Money Today experts answer your banking-, tax-, insurance-related queries
I want to give a certain sum from my retirement benefits as an
interest-free loan to my wife, who is a homemaker without any source of
income. Will the interest be
clubbed with my income, asks Romit Bhattacharya from Bangalore.
INVESTING
I want to give a certain sum from my retirement benefits as an interest-free loan to my wife, who is a homemaker without any source of income. If my wife invests that money in a bank FD, will the interest be clubbed with my income? -Romit Bhattacharya, Bangalore
If you give the sum as loan, then it need not be clubbed with your income. However, your wife has to return the sum at a later date and if this is given with an interest, the interest has to be shown as income from other sources. According to the Income Tax Act if a loan is extended to one's spouse, and an asset is acquired by such means, then the income derived from such asset does not qualify for clubbing of income. A reasonable interest should be paid back in such a scenario and such repayment needs to be shown as interest from other sources in the income filing of the husband.
I have an insurance policy with LIC beginning 15 March 2004 and have no dependants. The term and premium paying term is as follows: 14-16 (16) and the sum assured is Rs 5 lakh. The instalment premium payable is Rs 32,237 per annum and final date of payment is 15 March 2019. It is an endowment assurance policy with profits and accrual benefits. I was 37 in 2004 and have paid the premium till this year but currently feel that it is too steep and the sum assured inadequate. If I surrender it, I will lose the tax benefits of previous years. Should I turn it into a paid-up-plan or go in for a pure term plan? How much should the sum assured be and how much premium will I have to pay per year? -Sajan A, e-mail
As you have paid premium for about 7 years, we suggest you continue paying into the endowment assurance plan. As stated by you, the life cover is grossly inadequate. On a thumbrule basis, one would have to avail a cover of 7-10 times one's earnings. You can go for a pure vanilla term cover or a plan that fits your retirement goals. If you intend to choose a policy with a plain vanilla term cover, you can choose the one that offers the lowest quote and the longest term. A cover of Rs 40 lakh would require a premium outflow of about Rs 17,000 per annum.
I had been living outside India for 26 years till September 2010. As an NRI, I had acquired shares from public issues on repatriation and non-repatriation basis, whose market value now exceeds Rs 1 crore. I want to demat and trade them. I have my PAN card and a resident 3-in-1 account (bank, demat and trading). Do I have to inform the income tax office of my return to India? Do I have to write to my bank to change my NRI account to a normal? Do I have to send my share certificates to the companies to change them to resident shares before trading them? -Abhijeet Sahay, Patna
You will have to inform your bank about the change in status, since you must have been filing income taxes in India, you will be mentioning your residential status therein. You can get the physical shares converted to demat and start trading the same - given that you will be changing the residential status with your bank, you can get the same updated in demat or trading account. For conversion of physical shares to demat, the process is standard irrespective of your residential status.
I had deposited Rs 69,000 each in my daughter and sons' name through and was debiting the same from mine and my wife's file for the last several years. Recently, the postal department returned the deposited amount and the interest amount on grounds that I had violated the law on PPF and had deposited more than Rs 70,000. Since I had deposited the amount from two different accounts, me and my wife (who are both income tax payers), is it legal for them to return it? -Vijay R, Gurgaon
If you have maintained two separate PPF accounts for yourself and your spouse, then you are allowed to deposit a maximum of Rs 70,000 in each of these accounts every year. If it is a single account in joint names, then they have a valid reason for rejecting the same. In fact, you can even open an account in your child's name directly.
INSURANCE
My health insurance policy expired recently due to the negligence of my agent, who did not deposit the cheque for renewal of the policy on time. It is a 6-year-old policy and I haven't made any claims till date. Is there anyway I can maintain the continuity of the policy and save my noclaim bonus as well? -Sandeep Rai, e-mail
Quite often most insurers offer a grace period of 15 days after the expiry of the policy. If your policy is within the grace period, then you can still renew your policy and continue with the accrued benefits. Please contact the insurance company with supporting evidence regarding the cheque issuance to your agent. With appropriate documentation, the company would then be able to respond to your query positively.
My health insurance policy is expiring this July and I had planned to switch my insurer. But according to the recent news reports health insurance portability may not get implemented Insurance by then. Should I wait for it and then renew my policy or continue with the old plan? -Rohit Sharma, Mumbai
Introduction of portability is a change in the right direction and surely would bring in benefits for the customers in the long run. However, every policy is unique and is guided by an underwriting principle. Since the terms and conditions, as well as coverage for pre-existing diseases and waiting periods for various diseases are as per the applicable policy details of a particular company, standardisation of products across industry is relatively tough to achieve.
