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Your personal finance queries answered
Finance experts answer your personal finance queries, from taxation to insurance and investment.
Resolving financial dilemmas

Finance experts answer your personal finance queries, from taxation to insurance and investment.

TAXATION

Q. My father recently sold some ancestral property and wants to use the proceeds to buy another property in the city. Can he claim long-term capital gains on the sale? My father also wants to take a home loan. While he has no income, I fall in the 30% tax bracket. Who should apply for the loan? -Ritesh Tomar, Jhansi

A. Yes, since the property sold has been held for more than three years, there would be long-term capital gains. The tax on this can be saved by investing the gains in a new residential property. He can take the loan but he will not get any tax benefit because his income is below taxable limit whereas it would be 30% in your case. Hence, you should take the loan to claim tax benefits.

Q. I am a 28-year-old professional and earn about Rs 4.5 lakh per annum. I have never filed my returns until now, since I had nothing to claim. This year, I will file my returns for the first time. Is it necessary to file returns? If yes, then what can I do about the missed years? -J Chatterjee, Delhi

A. Yes, it is mandatory to file tax returns if your gross total income is above Rs 2.5 lakh per annum before deduction under Section 80C. You can still file returns for the last two years, without any permission or penalty, assuming your taxes have been paid. If you want to file returns for more than two years, write to your local income tax ward for allowing you to submit the return, along with reason for not filing till date. The income tax authority will condone the delay and issue notice under Section 148 to file the return. It is not necessary to file it if your income is below the basic exemption limit.


INVESTMENT

Q. I have been investing Rs 1 lakh per annum with the idea of building a corpus for my eight-year-old daughter for her higher studies. Since I do not have an appetite for equity investments, I have invested in PPF. However, with the launch of the Sukanya Samriddhi Yojana, I am confused. Do you think I should invest in this scheme from next year? What could be the possible pitfalls of investing in this scheme as opposed to the PPF? -Mohan Srivastava, Delhi

A. You should invest in Sukanya Samridhi Yojna if you have additional money to invest or are looking for higher returns than PPF but with the same level of assurance. The scheme offers 9.1% interest per annum compared to 8.7% offered by PPF, but has benefits similar to PPF: tax-free return and deduction under Section 80C. However, do note that these two deposit scheme are fixed-income avenues with zero backup options if something happens to you or your income. In such a situation, a Ulip offers guaranteed payment for studies. Generally, parents sacrifice their retirement corpus for children education which should be avoided through education loan. Hence, the best investment decision can be taken by reviewing the complete investment portfolio and financial goals.


LIFE INSURANCE

Q. I am a 54-year-old businessman and do not have any life insurance. However, I wish to buy a life cover for ten years since I believe I will be contributing financially till the age of 65. Can I buy a term plan now? If yes, does it make more sense to buy it online or offline? -Madan Garg, Delhi

A. You can surely buy a term plan at your age. However, since you are at a critical stage in life, it makes sense to consult a financial planner before you buy the cover. The thumb rule says that your cover must be at least ten times your annual income plus outstanding debts. After the completion of need analysis, you can buy it either online or offline. Online term plans are relatively cheaper than offline term plans since it does not involve any fee for advice.

Q. I am a 33-year-old woman earning about Rs 6 lakh per annum. A couple of years ago, I bought a term plan of Rs 50 lakh. I plan to get married next year and take a break from work for at least five years. In that case, should I continue with my policy or let it lapse? I will not be contributing financially in the coming days, and since I smoke, my premium is high. What are the advantages of continuing with this cover, instead of buying one again when I start working? -Raveena Sharma, Pune

A. Term plans are pure-vanilla protection plans that guarantee financial security to a family in case an unforeseen event happens with the insured person. The premium of the policy is determined on the basis of the person's age and health, which means the premium depends on how young you are and the state of your health. Since you have already bought the policy, it is advisable to continue with it. If you surrender your current policy and buy one again after five years, your premium will be higher than your current policy. Moreover, at higher age, you are at a higher risk of having health-related issues that could further increase the premium.


FINANCIAL PLANNING

Q. I have been investing Rs 2,000 a month in a mix of equity funds. I am now planning to invest in balanced funds also. However, my advisor believes that given the impending bull run in the market, I should add another equity fund since PPF and FDs cater to my debt needs. How should I decide where to invest? I have a high-risk appetite, but believe that balanced funds are poised to benefit more from the bull run than equity funds without taking too much risk. -Diebojit Saha, Kolkata

A. Remember that continuous and systematic investing is the key to successful investing. A balanced fund offers you the benefit of investing in both equity and debt. At the same time, the returns would be capped due to the presence of the debt component in its portfolio. The risk levels of these funds are comparatively lower as they switch allocation dynamically based on market conditions with a minimum of 65% allocation into equity and the rest in debt. It is advisable to revisit your portfolio once and based on the overall allocation of funds and exposure to different asset classes, you can decide on whether to go in for a balanced fund or a pure equity fund.

Q. I want to build a corpus of Rs 20 lakh in about 12 years for my child's higher education. I have been considering taking child plans as they promise tax benefits and payment of premium if something happens to me. However, my wife believes that they are expensive and that I should invest via SIPs in a mix of equity and debt funds. How should I decide on where to invest? -Priyesh K, Chennai

A. It is advisable to revisit the required corpus as cost of education is expected to grow substantially in the next twleve years and the above-mentioned amount may not suffice for your child's education needs. However, based on your current requirement, if you invest Rs 7,000 per month via SIPs in a combination of equity funds, the corpus is likely to grow to about Rs 22 lakh, assuming a return of about 12% per annum. However, remember that returns on equity-related instruments are not fixed and as such, they are not advisable if you are risk averse. You can alternatively consider Ulips as they invest in equity and provide you with a risk cover and tax benefits. Various Ulips have different terms and conditions pertaining to the lock-in period and withdrawals. I suggest you to to carefully assess them based on your needs before making a decision.

Q. I had turned a guarantor for a friend's loan and last month, was informed by the bank that my friend had started defaulting on his payments. What are the implications for me if my friend does not manage to pay the loan? Can I still be a guarantor to another loan? -CR Pandit, Bhilai

A. Please note that in case of a default, the bank can take possession of the person's personal assets. and if they are not enough to recover the outstanding loan, the bank can also take possession of the guarantor's assets. You can be a guarantor for more than one loan, provided the bank deems you eligible.


INSURANCE

Q. I am a 50-year-old professional and earn about Rs 9 lakh a year. I plan to retire in the next five years, but will continue to contribute to my family's financial needs. How should I decide what cover to buy? Should I buy an online or offline term plan? -Mayur Sharma, Gurgaon

A. Since I am unaware of your exact financial standing, it is best to initiate a need-based analysis with a financial advisor to zero in on the right cover amount. Keep two points in mind while making a plan: protecting your financial income through life insurance as it forms the base of any good financial plan and reviewing your plan every year to modify the same if required.

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