Money Matters
INVESTMENT
Sumanth Bhardwaj Mudigonda: I am a 26-year-old pilot from Mumbai and going to marry next year. My current take-home salary is `24 lakh a year. It will rise to `35 lakh (per annum) in the next 24 months and to `55 lakh in another two years. After that, there will be 2-4 per cent rise every year. The freebie I get for myself and my wife is free travel. My current expenses include a monthly house rent of `22,000 and a car EMI of `20,000 for another 58 months. Kindly tell me how much I should save so that I am secure.
Ashish Shanker, Executive Vice President and Head, Investments, Motilal Oswal Private Wealth Management, replies:
It is truly said that compounding is the eighth wonder of the world and you are likely to be a beneficiary. Starting early ensures that time is on your side and financial goals will be achievable. After taking into account house rent and car EMI, your current surplus stands at Rs 19 lakh per annum. It could increase even more as you are expecting pay hikes in the coming years.
Your priority must be to own a house and purchase of a term insurance. While purchasing the house, cap the EMI to 30-35 per cent of your salary so that it does not cause any stress or affect the current cash flow. As a rule of thumb, one should attempt to save 30-35 per cent of one's income to ensure that one builds a habit of saving and resorts to living within one's means. These savings can be invested through SIPs and will help you meet future goals such as marriage, insurance, child care and retirement. As age is on your side, a higher equity allocation can be taken to generate higher returns over the years. The portfolio's equity component can be toned down as the years progress, and the portfolio can take a more balanced shape.
HEALTH INSURANCE
Shiv Solanki: I have bought a family floater for myself, wife and two kids. I am 37, and my wife is 35. I would like to know what will happen if I die. Will the policy continue and will there be a reduction in premium?
Antony Jacob, CEO, Apollo Munich Health Insurance, replies:
You certainly made a wise decision when you bought a family floater plan. Health insurance for the entire family is vital, given the rising medical costs and increasing incidences of both lifestyle and infectious diseases.
In case of an unfortunate demise of the proposer, the same policy cannot be continued as the insurance contract would be void after the proposer's death. However, a new policy can be issued to your wife and two kids, and your wife can be the proposer, with all continuity benefits from the previous policy. In this case, there will be a reduction in premium as the premium of a family floater health insurance policy largely depends on the age of eldest insured, health status, the number of insured members and so on.
TAXATION
Manoj Gupta: I own two houses and got a home loan for each. I stay in one of them and let out the other. As the tax rules have changed regarding the second house, how it will impact my tax savings?
Archit Gupta, Founder and CEO, ClearTax, replies:
You are eligible to claim a deduction on home loan interest for both houses. However, in the Union Budget 2017, the income tax law has been amended to restrict the total loss claimed under house property to `2 lakh. Earlier, in case of interest paid on a rented property, there was no limit on the interest that could be set off. But now a cap of `2 lakh per annum has been set as the maximum loss that you can claim under the head house property in your income tax return. It is the maximum total loss that can be claimed for both self-occupied and let-out property. It means your tax savings on the let-out property will now be reduced. As there was no cap earlier, you would have been able to save a lot more than you will be able to do now.
Kiran Sharma: As my husband's job changed, I had to shift to another city with him. I had to leave my full-time job and now work as a consultant for the same company. I am no longer a full-time employee of the company, but I still get a fixed salary. However, no provident fund is deducted from my salary. How will I file my tax return now? Which income tax form should I use?
Gupta: You have to use the new ITR Form 3. In fact, it is the old ITR-4 that has been changed to ITR-3 for FY 2016/17 (AY 2017/18). This form is applicable for consultants or freelancers. Here you can claim expenses in case you have incurred it to earn this income. You can also submit documents or receipts to claim tax-saving deductions. The process of filing tax returns remains the same as before.
As you are a professional, you can also opt for the Presumptive Income Scheme under Section 44ADA for your professional receipts. However, your profession must be covered under the list specified under section 44AA(1). If you are eligible, you can file the simplified ITR-4 provided your income for the financial year is up to `50 lakh. Under this scheme, you can show half of your total gross receipts as your income and pay tax on it. No expenses are allowed to be deducted, though. You can also claim Section 80 deductions in this return form.
MUTUAL FUND
Aashish Kukreja: I want to gift mutual fund units in which I have invested to my wife. Is there a way to transfer them? Will there be tax implications? Can I continue to invest in my wife's name?
Rohit Shah, Founder and CEO, Getting You Rich, replies:
MFs do not offer any option to transfer the units. One alternative is to convert your MFs into demat form and then attempt the transfer to your wife's demat account. However, it may not be a recommended option as one has to consider overall costs, convenience and the available options within the demat structure. We would recommend you to follow 'your income, your investment' principle. If you like to invest in your wife's name, work with your tax advisor and gift her a sum, which she can use to invest in MFs. Understanding the objective behind this exercise is required before concluding on taxation as this can include aspects such as clubbing of incomes and gift deed.
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