responded to real estate financing queries; Antony Jacob, CEO, Apollo Munich Health Insurance, and Neelesh Garg, Executive Director, ICICI Lombard, has answered insurance queries; and Taxspanner.com has provided tax solutions.

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