Your tax queries answered
What is the time-frame within which the
income tax (I-T) department can audit my financials or question me, asks Milind Dovhal from Bengaluru.
TAX TALK
I have been working for a multinational corporation for the past 6-7 years and my tax has been deducted at source all these years. However, I have been irregular in filing my returns. Also, at times, I have not paid tax on my other income such as interest income. What is the time-frame within which the income tax (I-T) department can audit my financials or question me? - Milind Dovhal, Bengaluru
The I-T department can ask for records of the previous six years preceding the relevant financial year. For instance, for financial year 2003-04 (assessment year 2004-05), the department cannot ask for records after March 31, 2011. Not filing returns can attract a penalty of up to Rs 5000. If there is any undeclared income, then the minimum penalty can be 100% and the maximum can go up to 300% of the tax evaded. You should file income tax returns for financial year 2008-09 before March 31, 2011 and also for financial year 2009-10.
I am working in a private hospital and TDS has been deducted from my salary. However, the management has neither credited the tax to the I-T department nor has it issued my form 16A. What should I do? - Karthik, Bengaluru
You can view your tax credit on form 26AS on the I-T department's website before taking any step. If the tax has been deducted and not deposited, then first send a letter, through registered post, to the hospital to file a "correction statement" at the earliest. In case no action is taken by the hospital, write to the I-T department.
What are the grounds for increasing premium rates for health insurance policies? When should a hike in premium rates be intimated to the policy-holder? - Y Mohan, Kolkata
An increase in the cost of medical care demands an upward revision of insurance costs. Insurers work closely with medical services providers to ensure that this increase is kept to the minimum. However, in case, it is felt that a review in premium rates is inevitable, the insurer may take the decision to increase them. The Insurance Regulatory and Development Authority (Irda), the country's insurance regulator, carefully scrutinises any request for a premium increase and views it primarily from the perspective of the policy-holder's protection. And any premium increase becomes effective only if it is approved by Irda. Also, it is mandatory that any premium increase be intimated to the policy-holder three months before the renewal date to allow him to take an informed decision on whether to continue with the same insurer or switch to another.
Do all health insurance policies include a personal accident cover or do accident covers have to be bought separately? - Muthu Kumar, Bellary
A personal accident policy covers the risks that arise due to death or disablement caused by accidents. It also helps you hedge against the opportunity cost lost due to total permanent disablement, partial permanent disablement and temporary total disablement. Personal accident plans are mostly offered as standalone policies.
I have incurred a loss on equity derivative trading. Can this loss be adjusted against short-term equity capital gains, short/long-term debt capital gains or gains from global gold mutual funds? - NC Gupta, Delhi
Derivative transactions are not to be treated as speculative transactions. The loss from such transactions can be treated as capital loss. This means that the loss can be set off against long-term capital gains if it is long-term capital loss and against short-term capital gain if it is a short-term capital loss. If the assessee in this case is in the business of buying and selling of securities, any gain or loss will be taxed under the head "income from business or profession".
I own two houses of which one is rented out while the other is self-occupied. I'm servicing a home loan for the latter and avail a tax deduction of Rs 1,50,000 on the interest paid (under section 24B). Will I be able to get a higher tax benefit if I rent out this house too? - PS, Bengaluru
Yes, in case of a rented house, you can claim the total interest accrued for the year as a deduction and there is no upper limit. Rs 1,50,000 is the limit for a self-occupied property only. Please note that the interest on a loan taken from friends and relatives for purchase or construction of a house is also eligible for deduction. However, the principal payment cannot be deducted for such loans.
