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     Print Edition: April 2012

Money Today experts answer your financial queries -

INVESTING


Q: I have received an offer to move to Australia. I had started investing Rs 3,000 as SIPs (Rs 15,000 in five funds) in a few funds a few years ago. Should I change the way I invest because i'm moving? Should I drop tax-saving funds and concentrate on equity? -Aarthi Patel, Pune
A: Your residential status will undergo a change over the next couple of years (there are parameters that tag you as an NRI)) and not the minute you move out of country. There will also arise the option of being a 'not ordinarily resident'. You can change the residential status for your mutual funds where there will be a tax implication only on repatriation of funds. Considering that you do not have any income in India, you may shift focus to diversified equity funds and stop your investments into tax saving funds.

Q: I am new to mutual fund investments. I want to have a corpus of Rs 2 crore when I am 65. I am 25 now. How much should I invest through monthly SIPs to achieve this goal? I have savings of Rs 20 lakh currently. -Roy Varghese, Kochi
A: With 40 years in hand, you can easily achieve the corpus of Rs 2 crore, with as small as Rs 3,000 invested every month, assuming a return of 10% and without even considering the Rs 20 lakh. However, there is the real possibility that Rs 2 crore may not be sufficient.

Assess the monthly expense pattern as of today and increase or decrease itemised expenses (kids tuition fee is not a permanent expense while medical expenses would be higher). Now, factor inflation (an average of 6.5% pa for a developing economy), and ascertain corpus requirement based on various returns, ideally a realistic 10%-12% pa.

Also consider the responsibilities in the coming years that you may have to plan for right now and arrive at a corpus. You can initiate investment in mutual funds (equity) via systematic investment and you can look at relatively low-risk funds. It is also good to build a holistic portfolio with the right mix of debt and equity, which will help optimisation of returns at risk-adjusted levels. Tax efficiency must also be kept in mind.

Q: I have invested Rs 15 lakh in the senior citizen savings scheme with my spouse as the nominee. Can she also invest Rs 15 lakh in her own name after she turns 60? Is this the best investment she can make at that age? -Deepak Chauhan, New Delhi
A: Yes, she too can make a similar investment in her own name and it would be a prudent investment considering the age-risk profile of the investor. You may consider more liquid investments as well, such as debt mutual funds, flexi-term deposits, fixed maturity plans, bonds etc., which will offer better liquidity in times of need. Some of these would be tax efficient as well.

TAXATION

Q: I bought a house in September 2011, completed registration in October 2011, but moved in January 2012. I stayed in a rented house from April to December 2011, but EMI on the housing loan started in September. Can I show both (rent and EMI) as exemption?
-Mohit Agarwal, Noida
A: As a salaried employee, you can claim benefit on rent paid by claiming HRA. EMI payments consist of two components: interest and principal repayment. The exemption for the former shall be claimed by way of deduction under income from house property. The deduction on the latter is claimed in the manner of other deductions on investments, such as PPF, under 80C. Inform your employer of these to calculate TDS and generate Form 16.

If you're not a salaried person, only either of the two can be claimed.

Q: I had quit my previous job on 30 November 2010 and joined my new company on the next day. However, I had to pay Rs 1,00,000 to my employers because I did not serve out the full notice period as per my contract requirement. My new employers asked me to pay the amount from my own resources which they said would be reimbursed to me. I followed the instructions and subsequently my present company paid me a cheque of Rs 1,00,000 as reimbursement. However, for the assessment year 2010-11, the amount that came to me as reimbursement has been added as my income for the year and made taxable. Since I did not get any additional money and this was only a reimbursement for what I paid to my previous employer from my own pocket, I would like to know whether I am liable to pay tax on the amount or should I seek refund?-Ajoy Dasgupta, e-mail
A: Yes, you are liable to pay tax on the said amount. Though the amount of Rs 1 lakh has been paid out of your own resources, any amount received from the employer would be taxable as the payment received by you relates to your employment contract. Likewise, any amount you receive from the employer shall be taxable in your hands.

Q: I want to invest Rs 5,000 every month in a bank recurring deposit for seven years. Should the interest earned on it be shown in an annual IT return every year or can I show the entire interest after seven years? If I invest the above amount in my minor childs name, who will become an adult after 7 years, can the entire interest earned go to my childs account as she will be a major by then? -Vijay Mohan Reddy, Hyderabad
A: Interest earned on a recurring deposit is taxable on accrual basis i.e. every assessee is required to quote the amount of interest earned annually in their IT Returns. When investing in the name of your minor child, taxes need to be paid on the bank interest earned every month. This income may be clubbed with the parent's income according to the clubbing provisions. There's a benefit here-if your child's income is clubbed with yours, you can claim an annual exemption of Rs 1,500. This provision is available for up to two children.

INSURANCE

Q: I have a family health policy with National Insurance. My wife and I are insured for Rs 1 lakh each and my daughter for Rs 50,000. I am availing a bonus of 25% as of now. I would like to convert this policy in August 2012, when it becomes due for renewal, to a family floater for Rs 1 lakh. Can the policy be converted and will the bonus continue? Is this a good move? If I can't convert, what is the next best thing to do? -Sachin Gavde, Mumbai
A: While porting your policy to another insurance company, you will have to check on the incumbent insurance company's policy of bonus carry-forward, as their underwriting principles would prevail in this situation. However, moving from a combined total of Rs 2.5 lakh coverage to a Rs 1 lakh cover is not recommended. Instead, you may want to consider a family floater policy of at leastRs 3 lakh to ensure adequate coverage for yourself, your spouse and child.

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