Money Today experts answer your personal finance queries.
Q. I have a query regarding Section 234C of the Income Tax Act. How do I calculate advance tax before the transaction since I wouldn't know the capital gains? Is it applicable in this case or is an exemption available?
-Vinay Mehta, via email
A. There is no exemption on advance tax payment on capital gains. As per income tax laws, if capital gain arises after the due date of advance tax instalment, then the entire amount of tax payable i.e. tax payable reduced by TDS already deducted, on such capital gain should be paid in remaining instalments which are due in the financial year. In case all the three instalments are already gone, then pay by 31 March of the relevant financial year.
Q.My brother and I took a joint education loan to pay for my brother's one-year MBA course. Now, the bank has sent me the statement of education loan interest to seek tax relief under Section 80E. I am paying the loan EMI. Can I claim tax exemption under the above Section?- S Kuber, Mumbai
A. No, the deduction of interest on education loan is not available for brother's education. The deduction of interest is allowed if the loan has been taken for self, spouse or child including legal guardian.
Q. I have been paying premium for the past 17 years for a mediclaim policy for my family, which includes two kids and my parents who are senior citizens. However, I forgot to pay the premium that was due last November, and it came to my notice only in April this year. When I requested the insurer to allow me to continue with the policy, it refused. I also told the officials that I had not been sent a reminder, which I usually get. Now, the company is demanding a premedical check-up for my parents. Will this help me in continuing with the policy? - TN Krishnan, via email
A. All insurers send across a notice to the policyholders reminding them of the premium due date and also provide them with 30 days of grace period for paying the premium. As you have crossed the grace period of premium payment, your insurer may choose not to continue with the existing policy or as an exception they may give you an option of continuing your policy based on fresh underwriting of the risks involved. In your case, it seems that your insurance company has agreed to continue on the basis of good health status of the insured members. Please note that the good health status report can only be achieved through a medical examination and your insurer is following the right protocol in this situation. You must also note that any medical emergency or medical treatment undertaken during the period by either you or your family members when your policy stayed lapsed would have to be freshly underwritten and may be excluded from the policy. As each insurer is bound by its specific underwriting policies, you should check the policy documents of your insurance provider to determine if there would be any change in the benefits accrued till now. Make sure you understand the changes before signing on again.
Q. My mother suffered an injury recently. She is covered under a health plan that I have bought in her name, as well as the cover provided to me by my employer. Can I file claims with both the insurers? - Arun Siddharth, via email
A. You did a good thing by buying her a personal health insurance policy along with your employer's insurance product as it is always beneficial for her to have a personal health insurance policy, especially if you change jobs. In this case, it is advisable to file a claim with both insurers only if the sum insured of your base cover is lesser than the claim amount. Before beginning the claims processes with either of the insurance companies, you should review the contribution clauses in both the policies to understand what payout ratios exist under each. In order to have easier claims processes, you should be as transparent as possible and inform both the insurance companies of your multiple policies. By reviewing all the respective clauses on inclusions, waiting periods, etc, in both policies, you will be in a better position to choose which policy to claim certain expenses under.
Q. I went on a holiday recently and ended up with a bill of Rs 2 lakh on my credit card. I have requested my bank to convert it into a loan which can be repaid via EMIs over one year. My father says that I should break my FD of Rs 1 lakh to partly pay for the loan. What should I do? - RKumar, via email
A. Before you decide to pay the entire expense in EMI, check the interest rate applicable on the same and the total outgo towards loan repayment. While breaking your FD will surely lower the EMI, check the net outflow, impact on monthly savings and then take a decision whether to convert the entire expense as an EMI or partially close it using the FD. The difference in the benefit will depend on your current tax slab. So, if you are in higher tax slab, then it makes sense for you to foreclose the loan.
Q. I became a guarantor for my cousin two years ago when he took a home loan of Rs 10 lakh. He had been regular with his payments but he was laid-off from his job two months ago. Since then, he has been facing issues regarding his loan repayment. I am worried that his inability to pay off the loan might impact my credit score. Is there a way I can withdraw my name as a guarantor? Also, what can I do now to repair my damaged credit score? - CR Pandit, New Delhi
A. You are legally responsible for another person's debt if it is in your and their name or you have agreed to be a 'guarantor'. The bank decides to give credit to the borrower taking cognizance of the fact that you are a guarantor. So, a default on the loan will have a bearing on your credit report and score as well. Specific rules of whether and how you can dissociate yourself as the guarantor of a loan varies from bank to bank. Typically, your dissociation as a guarantor of the loan will need the consent of the borrower and the concerned bank; since the bank had approved the loan considering the availability of your guarantee. Also in the event of you dissociating as guarantor; the borrower may have to provide a new guarantor with acceptable credentials for the concerned loan.
Q. I had defaulted on my credit card payments in 2012 and after negotiating with the banker, I got it converted to a loan and paid it off in instalments. After that, I have never used my credit card. I was surprised to find that even in 2014, my credit score so low and when I enquired about it, I was told that the loan was still "pending" under my name. Who do I approach to get this fixed? Will my credit score improve immediately after the issue is sorted or will it take more time? - Manoj Kalra, via email
A. The credit score is impacted by a combination of both negative and positive events. In the hierarchy of negative influences, a settlement is not considered as bad as delinquency; however it shall always be viewed as inferior to a purely on-time payment record. So yes, the settlement with a partial amount written off by the bank is likely to impact the score adversely. Specifically in this case, you have mentioned about few errors in your credit report i.e. the loan that should have appeared as closed is still shown as pending. Notify these to the credit bureau with a copy of your credit report and other supporting documents. Also contact the affected financial institutions and inform them of the situation through a similar communication. Typically, all member banks submit data to the credit bureaus monthly. Once the data is corrected, the score shall correct itself and reflect with the new value.
Q. My mother-inlaw expired three years ago. She had a term deposit of Rs 75,000 but did not appoint a nominee. How can her only daughter claim this amount? What are the documents that she needs to submit? - Kunal Sharma, Delhi
A. In cases where a depositor dies without mentioning a nominee, the investment is divided among his/her legal heirs. The legal heir will have to produce certain documents as proof: this includes the a copy of the death certificate, ration card, a copy of the Will, copy of the FDR along with other formalities as required by the bank.
Q. I have recently started working and save about Rs 5,000 a month. I plan to study again after three years and would like to save and invest towards that goal. My friends have asked me to invest in mutual funds, but I am not sure if three years is the right duration to invest in mutual funds. What other options do I have? What factors should I consider before investing? - Bijoy Mehra, via email
A. Three years is the minimum that one should stay invested in equity funds for good returns. You can invest in equity mutual fund schemes via Systematic Investment Plan (SIP). However the funds chosen should be large-cap and balanced funds which will help to mitigate the risk compared to the mid- and small-cap funds. You can also consider investing in recurring deposit schemes of banks and the Post Office. Although there is no risk associated with RD, interest received on RD will attract tax whereas long term gain in mutual funds is tax free. Hence the net gain from RD will be lower.
Anil Rego, CEO, Right Horizons, has tackled financial planning; Rajesh Sud, CEO & MD, Max Life Insurance and KK Mishra, CEO, Tata AIG General Insurance, have answered insurance queries; Mohan Jayaraman, MD, Experian Credit Information Company and Country Manager, Experian India, has answered loan-related queries and Sudhir Kaushik, Co-founder and CFO, Taxspanner.com, has provided tax solutions.