I have Rs 12 lakh in a current account (to use as down payment for a house) and Rs 3 lakh in Employees Provident Fund (EPF). I have invested Rs 4 lakh in mutual funds and have a monthly systematic investment plan (SIP) of Rs 9,000. My monthly take-home salary is Rs 1 lakh. Currently, I'm paying an EMI of Rs 9,000 for a car loan. I want to buy a house worth Rs 50 lakh and also build a corpus of Rs 10 crore over the next 25 years. Where should I invest to achieve my goals? I have no dependents at present. - Manjunath K, Bengaluru
You should consider investing in a variety of instruments. It is a good thing that you have investments in mutual funds. But you need to have adequate life cover to hedge your risk and also a health cover. This will be good even if you don't have any dependents. The balance can go into diversified investments. You can start with a high exposure to equities which can be reduced as you approach retirement. You can also consider debt mutual funds, fixed deposits or maturity plans, corporate bonds and structured products.
Anil Rego, CEO, Right Horizons, has answered financial planning questions and Antony Jacob, CEO, Apollo Munich Health Insurance has replied to queries on insurance. Log on to www.moneytoday.in to submit your questions.
HOME LOANS
I had a plan to buy a 1,200 sq ft house and have taken a loan of Rs 16 lakh. Now, I want to buy a bigger property in the same project. The developer has agreed to sell a 1,500 sq ft apartment to me. Do I need to apply for a second loan or can I get a top-up on the earlier one? What is the procedure? - Karan Jindal, Gurgaon
From your question, it is not very clear if the first house has already been registered in your name and whether the housing loan you applied for has been disbursed. In case you have not yet registered the first house, then you can simply approach your lender for an increase in the loan amount based on the cost of the second flat. However, in case you have registered the first house and your housing loan is fully disbursed, then you could transfer/convert the loan on the first house to the second house and apply for the additional amount. In both cases you should have the requisite repayment capacity, as assessed by the lending institution, to service this higher loan amount.
I have an existing floating-rate home loan from a private sector bank which recently announced a revision in its base rate. I had taken a 20-year loan in 2005. Will the base rate change my EMI? - Padma Gupta, Pune
Any interest rate benchmarked to the base rate will change when the base rate is revised. So, your EMI will get affected. However, the usual industry practice is not to change the EMI but to increase the term of the loan. If the term gets extended beyond your retirement age, the lender will either ask you to increase the EMI or prepay a lumpsum amount.
Renu Karnad is the Managing Director of Housing Development Finance Corporation. She will answer queries on home loans.
I have been working for a multinational corporation for the past 6-7 years and my tax has been deducted at source all these years. However, I have been irregular in filing my returns. Also, at times, I have not paid tax on my other income such as interest income. What is the time-frame within which the income tax (I-T) department can audit my financials or question me? - Milind Dovhal, Bengaluru
The I-T department can ask for records of the previous six years preceding the relevant financial year. For instance, for financial year 2003-04 (assessment year 2004-05), the department cannot ask for records after March 31, 2011. Not filing returns can attract a penalty of up to Rs 5000. If there is any undeclared income, then the minimum penalty can be 100% and the maximum can go up to 300% of the tax evaded. You should file income tax returns for financial year 2008-09 before March 31, 2011 and also for financial year 2009-10.
I am working in a private hospital and TDS has been deducted from my salary. However, the management has neither credited the tax to the I-T department nor has it issued my form 16A. What should I do? - Karthik, Bengaluru
You can view your tax credit on form 26AS on the I-T department's website before taking any step. If the tax has been deducted and not deposited, then first send a letter, through registered post, to the hospital to file a "correction statement" at the earliest. In case no action is taken by the hospital, write to the I-T department.
An increase in the cost of medical care demands an upward revision of insurance costs. Insurers work closely with medical services providers to ensure that this increase is kept to the minimum. However, in case, it is felt that a review in premium rates is inevitable, the insurer may take the decision to increase them. The Insurance Regulatory and Development Authority (Irda), the country's insurance regulator, carefully scrutinises any request for a premium increase and views it primarily from the perspective of the policy-holder's protection. And any premium increase becomes effective only if it is approved by Irda. Also, it is mandatory that any premium increase be intimated to the policy-holder three months before the renewal date to allow him to take an informed decision on whether to continue with the same insurer or switch to another.