This is causing a little delay in the implementation of the proposed portability. However, we are confident that the regulator and the insurer will work together and facilitate the same very soon. As of now, the Insurance Regulatory and Development Authority (Irda) has issued final guidelines on health insurance portability, which would come into force from October 1, 2011.
However, you can switch your health insurance policy to another insurer only if you have held the policy for a minimum of one year. We suggest you talk to the insurer you are considering and clarify their stance on the matter before making a commitment.
I'm a 30-year-old non-smoker and looking for a health cover of Rs 5 lakh. I did a price comparison of few plans that suit my requirements on the Internet. The cheapest plan is of around Rs 5,500 but doesn't provide a life-long renewal benefit, which I think is necessary for retirement planning. Should I buy this plan or go for a costlier one that offers this benefit? Is it worth paying around Rs 2,000 more per year for this single feature alone? -Anil Pinto, Mangalore
As widely practiced in the industry, a majority of the health insurance policies offer a maximum coverage age where the policy would cease to exist after a certain age. A lifelong renewal clause brings with it the assurance that a person can remain insured for any illness or emergency and will not have to compromise on quality treatment in old age. We would recommend that you opt for a policy which offers lifelong renewal, no disease specific or expenditure specific sub-limits, etc. Such a policy may be marginally expensive in some cases, but you will hedge larger financial risk and have freedom for efficient treatment at the best healthcare provider even at an older age.
TAXATION
If my interest income from NRO FD investments is more than Rs 5 lakh (after TDS of 10%), need I pay income tax? -Shekar Gaur, Pune
No, you need not pay income tax as the TDS is more than the tax payable. The interest income from an NRO account is taxable and you have to pay tax above the basic exemption limit for NRIs, i.e. Rs 1,60,000 for the 2010-11. Hence the tax payable will be Rs 34000 plus education cess (from Rs 1,60,000 to Rs 5,00,000 tax rate is 10%).
I inherited a residential property, which my father acquired in 1960, valued at Rs 2.8 lakh in 1981. The property was probated in 2006. I sold the same property for Rs 30 lakh in November 2010. Do I have to pay capital gains tax? Also, I have purchased a plot in 2010. Does this help to offset the tax? -Basu Bhattacharya, Guwahati
The indexed cost of the residential property will be Rs 19.90 lakh (2.8 X 711/100). Hence, the long term capital gain will be Rs 10.10 lakh and tax payable Rs 2.02 lakh. It may be noted that in few income tax cases the indexation has been allowed from the year it has been transferred in your name. In that case the tax payable will be Rs 5.23 lakh approx. Purchase or construction of a house can help you save tax but keeping the plot will not. For avoiding any litigation and paying taxes, you need to invest Rs 26 lakh or more in purchase or construction of house property.
My mother gifted me Rs 20,000 in the last financial year. Is that amount taxable? It has not been shown in my Form 16. My annual income is Rs 2 lakh. Rs 1,000 have been deducted from salary as calculated tax. Do I have to include the gifted money while filing my returns? -Luna Dewan, New Delhi
No, the gift from your mother is not taxable. As per the current income tax laws you don't have to file income tax returns if the salary income is below Rs 5 lakh and tax has been deducted by employer, including tax on interest income. In case you file your income tax return (if less TDS deducted by employer) than declare gift as exempt income under other sources.
Anil Rego, CEO, Right Horizons, has tackled financial planning issues; Antony Jacob, CEO, Apollo Munich has advised on health insurance and Taxspanner.com has answered tax queries.
HOME LOAN
Some housing finance players had recently launched a fixed rate option, but experts say one should not go for it as interest rates could come down in the 'foreseeable future'. This is confusing as rates have not dipped for close to a year. Should I go for a floating rate home loan or the new option? -Raj A, e-mail
The fixed rate option (for the initial few years) is suitable for people who do not wish to take any risk and want to know their fixed commitments. Though experts predict a fall in rates, they have moved up by 100 to 125bps in the past four months and makes it a difficult call. If you are comfortable taking some risk on rates, then you could opt for a floating rate loan. Since most customers try to borrow to their maximum eligibility, it may not be a bad idea to go in for this new option because it protects you from the upside risk.
