(This is a collection of Q&A from news articles. Collector of these Questions and Answers are not responsible for any consequences)
1. My wife and I have separate PANs and file income tax returns separately. My wife has no income per se but taking a PAN and filing ITR were done to facilitate domestic use as I was an NRI then. Now, I have returned to India and am paying taxes/ filing ITR of my own. Is it feasible to discontinue with my wifes ITR in this context?
A. An individual is not required to file an ITR if he/she does not have any taxable income in a particular assessment year or if income does not exceed the maximum amount which is not chargeable to tax. However, it is advisable to verify the 26AS of that assessment year in order to ascertain if any amount is credited by way of TDS (for NRIs, TDS will be deducted by the bank even for SB interest unless the bank is informed of the change in the status of residency) and accordingly file the ITR even if the basic exemption limit is not exceeded in order to claim refund and also to avoid any notices from the department due to mismatch between TDS records and non-filing of ITR.
2. I'm a senior citizen aged 64. I own a flat that I had purchased in 1989. Now, I want to sell the flat and buy a new one. In view of my age, I wish to buy the flat in the name of my daughter. Can I save capital gains tax by investing the sale proceeds in purchasing the new flat in my daughters name?
A. Under Section 54 of the Income Tax Act, an assessee can avail the benefit of capital gains on selling one residential property and using the proceeds to purchase another residential property in India. Thus, the new residential property must be registered in your name in order to avail the exemption. This view can be deduced from a plain reading of the legislature. However, contrary views have been adopted by certain appellate forums of the department and High Courts wherein exemptions were extended to the spouse of the assessee, considering the section to be beneficial in nature and must be viewed in such manner. Although such a stand has not been established in a father and child relationship, you may consult your auditor in this matter to seek further guidance before the sale is done.
3. I satisfy the conditions for making payment of self-assessment tax and for the past three assessment years, I have been making payment in one lump sum before filing the return. I would like to know whether it can be paid in instalments (may be one or two payments in a month) before filing the return?
I would also like to mention that I paid one instalment on April 5, 2020 for AY 20-21.
A. Yes, self-assessment tax can be paid in instalments; it is advisable to file the return after payment of all the self-assessment instalments. It is worthy to note that the payment of self-assessment tax can be made only after April 1 of the concerned assessment year; (i.e., for the Assessment Year 20-21, Self-assessment tax can be paid only from April 1, 2020).
Further, you also have the option of paying income tax in instalments for a particular assessment year based on an estimation of tax liability by way of advance tax. Though there are provisions in the Act requiring only certain assessees to pay advance tax in instalments, you may still pay advance tax in your name for a particular assessment year depending on your fund flows and availability. At the time of payment of advance tax, you have to be careful in choosing the correct assessment year.
4. Are there any good options available for investing at least Rs.2 lakh annually for the next few years to maximise my wealth?
A. If you are risk averse and are looking at an investment horizon of less than 5 years, then you can consider bank deposits and post office deposits. If you have a longer time frame for building wealth, then you can complement this with some exposure to equity index funds such as the Nifty or Nifty Next 50 through SIPs. You can also invest in an international fund (available domestically) that invests in U.S. indices such as the Nasdaq 100 or the S&P 500.
This way, you will get some global exposure with Indian rupees. Depending on your risk, these equity funds can be 30%-60% of your total portfolio. Lower the equity exposure if you cannot handle market ups and downs.
5. I am 58 years old. I retired on May 31, 2020. I will be getting GPF, DCRG and other benefits as a lump sum besides monthly pension. I havent done any investment as of now. Where and how do I invest the money? Are lump sum amounts taxable?
A. Your GPF will be tax exempt if received on retirement. Similarly, gratuity is exempt, and the amount will be a maximum of Rs.20 lakh for government employees. If you are going to receive pension and it is adequate, then you need not look for options with high returns and risk your capital.
Consider investing the proceeds in Post Office Senior Citizens Scheme. For those above 55 but less than 60, if the account is opened within a month of receipt of the retirement proceeds, you will be able to invest up to the amount of retirement proceeds (subject to a maximum of Rs.15 lakh).
The remaining sums can be parked in Post Office fixed deposit and FDs of at least 23 banks for just one year. As interest rates are low, do not lock into higher rates. Rather, wait for rates to improve and then lock in.
As a diversification option, you can consider corporate deposits of reputed NBFCs such as HDFC or Sundaram Finance. But, here again, make sure you do not expose over 5-10% of your corpus in each. Please note that the interest income from all these sources will be taxable.
6. I'm 31. I got married a year ago. I'm planning to make some investments. My wife and I have a health insurance plan but no investments. We stay in a rented house. I want to create wealth and enjoy financial freedom in the next 10 years. Please advise.
A. Make sure you have a pure term cover to protect your family from any unforeseen risk to your life. You dont really need other insurance-cum-investment products unless you understand what they really return.
If you are just making a beginning, please start with RDs or FDs. For tax purpose, EPF and PPF should be adequate. Once you get disciplined with savings, you can gradually consider one or two tax-saving funds (ELSS) for tax purposes.
For general investments, start monthly SIPs in equity mutual funds. Instead of going with the multiple choices out there, stick to equity index funds on the Nifty or Nifty 100 index if you cannot track fund performance and review. You can start with 15-20% exposure of your total savings to equity funds and gradually increase it to 50-60% once you get comfortable. Remember, equities are not meant for investment time frames of less than 5 years and you should get comfortable with frequent falls in your investments in equities.
7. I had taken a cancercare policy for my father, who is 61 and retired from government service, from HDFC Life. In the said policy, I am the proposer and the life assured is my father. Here are my queries:
1. Will I be eligible for benefit under Sec 80 D as the policy premium (Rs.26,000) is paid by me?
2. For claiming the benefit for health insurance taken on behalf of parents, does one need to be the proposer of the policy or will a simple payment receipt suffice?
