Query Corner

     Print Edition: June 2011

Investing

My father just retired at age 58. He is going to draw Rs 50,000 as pension per month hereon and is likely to pick up a job that could pay him another Rs 50,000 per month. He has also received about Rs 50 lakh on retirement. I would like to know how should he go about investing this corpus to be financially secure? Hrishikesh Trivedi, e-mail
Equities should be in moderate measure. Consider investing in balanced funds. You can also invest in MIPs, which will provide 15-25% exposure to equities. You may also try low-risk equity avenues, such as FT India Dynamic PE FoFs.

The other fund one can look at is the Axis Triple Advantage fund, which invests in equities, gold and bonds in equal proportion. Considering that he is likely to continue working, one can avoid bank fixed deposits and invest in higher yielding bonds, which will protect him in case interest rates fall.

I invested Rs 20,000 in GOI bonds (cumulative). My annual interest did not exceed Rs 5,000. But they have deducted Rs 2,400 as TDS on maturity. Is it right? -Senthil, Pondicherry
Since it is on a cumulative basis, the interest you earned over the past 6 years (depending on the lock-in) would have crossed the taxable limit, hence the TDS. If you have got the TDS certificate, it will clearly mention the interest earned, TDS rate and the amount of TDS deducted.

I have Rs 8 lakh in cash. I am planning to purchase a car worth Rs 10 lakh and have an outstanding home loan of Rs 23.5 lakh. I am paying Rs 26,000 per month as EMI. I can afford to pay Rs 50,000 as EMI for the home and car loan together. I want to complete both loans within 4-5 years. The rate of interest for the car loan is 9% and for the home loan, it's 10%. Please suggest how much I should pay as down payment for the car and as part payment of the home loan. What should be the EMI for both loans? -Prashant Singh, New Delhi
If you are planning to avail a car loan from external sources (banks, financial institutions), there is no tax benefit. However, if you were to avail of a company car lease, the EMIs paid will be treated as perquisites, thereby providing tax benefit.

On your home loan, after considering the tax benefit, your interest cost will be much lower. Further, we suggest you evaluate the feasibility of increasing the EMI close to two times from current levels if your long-term goals remain unaffected with the increase. For the home loan, if you are planning pre-closure (in part), ensure that there is no preclosure penalty. From the balance you can make a down payment towards the car, thereby reducing the monthly outflow.

I started working 11 months ago and have an income of Rs 30,000 per month. I spend Rs 11,000 on loan repayment and Rs 10,000 on miscellaneous expenses. I wish to invest the rest (about Rs 9,000). I also have a need for Rs 3-4 lakh cash after 3 years and also plan on invest for the long term. What should I do? -Asit John Kerketta, Vishakapatanam
At first glance, we would like to comment on your current EMI liability-about 37% of your income. Try to contain it within 30% of net earnings. You can plan your corpus by means of investments in mutual funds. Initiate SIPs into three funds with varied risk-return profile. On a 12% return scenario you can build a corpus of about Rs 3.45 lakh and on 15% returns you will end up with Rs 3.6 lakh. If you were to increase your SIP installment in the subsequent years by a modest 10%, you will be able to meet the Rs 4 lakh target. Since the investible surplus at this point is lower, we suggest you start off with investments in equity funds.

Taxation

On valuation of perquisites, Clause 7 (viii) of the Income Tax Act, provides for depreciation to be calculated at 10% per annum for each completed year. In case the asset is used for only part of the year (11 months or less) is the depreciation to be calculated as zero or pro rata (11/12*10)? -Tony Rai, Darjeeling
In case of valuation of perquisites for transfer of moveable assets to employee, depreciation is calculated at 10% pa for each completed year. In case, the asset is used for only part of the year, wear and tear shall not be considered and no depreciation will be computed on pro-rata basis. However, the perquisite value will be added for 11 months for use of asset by employee on pro-rata basis.

I had changed my job during 2010-11. I had to pay my gross salary for 30 days, for the short notice served, to my previous employer. Can I exclude the payment made for calculating my net taxable income? -Sapan Kapoor, Pune
No, the employee cannot get rebate for notice payment while calculating net taxable income. So the gross salary for 30 days paid to your previous employer for short notice served is taxable.

I have some shares in a demat account where I am the first holder and my wife is the second holder. I also have an account where my wife is the first holder and I am the second holder. I want to transfer some shares from the former account to the later. Will I attract any capital gain tax? -Dipak B, Pune
You will not attract any capital gains tax if no money has been paid for the transfer, i.e., the transfer will be considered as a gift from your spouse, which is tax-free. Since this transfer is between spouses, first name or second name in the demat account is not considered for computing capital gains tax. It will be taxable for the individual who purchased the shares that are now being transferred.

Taxspanner.com will answer queries on tax; Anil Rego, CEO, Right Horizons, will tackle financial planning issues and Antony Jacob, CEO, Apollo Munich, will deal with health insurance. Log on to www.businesstoday.intoday.in to submit questions.

Renu Karnad, HDFC Managing Director
Home Loan

I am scouting to purchase property in the next few months. Do you think that it is better for me to wait for the start of the festival season, say around September, when banks and housing finance companies offer better rates on loans? -Amba Mukherjee, e-mail
People often focus on home loan rates to decide on buying property. But, it's better to consider property prices rather than interest rates, the reason being that change in property prices does not impact, or at best has minimal impact, on the customer once land is bought (assuming it was bought for personal use). Considering that housing loans are for 15-20 years, there will be interest rate cycles a borrower will have to see through. Since most customers opt for floating-rate loans, they can take advantage of lower interest rates in between. So even if rates are high today it still makes sense for customers to buy a house if the price of property is right. Having said that, one must explore all options to get the best deal. It includes not only loans, but also assistance on project details and documents, post-disbursement services and so on.

I am planning to buy an apartment in Abu Dhabi. I am an Indian citizen and I stay and work in Mumbai. Will I be able to get a loan for the purchase of a property abroad? If so, what are the criteria I need to meet before getting such a loan? -Anshu Thomas, Mumbai
Yes, Indian banks with a license to fund in the UAE can provide the housing loan. However, the person should have a resident visa for UAE or Abu Dhabi and his income also should be able to support the loan amount.

Renu Karnad is the Managing Director of Housing Development Finance Corporation. She will answer queries on home loans.

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