Do all health insurance policies include a personal accident cover or do accident covers have to be bought separately? - Muthu Kumar, Bellary
A personal accident policy covers the risks that arise due to death or disablement caused by accidents. It also helps you hedge against the opportunity cost lost due to total permanent disablement, partial permanent disablement and temporary total disablement. Personal accident plans are mostly offered as standalone policies.
I have incurred a loss on equity derivative trading. Can this loss be adjusted against short-term equity capital gains, short/long-term debt capital gains or gains from global gold mutual funds? - NC Gupta, Delhi
Derivative transactions are not to be treated as speculative transactions. The loss from such transactions can be treated as capital loss. This means that the loss can be set off against long-term capital gains if it is long-term capital loss and against short-term capital gain if it is a short-term capital loss. If the assessee in this case is in the business of buying and selling of securities, any gain or loss will be taxed under the head "income from business or profession".
I own two houses of which one is rented out while the other is self-occupied. I'm servicing a home loan for the latter and avail a tax deduction of Rs 1,50,000 on the interest paid (under section 24B). Will I be able to get a higher tax benefit if I rent out this house too? - PS, Bengaluru
Yes, in case of a rented house, you can claim the total interest accrued for the year as a deduction and there is no upper limit. Rs 1,50,000 is the limit for a self-occupied property only. Please note that the interest on a loan taken from friends and relatives for purchase or construction of a house is also eligible for deduction. However, the principal payment cannot be deducted for such loans.
I have Rs 12 lakh in a current account (to use as down payment for a house) and Rs 3 lakh in Employees Provident Fund (EPF). I have invested Rs 4 lakh in mutual funds and have a monthly systematic investment plan (SIP) of Rs 9,000. My monthly take-home salary is Rs 1 lakh. Currently, I'm paying an EMI of Rs 9,000 for a car loan. I want to buy a house worth Rs 50 lakh and also build a corpus of Rs 10 crore over the next 25 years. Where should I invest to achieve my goals? I have no dependents at present. - Manjunath K, Bengaluru
You should consider investing in a variety of instruments. It is a good thing that you have investments in mutual funds. But you need to have adequate life cover to hedge your risk and also a health cover. This will be good even if you don't have any dependents. The balance can go into diversified investments. You can start with a high exposure to equities which can be reduced as you approach retirement. You can also consider debt mutual funds, fixed deposits or maturity plans, corporate bonds and structured products.
Anil Rego, CEO, Right Horizons, has answered financial planning questions and Antony Jacob, CEO, Apollo Munich Health Insurance has replied to queries on insurance. Log on to www.moneytoday.in to submit your questions.
HOME LOANS
I had a plan to buy a 1,200 sq ft house and have taken a loan of Rs 16 lakh. Now, I want to buy a bigger property in the same project. The developer has agreed to sell a 1,500 sq ft apartment to me. Do I need to apply for a second loan or can I get a top-up on the earlier one? What is the procedure? - Karan Jindal, Gurgaon
From your question, it is not very clear if the first house has already been registered in your name and whether the housing loan you applied for has been disbursed. In case you have not yet registered the first house, then you can simply approach your lender for an increase in the loan amount based on the cost of the second flat. However, in case you have registered the first house and your housing loan is fully disbursed, then you could transfer/convert the loan on the first house to the second house and apply for the additional amount. In both cases you should have the requisite repayment capacity, as assessed by the lending institution, to service this higher loan amount.
I have an existing floating-rate home loan from a private sector bank which recently announced a revision in its base rate. I had taken a 20-year loan in 2005. Will the base rate change my EMI? - Padma Gupta, Pune
Any interest rate benchmarked to the base rate will change when the base rate is revised. So, your EMI will get affected. However, the usual industry practice is not to change the EMI but to increase the term of the loan. If the term gets extended beyond your retirement age, the lender will either ask you to increase the EMI or prepay a lumpsum amount.
Renu Karnad is the Managing Director of Housing Development Finance Corporation. She will answer queries on home loans.
