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personal finance

Know tax tangle around houses you own
Recently, A friend asked me how many properties he could own and how many properties he could take home loan for. On the face of it, queries are simple and the answers simpler. But do tax laws look at this so simply? Probably not.

New-age ULIPs provide flexible investment options
The purpose of insurance as deciphered over years has not just been to hedge against the risk of untimely death. Insurance plans have been bought for reasons other than protection such as savings for long-term financial goals and saving taxes.

tax advice
Interest income of NRI is exempt from tax
My wife is a housewife and she has a PAN number in her name. Sometime back, she had submitted income tax returns with the department due to income from embroidery work. At present, she has no source of income. If my son, who is living abroad, sends the money in her name and she deposits it in the bank by way of fixed deposit, will the interest accrued on the fixed deposits get clubbed in my income? Secondly, if the bank deducts the income tax at 10 per cent on the interest accrued on the fixed deposit, can she file the income tax return with the income tax department for taking refund of the tax deducted by the bank?

Fixed Deposit Interest Rates (upto - Rs 1 crore as on October 16, 2014

Know tax tangle around houses you own
Balwant Jain

Recently, A friend asked me how many properties he could own and how many properties he could take home loan for. On the face of it, queries are simple and the answers simpler. But do tax laws look at this so simply? Probably not. The answer is - As many as you want, as there is no restriction on the number of properties you can own or take home loan for.

However, there are some tax implications for owning more than one house. Let's have a look.

Deduction in respect of repayment of principal of home loan

Presently, Section 80C allows you an overall deduction up to Rs. 1.5 lakh for the repayment of housing loan, including any amount paid for registration and stamp-duty of a residential house. So you can claim this for any number of home loans within the overall limit of Rs 1.5 lakh. This deduction is available together with other items such as life insurance premium, tuition fees for two children, contribution towards EPF, PPF and NSC etc.

This deduction can be claimed if the loan has been taken from banks, housing finance companies and other specified entities. Moreover, in my opinion, this deduction can only be claimed after you have taken possession of the property, though there are opposite views. So in case you have started repaying the principal of home loan while though the construction is not complete, you cannot claim any tax benefits for such repayments.

Interestingly, repayment of loan taken from your friends and relatives are not eligible for this deduction.

Deduction for interest payment

In addition to the principal repayment, you can claim deduction for interest on loans taken for purchase/ construction/repair renovation of any property under Section 24b. This deduction for interest payment

can be claimed in respect of any house property, including a commercial property. In case you own only one residential house property and the same is occupied by you, the deduction available is capped at Rs 2 lakh. If you own more than one house property, you have to exercise an option to choose any one of the property as self-occupied and the other properties will then be treated as let out for which a notional rental income is required to be offered for taxation. However, in case of let out property the actual rent received is taxable in your hands. In respect of properties which are either let out or which have been deemed to have been let out, you can claim full interest paid against the notional rent or actual rent received.

This deduction is available even if you have borrowed money from your friends or relatives.

Exemption from capital gains

Section 54 and 54F allow you an exemption from long-term capital gains if you make investments in residential house. Such exemption is available in respect of sale of two asset classes. Under category covered by Section 54, long-term capital gains arising on sale of residential house properties are exempt if such gains are invested for purchase or construction of another residential house. There is no restriction as to the number of residential houses you can own as on the date of sale of such house for claiming this exemption under Section 54.

However, in order to claim the exemption under Section 54F, which covers long-term capital gains on assets other than residential house, you should not own more than one residential house other than the one you are acquiring on the date of sale of the other asset. So in case you own more than one house on the date of sale of the asset except the house in which you are investing the long-term capital gains, you cannot avail the capital gains tax exemption by investing in a residential house under Section 54F.

Provision under Wealth Tax Act

As far as tax on the value of house property is concerned, the Wealth Tax Act provides for exemption of one house from levy of wealth tax without any monetary value. However, in case you own and occupy more than one house, you have an option to choose one of the houses as exempt and offer the value of the other house for wealth tax. All commercial properties are exempt from wealth tax. In case you own more than one house and the others have been let out during the last year for a minimum period of 300 days, then it is exempt from wealth tax. However, in case the value of the second house together with other assets is not more than Rs 30 lakh, you still do not have to pay any wealth tax as the total value of the assets does not exceed the basic exemption limit.

The author is CFO of Apnapaisa

New-age ULIPs provide flexible investment options
Sanjay Tripathy

The purpose of insurance as deciphered over years has not just been to hedge against the risk of untimely death. Insurance plans have been bought for reasons other than protection such as savings for long-term financial goals and saving taxes. Unit Linked Insurance Plans (ULIPs) have emerged from this trend and are a category of goal-based financial solutions that offer dual benefits of protection and investment with various flexibilities to the customer. A ULIP is linked to the markets and offers the flexibility to invest the units in equity or debt funds depending upon the customer's risk appetite. The investment risk is borne by the policy holder. In this respect, a ULIP acts somewhat like a mutual fund with added benefit of life cover and flexibilities.

New-age ULIPs: Capped charges & better returns

In the past, the ULIPs have suffered certain limitations such as high charges, sale keeping in mind a short-term horizon and lack of active involvement by the customer. In 2010, the IRDA issued new guidelines for the ULIPs in order to improve the returns for investors by reducing charges and ensuring that the new product is sold and bought as a long-term protection and savings tool. Companies like ours have gone a step ahead by launching a ULIP online which offers lowest charge structure that makes it competitive against not only other ULIP products but also Mutual funds/ELSS schemes.

