Resolving financial dilemmas

Money Today experts answer your personal finance queries, from tax to insurance to investments.
Team Money Today        Print Edition: January 2015
Resolving financial dilemmas

Money Today experts answer your personal finance queries, from tax to insurance to investments.

INVESTMENT

Investment
Investment
Q. We are a co-operative housing society and want to know if there is a better way to invest our maintenance and sinking fund money. Are we allowed to invest in mutual funds? What factors should we consider before investing in MFs? - KN Nagra, Mumbai

A. A co-operative housing society can invest in mutual funds, but remember that the purpose of a sinking fund is to take care of maintenance and repairs. Given the nature of the investment, it makes sense to invest in a debt fund with high liquidity and low risk. Look at a combination of fixed deposits, including some smaller but good quality banks and financial institutions.

INSURANCE

Q. I am 26 years old and earn Rs 45,000 per month. I have a medicalim policy provided by my company but both my parents, who are senior citizens, do not have any cover. What kind of cover would suit them? Should I buy a family floater policy or individual covers? Since my company has given me an insurance policy, do I need to buy health insurance for myself too? - Praveen Sahni, Gurgaon

A. It is a good move to add health insurance to your financial portfolio right from the start. You must start with buying a senior citizen health insurance coverage for your parents as it will be crucial in mitigating healthcare costs as they get older. There are some insurance companies that offer special plans for senior citizens. If your parents are healthy and do not have any conditions that need special care/treatment, you may choose a floater policy for them. If there are some health concerns, you should buy separate plans for them depending on their individual health needs. You should also carefully review and understand the benefits, waiting periods, exclusions and features of the plan you choose to buy. Please remember to disclose all medical conditions while filling up the proposal form. This will help you have a hassle free experience at the time of claims.

Also, remember that employer-provided insurance policy is not enough to hedge one adequately against the rising cost of healthcare services. Owning a personal health insurance policy is a must. We would advise you to purchase a super top-up plan for yourself, apart from the employee-provided coverage. A super top-up policy will allow you to enhance your coverage as per your need at a lower cost. A personal health insurance policy also comes in handy in times of job change, sabbatical or at the time of retirement.

Insurance
Insurance
Q. How should one decide whether one needs a family floater policy or individual policies? My family includes me, my spouse (both 43) and two children, who are 15 years old. Is it true that claims settlement is faster in the case of individual policies? I have been thinking of buying a family floater policy of Rs 4 lakh for my family. Will that be enough? Also, how important is it to buy a critical illness cover? - Manoj Shyam, e-mail

A. A family floater plan is a good choice if you are looking at purchasing a cover for yourself, your spouse and children. A cover of Rs 4 lakh is however, not adequate for a family of four. If you reside in a metro, you should ideally consider buying a cover of Rs 7.5 lakh as the healthcare services are getting more expensive by the day. The time taken for claims settlement is not subject to whether a policy is family floater or an individual policy. While buying a health cover, you must review and understand all the features, benefits and exclusions carefully to avoid any rejections at the time of claim. It is advisable to be transparent with your insurer and disclose all material facts while filling the proposal form to have a hassle-free claims experience. A critical illness cover provides a lump sum benefit in case of the occurrence of certain pre-decided ailments. This sum can be claimed after a major health episode to maintain one's lifestyle. A critical illness cover is one of the most beneficial add-on covers available today. However, one must have a base plan that hedges against the financial risk arising out of medical expenses.

Q. My wife's name has been spelt wrongly her insurance policy which she took a few years ago. What will be the implications if the change is not corrected? How can I get it rectified? - Badrinarayan Shah, Pune

A. An incorrect name of the policyholder in the insurance policy documents could pose obstacles in claims settlement procedures. If it is not corrected in the records, the wrong name will be printed in all claim benefits issued by your insurer. You should bring this error to the notice of your insurer as soon as possible, and have it amended. An application, along with a valid photo ID, will be sufficient to get the name corrected.

