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MFs, home loans, insurance & your tax
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October 03, 2008

Do you want to know if your investment in a house, mutual fund, insurance or real estate taxable? How is tax calculated on all or any of these investments? How much tax are you liable to pay when you vest your ESOPs?

Also, is this a right time to put your money in the stock markets? Should you opt for mutual funds instead? Or should you buy a second home to get attractive returns and save tax?

In a chat with readers on October 1, Get Ahead tax expert Mahesh Padmanabhan answered these and many more queries related to saving tax/

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

sagarshaha asked, hi, need to invest in mutual funds...which is the best to invest...any suggestions

Mahesh Padmanabhan answers, Your risk perspective, time horizon and tax position would be needed to define the mutual fund that you could invest in. Diversified equity funds with long term investment horizon might fetch you something like 12-14% returns. HDFC [Get Quote] Top 200, DSPML TIGER, SBI [Get Quote] Contra etc are good funds to invest in

Azeez asked, Hi Mahesh, Considering the market status,How about investing in SIP? Which are the TOP SIP in market (for tax planning)?

Mahesh Padmanabhan answers, Markets keep fluctuating up & down and if you systematically invest in the equity segment either through direct equity or MF, in the long run because of Rupee Cost Averaging you could make a sizeable portfolio. In terms of tax mfs, you could look at HDFC Tax saver, SBI Magnum Taxgain, Birla Sunlife tax relief etc

Dinesh asked, I'm salaried and own two flats in Pune. Can I claim Interest deduction on both (within 1.5 lacs)?

Mahesh Padmanabhan answers, In case you live in one flat and have let out the other on rent, you would be eligible to interest deduction on both. However, in case of the self occupied house you would be subject to a cieling limit of Rs. 1.5 lakhs and in case of the rented house, you could claim the entire interest. In case the house is not let out then it would be deemed to be let out and taxed accordingly

ravie asked, Hello sir, whats the amount of tax exemption am i going to get by taking up parents health insurance and home loan.. thanks

Mahesh Padmanabhan answers, The maximum amt of deduction that is available under section 80D for medical insurance is as under Rs 15000 for you & your family & additional Rs. 20000 in case either of your parents are senior citizen. Rs. 15000 for you & family & additional Rs. 15000 in case your parents are not senior citizen

arunk asked, I have a second house which is vacant do I have to pay any income tax on it(notional rentals)

Mahesh Padmanabhan answers, Yes you would need to pay tax (if any) on the second house based on the deemed rental value.

vic asked, I want to invest in SBI Magnum Tax Gain. Please Ssuggest whether it's the right choice.

Mahesh Padmanabhan answers, Yes it is a good fund

arunk asked, Can I buy a property in a huf with hunds arranged by borrowing(bank loan) by huf & me asw the coborrowers

Mahesh Padmanabhan answers, Yes you can

Mayur asked, I heard that 30th Sept 2008 was the last date for return filing , can I able to file it now?

Mahesh Padmanabhan answers, Spt 30, 2008 was the last day for filing of returns in case of Companies & entities who are covered under tax audit. In case you are an individual without tax audit then the last date for filing was July 31, 2008. However, you can also file your returns now; only that it would be considered a belated return.

sanjay asked, i and my wife both r working class and having income from salary. we have a house which is in our joint name and we live in it. may i get benifit of House rent by paying it to my wife for said house? if yes then how?

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Mahesh Padmanabhan answers, No commercial consideration is possible between husband & wife and this arrangement is not feasible.

PleaseAnswer asked, Hi, What is the tax % on ESOP? I sold few stocks that were vested way back in 2007 (Before FBT came into picture). But they were sold this year in the US (NASDAQ) market. Will there be any tax on the capital gain? Wont it be considered as long term capital gain and hence no tax?

Mahesh Padmanabhan answers, If it was a company in the US then there would be no question of FBT on the same. Capital gains tax would be applicable. Short term would be taxable at the applicable slab rate and long term would be taxable at 20%. The applicable surcharge & education cess would be leviable.

Murthy asked, Hello sir, i am salaried employee. i am getting around 4 lpa and right now i have investing around 16k in LIC [Get Quote]. can you please tell in which plan i should invest to save more tax?

Mahesh Padmanabhan answers, Insurance coverage is to be taken from the perspective of covering your life risk and not from the tax point. My advise is that first assess your risk cover and go for cheap insurance cover such as term insurance. Then go about investing in good yield investments. Equities (either directly or through MF) yield good returns in the long run and hence put a major portion of investment by way of systematic investments in equity and the balance portion in debt.