ULIPs are now more Competitive: Offer maximum flexibility

The ULIPs are flexible and dynamic by nature. They allow ease of change and offer a high degree of customisation as opposed to most other financial instruments that once purchased cannot be modified.

Flexible options include:

• Choice of multiple fund options: One can choose his/her fund considering his/her own risk appetite
• The option to switch between investment funds to suit changing needs of the customer and the market: Some insurance companies even allow a certain number of free switches
• Option to partially withdraw from a fund: Insurance companies provide varied fund options to investors. These may include debt, equity, government securities or money market instruments.
• Single premium additions to enable the policy holder to invest additional sums of money over and above the regular premium

ULIPs vs MFs: What is the difference?

You would ask how ULIPs are different from mutual funds in this regard. Even mutual funds offer various combinations such as hybrid, balanced schemes etc that allow an individual to select a plan according to his need and risk profile. The difference lies in the flexibility that the ULIPs offer to the individual. Let us see how it works.

Each mutual fund follows an investment strategy and does not deviate from it. While a particular mutual fund may invest majorly in equities to increase the returns, other mutual fund might invest majorly in debt to reduce the risk. A ULIP offers multiple such fund options to invest in a single plan. Through a ULIP, one can invest in multiple fund options at one time and also shift from one fund to another without any entry or exit penalties. Customer can choose a combination of these funds and also switch between funds in order to create his/her own investment strategy. So if in future the customer wants to reduce or increase the risk on his portfolio, he can shift the fund value from equity-based funds to debt-based funds or vice versa.

This flexible attribute of the ULIPs is extremely critical. The nature of product being such, wherein there is risk component embedded, it is important to keep your investments protected from the vagaries of volatile markets. Flexibility to switch funds allows the informed investor to benefit from movements in the stock market and movement of interest rates in the debt market.

The author is senior EV, Marketing, Products, Digital & eCommerce, HDFC Life

tax advice
Interest income of NRI is exempt from tax
SC Vasudeva

My wife is a housewife and she has a PAN number in her name. Sometime back, she had submitted income tax returns with the department due to income from embroidery work. At present, she has no source of income. If my son, who is living abroad, sends the money in her name and she deposits it in the bank by way of fixed deposit, will the interest accrued on the fixed deposits get clubbed in my income? Secondly, if the bank deducts the income tax at 10 per cent on the interest accrued on the fixed deposit, can she file the income tax return with the income tax department for taking refund of the tax deducted by the bank? — Ramesh Kumar

The amount received by your wife from your son is in the nature of a gift and no tax is leviable on it. The interest accrued on the amount deposited in a bank account out of such gift will not includible in your income. Such interest would be treated as your wife's income. And, she can file her return of income and claim the refund of the tax deducted at source in case her income is below the maximum amount on which tax is not chargeable.

My son is moving to Saudi Arabia on a two-year teaching assignment at one of the universities there. His emoluments will be tax free there. He will be remitting his savings to his NRE account in India. From the corpus in the bank, he will be purchasing NRE FDRs in addition to investing in permitted avenues for the NRIs in India. Will the interest income on FDRs and investment income be tax free in India? Will he be permitted to invest in India via a systematic investment plan, which is already in operation through Punjab National Bank in India wherein he does not have an NRE account or he needs to continue via his new NRE account in separate bank? — Harbans Lal Uppal

Interest income on non-resident (external account) in any bank in India opened in accordance with the Foreign Exchange Management Act, 1999, and the rules made there under is exempt from tax in the case of an individual. Therefore, in case your son makes a deposit in such an account, whether it is a saving or fixed deposit, the interest thereon would not be taxable in India. You have not specified which other arrangements he would be adopting for the purpose of making investments in India. The taxability of such an income can be decided only when the nature of the investment are known. The investment in mutual funds, whether through SIP or otherwise, is regulated by the guidelines of SEBI in case of NRIs. You should be able to make investments towards the purchase of units of mutual funds subject to compliance with such guidelines.

I have been informed by a tax consultant that professional income by senior citizen is taxable. However, I had an understanding that if the fee is received off and on, i.e. not regularly, the same is not taxable. If the fee is paid regularly month-wise, then it is taxable. Kindly clarify: Is the tax 20 per cent or 10 per cent if the total income for the financial year 2013-14 exceeds Rs 2,50,000/- ? I also read somewhere that consultancy fee is taken as professional fee on which the tax is 10 per cent. What tax I have to pay 10 per cent or 20 per cent? — Lalit Kohli

The professional fee, even if received irregularly, will become taxable if the total income of the recipient, including such professional fee, exceeds the maximum amount are not chargeable to tax. The rate of 10 per cent is in respect of deduction of tax at source. Such tax is deductible if the professional fee payable by a person exceeds Rs.30,000/-. The tax so deducted is adjustable against the amount of tax payable computed on the basis of total income. The specified rate of tax in respect of income exceeding Rs 2,50,000/- (applicable to a senior citizen) for assessment year 2014-15 is 10 per cent. However, this slab rate is applicable up to a total income of Rs 5,00,000/- for the said assessment year. The rate of 20 per cent is applicable for total income above Rs 5,00,000/-.