LOANS

Loan
Loan
Q. I took an education loan of Rs 16 lakh from a bank for my daughter's studies in the US. The bank didn't give me any sanction letters even after I paid the full amount to the university. They have also taken my flat's share certificate and LIC policies for security. I have started paying back the amount in instalments. When will I get back my security papers? - Shriram Shukla, Delhi

A. Ideally, a bank releases the mortgaged properties or the assets only after the repayment of the entire loan. However, if you need the papers, you can talk to the bank authorities and see whether they are willing to partially release the security based on the partial repayments of the loan.

TAXATION

Q. I own two houses in Kolkata and both have been financed through loans. I stay in one house whereas the second one is lying vacant and I don't plan to rent it out in future. What is the tax benefit I can avail of as both the houses have been financed through loans and the interest is over Rs 2 lakh per house per annum? - MK Venu, Cochin

A. You can claim deduction for both the houses if you have received their possession. As per tax laws, one house is treated as self-occupied and the interest deduction is limited to Rs 2 lakh per year. However, if the other house is either rented or vacant (deemed rent would be taxable) you can claim unlimited interest deduction. Similarly, deduction under section 80C for principal repayment up to Rs 2 lakh is allowed in total. If the property is kept vacant for more than 60 days during a financial year wealth tax is payable at the rate of 1% of house value after deducting outstanding loans against it. Hence, keeping the house vacant leads to rental loss and it is not tax efficient too because one pays tax on deemed rent as well as wealth tax.

Q. I was given a flat by my father which was valued at Rs 2.9 lakh, through a gift deed. I have now sold it for Rs 15 lakh. Will there be any tax implication on the sale? If I use the proceeds to buy another flat, will I be eligible for tax exemption? - Vijay Shinde, Nashik

Taxation
Taxation
A. Yes. When you sell the house, you will have to pay 20% tax on the capital gain amount if the property has been held for more than three years. You can save the long-term capital gain tax by investing in another flat within two years or constructing a new house within three years. In case the house is sold within three years of acquisition, it would be deemed as short-term capital gain and the tax will be payable as per your applicable tax slab. You will not be able to save tax on short-term capital gain by investing in the new house.

Q. Is the interest earned on bank FD worth Rs 90,000 per annum tax-free or is it taxable for an unemployed housewife? I've been told that income, including bank interest, is tax-free up to Rs 1.8 lakh per annum for this category? - Poorva Raman, Patna

A. Interest on bank fixed deposit is fully taxable. However, the basic exemption from taxable income is available to all individuals who earn up to Rs 2.5 lakh for the current financial year. Assuming you do not have any other income the bank interest of Rs 90,000 you would not have any tax liability. If you are above 60 years of age than exemption is Rs 3 lakh and if you are above 80 years, this limit goes up to Rs 5 lakh.

Q. If my mother gives a gift of Rs 1 lakh to my daughter-in-law, will gift tax be applicable? My understanding is that it will be exempt as it is covered under the definition of relative: any lineal ascendant or descendant of the spouse of the individual? - Mohd Zulfikar Alam, Ahmedabad

A. Your understanding is correct. The gift will be exempt as it is covered under the definition of 'relative'-any lineal ascendant or descendant of the spouse of the individual. The sum of money is not eligible to tax if it is received from any relative; or on the occasion of the marriage of the individual; or under a will or by way of inheritance; or in contemplation of death of the payer. The expression "relative" has been defined as: spouse of the individual, brother or sister of the individual, brother or sister of the spouse of the individual, brother or sister of either of the parents of the individual, any lineal ascendant or descendant of the individual or his spouse, and spouses of these persons.


DO YOU HAVE QUERIES ON TAX, INSURANCE, INVESTMENTS?
Anil Rego, CEO, Right Horizons, has tackled financial planning; Antony Jacob, CEO, Apollo Munich Health Insurance has answered insurance queries; Mohan Jayaraman, MD, Experian Credit Information Company takes on loan-related queries & Sudhir Kaushik, Co-founder and CFO, Taxspanner.com, has provided tax solutions. Log on to moneytoday.in to submit your questions.

 

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