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'Buy stocks, mutual funds with a long-term horizon'
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July 03, 2008

The stock markets have sent shivers down the spines of many investors. Should you go for mutual funds and stocks now that the markets have reached in the 13,000 range from 21,000 points just six months back?

Is there a way in which you can invest money for decent returns without the risk of your principal amount getting reduced?

What strategy should you follow in the current scenario?

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In a chat with readers on July 2, Get Ahead tax expert Mahesh Padmanabhan answered these and many more queries related to investment in the stock markets, mutual funds, tax claims on home loans, HRA benefits, capital gains tax and how to plan and invest your money in 2008-09?

For those of you who missed the chat, here is the transcript.

hiren asked, My wife was earning around 5K per month. and its organization does not provide Form 16. I have entry of her salary in her account passbook. I want to file her returns, can you guide how to do it?

Mahesh Padmanabhan answers, Theoretically the employers need not give form 16 if they have not deducted tax at source from the salary paid / payable. However, the employer could provide the employee with a statement of income, which could be used for filing the return.

Keshav asked, In the last financial year, i worked in a company upto dec 2007 and in the feb 2008 i joined in another company ..I have form 16 of both company , Some charted acc says i need to pay some extra rs 30,000 ..because i shifted to another company ...I want to know is there any rule ..or since the company has paid all the taxes based on my income ..still i need to pay more there any chance of paying more

Mahesh Padmanabhan answers, This is a very common problem posed to us by employees who are employed with multiple employers during the year. What your CA is stating might be correct and this is because of the following reasons. The previous employer based on the slab rates may have considered the zero tax rate and the other slab rates. The new employer would also consider the slab rates from point zero (in case you have not declared your previous employer income). This would result in you getting two zero tax slabs instead of just one and this might result in a very large tax gap. If the employers have given you the benefit of section 80C independently then again this would result in double deduction and hence a tax gap. Other reason might be that both employers' salary put together might get you into the surcharge bracket (10% addition to the tax) and again this would result in a tax gap. Based on the above reasons, go by what your CA is stating, they are trained in the subject matter to identify these problems.

jj asked, Hi mahesh, as of we see the market today which is the safe investment-post office/bank or mutual fund?keeping in mind atleast we dont lose our principle amount for next 5 years?

Mahesh Padmanabhan answers, Market would keep fluctuating and you should be smart to leverage on the market movements. The general thumb rule is buy at a low and sell at a high, which might not work as you imagine because we operate in a very dynamic markets. In this scenario, we could rely on Warren Buffet's theory of investing only in such stocks, which you would not be sorry to hold if the markets shut down for 5 years. Hence only go for fundamentally good stocks or mutual funds and with a long term vision. In case of MFs you could use the SIP medium to benefit from Rupee cost averaging.

Rajesh asked, Hi Mahesh, As the markets have gone very low, so the mutual funds. I want to decide how to judge a good mutual fund. Should I invest in the one which have gone very low compared to others in the same duration when the market has fallen? so that if it comes back to the same peak afterwards then i wil get more return. But i doubt whther it would come back to the same high as the rate of fall might not be same as the rate of increase. Please help me in this and also let me know which are the good tax saving mutual funds to invest at this time.

Mahesh Padmanabhan answers, Mutual funds with low NAV or new fund offers (NFO) at face value should never be used to buy mutual funds. Fundamentals are the basic criteria and the nature of funds (i.e. diversified / sector funds etc) is important too. Go for good diversified equity mutual funds that could keep you afloat even in bad markets. The best way forward now is to use the SIP route so that you leverage on the downtrends in the markets against the uptrends.

pavan_sgh asked, Is it mandatory to file income tax returns if my earnings are not taxable?

Mahesh Padmanabhan answers, IT returns are to be filed mandatorily in case you have gross taxable income. In other cases generally people file their returns as it becomes an official document of income with the IT department and may also help in getting loan, visa etc

nilesh asked, how is sbi magnum mutual fund

Mahesh Padmanabhan answers, which fund in SBI [Get Quote] Magnum are you referring to. SBI Magnum Tax gain is a good fund.

Rahul asked, My income is 2.2 lac I am the only son of my parents For me what is the Sum assured you suggested? My age is 27 so pls suggest plan from LIC [Get Quote] only.

Mahesh Padmanabhan answers, Determination of the sum assured is based on certain criterias such as level of your current income, potential future income generation value, expected sustenance levels, premium payment capabilities etc. We would need to understand your case before we work out the best possible plan. You could send your details at

nadu asked, for ladies at what time we have to return file.suppose at one year ladies income is taxable then we return file and in second year ladies income is not taxable then we has to return file or we stop to return it.

Mahesh Padmanabhan answers, The last date for filing i-tax returns for all individuals (including ladies) is July 31. In case the assessee (lady) does not have taxable income in the second year then you need not file her return. We however suggest continued filing of returns as this gets documented in the IT department records and helps in other financial transactions

Shekhar asked, Can we claim tax rebate on buying plot for constructing house?