3. Recently, I read that insurance companies will demand insurable interest of the proposer in the life assured while making any claim. So, is my policy valid, as I am not dependent on my father's pension and as such, I don't have any insurable interest in him?
If so, shall I cancel this policy and take a new one with my father being both the proposer and the life assured?
A. Cancercare policy issued by HDFC Life is a type of life insurance policy and is covered under Section 80C of the Income Tax Act.
Deduction is allowed to an individual with respect to life insurance paid for spouse and children of the assessee, subject to a cap of Rs.1.50 lakh inclusive of other deductions under Section 80C and further, the premium amount not exceeding 10% of the sum assured.
Point-wise reply to your queries:
You will not be eligible to claim deduction under Section 80C for the Rs.26,000 paid by you for your dependent fathers life insurance. Your father may claim it in his Income Tax return once he starts paying from his account.
With respect to the deductions under 80D of the Income Tax Act, an assessee who is an individual or a HUF is eligible for deduction of premium paid up to Rs.25,000 for himself and his family and Rs.25,000 for his dependant parents. If his/her parents or the assessee himself is a senior citizen then they are eligible for a deduction of premium paid up to Rs.50,000 or if there is no medical insurance in the name of the senior citizen, then medical expenses incurred up to Rs.50,000 can be claimed as deduction.
There is no restriction under Section 80D of the Income Tax Act to be the proposer of the policy. Direct payment to the insurance company is sufficient to claim the deduction along with proper proof of payment such as a receipt/acknowledgement with respect to health insurance issued by general insurance companies registered with the IRDA.
8. If a government employee invests in the share market, then what are the income tax rate slabs for income earned from such investments (for long term as well as short term)? And, also, which ITR form needs to be filed?
A. Income tax arises only on sale of such equity shares purchased from stock market. This is in the form of capital gains/loss, further split into long term and short term. Equity shares that are sold after holding for a period of more than one year are long-term capital gains and if not are short-term capital gains. Long-term capital gains, as calculated according to the provisions of the Income Tax Act, are taxed at 10% if such gains are above Rs.1 lakh, while short-term capital gains (sale value less purchase value) are taxed at 15%.
Further, you may also request your broker for a statement for capital gains in order to ascertain the capital gains/loss and short-term and long term nature of such transactions. You will have to file ITR 2.
9. I am a 43 year old corporate lawyer drawing a monthly salary of Rs.1.3 lakh. Due to personal reasons, I could not invest until now. How much should I be investing every month and also in what vehicles, for me to retire at 65? I have an eight-year-old son.
A. It is never too late to start investing. To gauge how much you need to invest, youll have to make a basic financial plan first. This involves listing out your main financial goals with the timeline by which youd like to achieve them. You will need to assess your return targets and risk appetite. Finally, you create individual portfolios towards each financial goal. Given the details youve mentioned, you will perhaps need to create a corpus for your sons higher education about 10 years from now and a corpus for your retirement, 22 years from now. This apart, you will need insurance and an emergency fund to take care of unexpected contingencies.
We suggest you first take a basic term life cover to take care of your sons needs in your absence. Do sign up for a health insurance cover for a minimum of Rs.10 lakh too, if you dont already have one. You must also set aside enough savings in a bank FD towards an emergency fund to cover 9 months of your living expenses to take care of any period of interrupted income or profession in future.
Having done this, you can plan out your long-term investments towards your sons education and retirement goals. For your sons education, do estimate the sum youll need 10 years hence (after factoring in inflation at 78%), for an undergraduate and postgraduate degree using online or offline help. You can invest in hybrid aggressive equity mutual funds (via systematic investment) or in a combination of multicap-equity and debt funds to get to this goal.
For your retirement, make an estimate of the monthly expenses you will need in todays rupees to live comfortably. To arrive at the size of retirement corpus, you will need to adjust this for inflation over the next 22 years and then multiply the annual amount by a factor of 20 or 25 times. This will be your retirement goal. The size of this corpus will decide how much you will need to invest every month. Given that you have 20 odd years to go, you can invest in equity fund SIPs with a PPF component to get to your retirement goal.
Start investing Rs.1.5 lakh a year in PPF right away and invest the rest via SIPs in multicap and index funds. You can use online calculators for the above estimates. You may also need the help of a full-fledged financial advisor to map out your investment plan and to select the right products. Do remember that financial planning is not a one-off-exercise and needs constant monitoring and course corrections along the way.
10. I am 33 and a dentist with an academic job and a private set up. My monthly earnings are about Rs.40,000. I am married and have a child. I am yet to start financial planning. How much should I save every month?
A. The first step in financial planning, as detailed above, would be to map out your key financial goals today with the timelines by which you would like to achieve them. If you have dependants who contribute to the familys spending, you also need to take both a term life and a health insurance cover to tide you and your family over unexpected events. You will also need to save 9 months of living expenses in a bank FD to meet any unforeseen emergencies that interrupt your income or work.
In our view, while real estate can be one of your investments, it cannot be the only one, given that returns from this asset are very location specific and that land can be quite illiquid as an investment. It is best to maintain a diversified basket of investments across real estate, stocks, bonds, FDs and gold. Both your stock and bond investments can be routed through mutual funds. Kindly start by investing Rs.1.5 lakh a year in PPF which can contribute to your retirement planning and help in tax savings. You can start SIPs in hybrid equity or multicap-equity funds towards your longer term goals such as childs education. Financial planning is an ongoing process for which you may need the services of a qualified financial advisor, to help you quantify goals, decide on the asset allocation and choose the right products.
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