Maharsh asked, I have insurance cover of just 3.5 lacks. Can you suggest me good Insurance Term Plan (Not ULIP) which gives best cover. I want cover of 20Lcks minimum. My age is 26.

Mahesh Padmanabhan answers, 
Lot of new insurance companies have come up with cheap term insurance cover. You could check out Religare, Kotak etc for the cost of the cover from their website. Alternatively, Birla Sunlife Insurance has a good term plan called Dreamplan. The advantage here is that the premium is as cheap as term plan but gives back some money as maturity benefit, which is not available in other term plans.

vkvijay1 asked, I have invested in ULIP. I want to know whether it will give good returns in a year time considering the current market status.

Mahesh Padmanabhan answers, Pls look at ULIP and other forms of equity investments from the long term perspective. ULIPs have the feature of shifting between equity to debt. Theoretically when the markets start sliding down you should switch from equity to debt and when it starts pulling up start shifting from debt to equity. Otherwise from the long term perspective these investments would generate decent returns.

Rajkumar asked, Hello Sir, I am a salaried employee. Recently, the auditor of our company in his audit report has reported that our accounts department has deducted less tax or, not sought the relevant proof documents for claiming tax exemption from the employees. The total of all these short deductions is approximately 2.5 lakhs. We employees have strictly followed what our accounts department has deducted or asked to produce as proof documents. The auditor has insisted that all these employees payup the tax and be re-issued new form-16 for FY 2007-2008. Is the employee liable to pay the shortfall in tax for the previous financial year. Is there an option to pay in installments? Kindly help.

Mahesh Padmanabhan answers, In case you had already received your form 16 and filed your returns, i do not understand how your company can change the form 16. The onus is providing deduction is on the employer and accordingly they would need to pay the tax and could recover the same from the employee salary. But changing the form 16 would not be possible.

YBT asked, Please tell about some pension plan so as to save tax and a good return as monthly pension.

Mahesh Padmanabhan answers, HDFC standard has a good pension plan. But you would need to note that pension is taxable at the time of receipt and hence it might be better to look at some ULIP policy that could allow you to withdraw in installments after retirement. Such withdrawals would be tax free.

144 asked, If i will take an insurance policy as money back policy under LIC that will be considered for income tax rebate as section-80c or not. please suggest.

Mahesh Padmanabhan answers, yes it be considered for the purpose of deduction u/s 80C.

Chandrashekhar asked, last year i have invested in SBI magahum tax gain to escap from TAX AXE. This year i would like to change my MF portfolio. can you suggest me which one is good to invest?

Mahesh Padmanabhan answers, SBI Magnum is a good fund. In case you want to invest in another fund then HDFC tax saver and Birla Sunlife tax relief are good funds too.

q asked, Is interest on home loan (on one or two ) houses only claimable by salaried or is it even claimable by self employed?

Mahesh Padmanabhan answers, Yes it is claimable by all individuals whether salaried or self employed.

pawan dixit asked, Hi,i am owning and residing in flat jointy with my mother.Can i claim deduction of HRA.

Mahesh Padmanabhan answers, In case you are a co-owner then you cannot claim rent for the same.

paresh asked, i have property which was gifted from my father as 0 value now this property when i will sell it what is the value of taxation, can i benifit against investment on this gain

Mahesh Padmanabhan answers, In your case as you received the gift from your father, the cost at which your father acquired the property would become the cost of acquisition for you and accordingly the capital gains would be worked out. You would be eligible to reinvest the capital gains in a new asset and save on capital gains tax.

rahul asked, By giving donation to the School of my Daughter they say the school will give certificate of income tax u/s 80G, for which I can claim Income Tax Benefit? What is section 80G?

Mahesh Padmanabhan answers, Section 80G provides deduction for donations paid to eligible institutions who are authorised by the income tax authorities. The certificate no. is required for claiming the deduction.

manishsh asked, Hi, I have recently taken home loan for a flat which is under construction. I understand I can't claim benefit for interest paid unless construction is completed. it would take 2.5 years for that and then after possession how can I claim income tax benefit for interest paid till that time. Can it be more than 150000 if combined with yearly interest of that time or that's the final limit. Please advice.

Mahesh Padmanabhan answers, No the combined interest ceiling still stays at Rs. 1.5 lakhs.

Mahesh Padmanabhan says, Dear Friends, It is time to close the session. We have tried to answer representative queries so that maximum aspects can be covered. We would have many more sessions to cover further questions from you in our subsequent sessions. Thank you & 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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