My income is irregular as the source of income is way of stock broking . Would there be a problem in getting a home loan? -M Neelakandan, Mumbai
You would be eligible for a home loan, provided all the requisite documents submitted by you are in order. Housing loans are repaid by way of equated monthly instalments and therefore regularity or stability of income is vital. Hence, this factor will be strictly considered by any lender prior to approving the loan. Age, qualification, saving history, investments continuity of occupation, assets, liabilities, number of dependants are some of the other factors that will be considered during your appraisal process. Buying a home involves substantial financial considerations and a home loan is a long-term commitment.
Renu Karnad is the Managing Director of Housing Development Finance Corporation. She will answer queries on home loans.
I want to give a certain sum from my retirement benefits as an interest-free loan to my wife, who is a homemaker without any source of income. If my wife invests that money in a bank FD, will the interest be clubbed with my income? -Romit Bhattacharya, Bangalore
I have an insurance policy with LIC beginning 15 March 2004 and have no dependants. The term and premium paying term is as follows: 14-16 (16) and the sum assured is Rs 5 lakh. The instalment premium payable is Rs 32,237 per annum and final date of payment is 15 March 2019. It is an endowment assurance policy with profits and accrual benefits. I was 37 in 2004 and have paid the premium till this year but currently feel that it is too steep and the sum assured inadequate. If I surrender it, I will lose the tax benefits of previous years. Should I turn it into a paid-up-plan or go in for a pure term plan? How much should the sum assured be and how much premium will I have to pay per year? -Sajan A, e-mail
As you have paid premium for about 7 years, we suggest you continue paying into the endowment assurance plan. As stated by you, the life cover is grossly inadequate. On a thumbrule basis, one would have to avail a cover of 7-10 times one's earnings. You can go for a pure vanilla term cover or a plan that fits your retirement goals. If you intend to choose a policy with a plain vanilla term cover, you can choose the one that offers the lowest quote and the longest term. A cover of Rs 40 lakh would require a premium outflow of about Rs 17,000 per annum.
I had been living outside India for 26 years till September 2010. As an NRI, I had acquired shares from public issues on repatriation and non-repatriation basis, whose market value now exceeds Rs 1 crore. I want to demat and trade them. I have my PAN card and a resident 3-in-1 account (bank, demat and trading). Do I have to inform the income tax office of my return to India? Do I have to write to my bank to change my NRI account to a normal? Do I have to send my share certificates to the companies to change them to resident shares before trading them? -Abhijeet Sahay, Patna
You will have to inform your bank about the change in status, since you must have been filing income taxes in India, you will be mentioning your residential status therein. You can get the physical shares converted to demat and start trading the same - given that you will be changing the residential status with your bank, you can get the same updated in demat or trading account. For conversion of physical shares to demat, the process is standard irrespective of your residential status.
I had deposited Rs 69,000 each in my daughter and sons' name through and was debiting the same from mine and my wife's file for the last several years. Recently, the postal department returned the deposited amount and the interest amount on grounds that I had violated the law on PPF and had deposited more than Rs 70,000. Since I had deposited the amount from two different accounts, me and my wife (who are both income tax payers), is it legal for them to return it? -Vijay R, Gurgaon
If you have maintained two separate PPF accounts for yourself and your spouse, then you are allowed to deposit a maximum of Rs 70,000 in each of these accounts every year. If it is a single account in joint names, then they have a valid reason for rejecting the same. In fact, you can even open an account in your child's name directly.
My health insurance policy expired recently due to the negligence of my agent, who did not deposit the cheque for renewal of the policy on time. It is a 6-year-old policy and I haven't made any claims till date. Is there anyway I can maintain the continuity of the policy and save my noclaim bonus as well? -Sandeep Rai, e-mail
Quite often most insurers offer a grace period of 15 days after the expiry of the policy. If your policy is within the grace period, then you can still renew your policy and continue with the accrued benefits. Please contact the insurance company with supporting evidence regarding the cheque issuance to your agent. With appropriate documentation, the company would then be able to respond to your query positively.
My health insurance policy is expiring this July and I had planned to switch my insurer. But according to the recent news reports health insurance portability may not get implemented Insurance by then. Should I wait for it and then renew my policy or continue with the old plan? -Rohit Sharma, Mumbai
Introduction of portability is a change in the right direction and surely would bring in benefits for the customers in the long run. However, every policy is unique and is guided by an underwriting principle. Since the terms and conditions, as well as coverage for pre-existing diseases and waiting periods for various diseases are as per the applicable policy details of a particular company, standardisation of products across industry is relatively tough to achieve.