Mahesh Padmanabhan answers, no tax break is available on buying plot and tax benefits are available only after completion of construction of house

vijay asked, helo sir, last IT filing in ITR4 income salary and other [data job work & accout writing] and this year salaray income of Rs.112000.00 and other net income 7250.00 what r use form ITR1 or ITR4, pl.advice me thanks.

Mahesh Padmanabhan answers, In case the other income of Rs. 7250 represents business income then you would need to use ITR4, if the same is interest from bank deposits then use ITR1, if the same is other income then use ITR2

kirti asked, Dear Sir, in f.y.08-09 my income is crossing 10 lac...includiing short term i have to pay sircharge extra...and how this shd be calculate.

Mahesh Padmanabhan answers, In case your taxable income exceeds Rs. 10 Lakhs then surcharge is applicable. There is however marginal relief available to the individual whereby the addition on account of surcharge cannot be in excess of the income exceeding Rs. 10 Lakhs. It would be advisable to consult your tax consultant to determine the final amount based on your income details.

varun asked, Hi sir.. i have a question regarding capital gain tax. Let me give u an example for that.. i bought a flat @ 7L in 2001 and sell its off in 2008 @ 22L. Now to avoid paying capital gain tax i am purchasing a new flat @ 15L.. Will i need to pay tax now. That is : Do u need to invest the whole amount on which u purchased or only the capital gain ? thanks

Mahesh Padmanabhan answers, In your case the indexed cost of acquisition would be Rs.905400 and accordingly the taxable long term gain would be Rs.1294600. If you have invested Rs. 15 lakhs in the new house then you would not be needed to pay any tax. We however, suggest that you approach your consultant with the details

Rajen asked, dear sir share future trading loss which is a busineess loss can be set off against other income in other heads i.e. capital gain, income from other sources. etc

Mahesh Padmanabhan answers, Business loss can be set off against capital gain & other sources except salary.

manoharan asked, Sir, i had invested in stock market for the last one year. All my shares are trading 50% less. How can i book my loss with out selling the shares.

Mahesh Padmanabhan answers, You cannot book loss without selling the shares.

rajsathe asked, Can we take vehicle loan benefit for incomex tax exemption?

Mahesh Padmanabhan answers, In case you use the vehicle for your business / profession then you can avail of the interest deduction on such loan. Else, you cannot claim the same.

vijaya asked, Sir, My total annual income is 3 lacs, 60 thousand. I have invested only in LIC, premium 12 thousand. I want to invest somewhere which gives good return after 5-6 years so that I can help my youngest brother in his studies and also it can save my tax money. Please suggest me some investment option which gives good return without and risk.

Mahesh Padmanabhan answers, If you are risk averse that is if you want your principal amount safeguarded then fixed interest securities such as post office savings scheme, FD in banks / institutions etc are good. But the rate of return is definitely constrained. In case you are not risk averse then you could invest in ELSS funds that could fetch you better returns.

vijayakumar asked, I paid a sum of Rs.45000 to my previous employer as notice period salary during the year 2007-2008. Can I able to claim that amount from the salary income received from the current employer from April 2007 to March 2008?

Mahesh Padmanabhan answers, If you mean to say you want to adjust the notice period pay against the current employer income then no, this would not be possible.

HYD asked, I am planning to take some Home loan. But it is not sufficient to me since the market value of the home is more. So I am planning to take some money from my relatives. Can I show this also House loan? Can I get tax benifits for this loan also?

Mahesh Padmanabhan answers, Document the loan taken from relatives and take a written certificate from them as to the interest payments made by you towards the loan. You could claim the interest paid to your relatives for the home loan given by them. But please note that you will not get principal repayment deduction under section 80C on such payments to relatives.

TK asked, Sir, Can I Claim HRA & Housing loan together if the House is located in the different City.

Mahesh Padmanabhan answers, YES you can provided you stay in a rented premise in the city of employment.

mrr asked, Dear Sir, I have a question regarding filing of IT return. It is very helpful for me, if you can guide me. I have changed my job in Dec' 07. I am not falling into any TAX slab, if you consider two different employers. But, if you combine both employers, then i am falling into 20% slab. My Annual Income was 2,39,000 (By Considering both employers). I have recd FORM 16 from both employers and none of them have deducted TDS as my income did not exceed 1.1 lac. I have provided all my investment details to both of my employers and they also shown the same in my FORM 16. Secondly, I have shifted from Gujarat to Mumbai. My PAN is from Gujarat. Can I file my return from Mumbai?? or I have to file it from Gujarat only. Pls. guide me. How should i file my return?? Kindly advice me. I am very grateful to you.

Mahesh Padmanabhan answers, As regards PAN you would need to get the database of the i-tax department updated with your current address by using PAN data change request form. This needs to be done before filing of returns in Mumbai. As regards salary, you would need to club both income, avail of the deductions from such consolidated income, work out the tax, make the tax payment and thereafter file the returns.

Mahesh Padmanabhan says, It is time to wind up for now. We thank you for your participation. Have a good day. Team RelaxwithTax

Mahesh Padmanabhan is principal advisor -- direct taxes group, RelaxWithTax Consultants Pvt Ltd, a Mumbai-based personal taxation and finance solutions provider.

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