This is causing a little delay in the implementation of the proposed portability. However, we are confident that the regulator and the insurer will work together and facilitate the same very soon. As of now, the Insurance Regulatory and Development Authority (Irda) has issued final guidelines on health insurance portability, which would come into force from October 1, 2011.
However, you can switch your health insurance policy to another insurer only if you have held the policy for a minimum of one year. We suggest you talk to the insurer you are considering and clarify their stance on the matter before making a commitment.
I'm a 30-year-old non-smoker and looking for a health cover of Rs 5 lakh. I did a price comparison of few plans that suit my requirements on the Internet. The cheapest plan is of around Rs 5,500 but doesn't provide a life-long renewal benefit, which I think is necessary for retirement planning. Should I buy this plan or go for a costlier one that offers this benefit? Is it worth paying around Rs 2,000 more per year for this single feature alone? -Anil Pinto, Mangalore
As widely practiced in the industry, a majority of the health insurance policies offer a maximum coverage age where the policy would cease to exist after a certain age. A lifelong renewal clause brings with it the assurance that a person can remain insured for any illness or emergency and will not have to compromise on quality treatment in old age. We would recommend that you opt for a policy which offers lifelong renewal, no disease specific or expenditure specific sub-limits, etc. Such a policy may be marginally expensive in some cases, but you will hedge larger financial risk and have freedom for efficient treatment at the best healthcare provider even at an older age.
If my interest income from NRO FD investments is more than Rs 5 lakh (after TDS of 10%), need I pay income tax? -Shekar Gaur, Pune
No, you need not pay income tax as the TDS is more than the tax payable. The interest income from an NRO account is taxable and you have to pay tax above the basic exemption limit for NRIs, i.e. Rs 1,60,000 for the 2010-11. Hence the tax payable will be Rs 34000 plus education cess (from Rs 1,60,000 to Rs 5,00,000 tax rate is 10%).
The indexed cost of the residential property will be Rs 19.90 lakh (2.8 X 711/100). Hence, the long term capital gain will be Rs 10.10 lakh and tax payable Rs 2.02 lakh. It may be noted that in few income tax cases the indexation has been allowed from the year it has been transferred in your name. In that case the tax payable will be Rs 5.23 lakh approx. Purchase or construction of a house can help you save tax but keeping the plot will not. For avoiding any litigation and paying taxes, you need to invest Rs 26 lakh or more in purchase or construction of house property.
My mother gifted me Rs 20,000 in the last financial year. Is that amount taxable? It has not been shown in my Form 16. My annual income is Rs 2 lakh. Rs 1,000 have been deducted from salary as calculated tax. Do I have to include the gifted money while filing my returns? -Luna Dewan, New Delhi
No, the gift from your mother is not taxable. As per the current income tax laws you don't have to file income tax returns if the salary income is below Rs 5 lakh and tax has been deducted by employer, including tax on interest income. In case you file your income tax return (if less TDS deducted by employer) than declare gift as exempt income under other sources.
Anil Rego, CEO, Right Horizons, has tackled financial planning issues; Antony Jacob, CEO, Apollo Munich has advised on health insurance and Taxspanner.com has answered tax queries.
Renu Karnad, MD, HDFC
Some housing finance players had recently launched a fixed rate option, but experts say one should not go for it as interest rates could come down in the 'foreseeable future'. This is confusing as rates have not dipped for close to a year. Should I go for a floating rate home loan or the new option? -Raj A, e-mail
The fixed rate option (for the initial few years) is suitable for people who do not wish to take any risk and want to know their fixed commitments. Though experts predict a fall in rates, they have moved up by 100 to 125bps in the past four months and makes it a difficult call. If you are comfortable taking some risk on rates, then you could opt for a floating rate loan. Since most customers try to borrow to their maximum eligibility, it may not be a bad idea to go in for this new option because it protects you from the upside risk.
My income is irregular as the source of income is way of stock broking . Would there be a problem in getting a home loan? -M Neelakandan, Mumbai
You would be eligible for a home loan, provided all the requisite documents submitted by you are in order. Housing loans are repaid by way of equated monthly instalments and therefore regularity or stability of income is vital. Hence, this factor will be strictly considered by any lender prior to approving the loan. Age, qualification, saving history, investments continuity of occupation, assets, liabilities, number of dependants are some of the other factors that will be considered during your appraisal process. Buying a home involves substantial financial considerations and a home loan is a long-term commitment.
Renu Karnad is the Managing Director of Housing Development Finance Corporation. She will answer queries on home loans.
