What will be the tax implication on a cash gift received from a relative?
—JEET K. KUMAR, EMAIL
Gifts from certain specified relatives are exempt from tax and there is no upper limit on the amount of gift that can be received from them. Specified relatives include parents, spouse of the individual, brother or sister, brother or sister of spouse, brother or sister of either parents and any lineal ascendant or descendant of the individual. For persons not covered under the ambit of relatives, the maximum amount of gift that can be received in cash without paying any tax on it is Rs50,000. However, gifts received in kind are also exempt from tax. There is no specific format to mention the gift in your income-tax (I-T) return. You can mention the fact in your I-T return for the fiscal year during which you have received a gift in the form of a note in your computation of income sheet. You should draw up a gift deed on a stamp paper for your record.
I changed my job in June last year. I was unable to file the I-T return for 2006-07 as my previous company did not provide me with my Form 16. Is there any way I can file my returns without Form 16? Can I claim the extra expenses I will incur due to late filing of the return from my previous company?
—MANVINDER KALSI, EMAIL
It is mandatory to fill Form 16 to claim tax deducted on the salary paid by your previous employer. In case no tax was deducted by your previous employer, you can request them to give you a salary certificate stating the gross salary paid to you during that period and then you can file your return.
There is no way by which you can claim any expenses on late filing of return as it is your personal obligation and your previous employer will not assume any responsibility on account of delay. Your previous employer, however, can be fined for late issuance of Form 16 by the I-T authorities.
I have a loan against my property at Pune for which I am paying equated monthly instalments. I want to rent out this property since I live in Bangalore. I claim both house rent allowance (HRA) and house loan tax benefits. If I rent out my property in Pune to, say, my mother (who is a housewife with no income) at Rs1,000 per month, and she sublets it to someone else at a higher rent, would it be legal? What will be my tax liability? Also, since I would show the property to be on rent, can I claim interest benefit beyond Rs1.5 lakh for a fiscal year?
—SHUBHAM BHATTACHARYA, EMAIL
As you have mentioned, your mother is your dependent and has no income of her own. Therefore, the entire process of renting and subletting of property clearly appears to be a step towards evading income tax and is hence not allowed.
As you are living in a rented accommodation, you can get exemption in respect to your HRA. Both HRA and house property loan benefits can be claimed together by you. As you are not living in the house for which you have taken a loan, there is no restriction on the amount of interest portion of the loan amount that can be claimed. So, you can claim interest benefit beyond Rs1.5 lakh per annum.
My husband and I have jointly taken a home loan. He pays 75% of the EMI. Please tell me about our individual tax benefits.
—MANISHA KUMAR, EMAIL
As you have taken a joint home loan, both of you are eligible for tax exemption for your share of the EMI paid. For claiming I-T deduction regarding housing loan, the EMI amount is divided into the principal and interest components. The repayment of principal amount of loan is claimed as a deduction under Section 80C of the I-T Act, 1965, up to a maximum amount of Rs1 lakh individually by each co-owner. The repayment of the interest portion of EMI is also allowed as a deduction under Section 24 of the Act, which is given under the head “income from house property”. In case you are living in the house for which home loan is taken, both of you shall be entitled to deduction in the ratio 3:1 on accountof interest on borrowed money up to a maximum amount of Rs1.5lakhindividually. If the house is given on rent, there is no restriction on this amount and both co-owners can claim deduction in the ratio of ownership, that is, 3:1 in your case.
I took a loan of Rs3 lakh from a bank last year for my MBA studies. It was deposited in the account jointly held by my father. I plan to invest this amount in mutual funds and repay the loan through the returns. Will I be able to avail the tax benefit of deductions from my gross total income?
Repayment of interest on loan taken for higher education qualifies for deduction under Section 80E of the I-T Act only in case the individual has taken a loan from a financial institution or approved charitable institution for pursuing a graduate or postgraduate course in some disciplines including management. Deduction is available for eight assessment years starting from the year in which you start paying the interest. Considering the above provision, unfortunately you do not qualify for deduction.
What are the pension plan options in India?
There are two kinds of pension plans—immediate annuity plans and deferred annuity plans. In case of immediate annuity plans, the annuity/pension commences within one year of having paid the premium (usually a one-time premium). The premium paid for the immediate annuity policy is also known as the purchase price. In India, very few insurers offer immediate annuity plans. LIC’s Jeevan Akshay V is an immediate annuity pension plan. In case of deferred annuity, the annuity/pension does not commence immediately; it is ‘deferred’ up to a time decided by the policyholder. For example, if an individual buys a pension plan with a tenure of 30 years (also known as the ‘deferment period’), then his annuity will begin 30 years hence. For deferred annuity, you can pay either a single premium, or regular premiums. At present, most pension plans available are deferred annuity plans.
I wanted to take a critical illness rider with a sum assured of Rs10 lakh along with a term insurance policy of Rs30 lakh. But my insurance agent says that since the premium of the critical illness rider can’t be more than 30% of the basic cover premium, the sum assured of my critical illness rider can’t be more than Rs5 lakh. Is there such a rule?
—MOHAMED ABBAS ALI, EMAIL
Yes, the Irda (Protection of Policyholders’ Interests) Regulations, 2002, has put a cap on the maximum amount of a critical illness rider benefit. It stipulates that the additional premium that can be charged for a rider (optional extra benefits) cannot exceed 30% of the premium charged on the main product. The main idea behind this rule is to stop insurance companies from selling policies with very small death benefits and huge rider benefits. The premium for a rider is generally higher than what it would be if an individual opts for a separate policy. The idea of taking an additional rider is to save costs for a customer to include several covers, such as critical illness and hospital cash benefit, within a basic life insurance policy rather than setting them up as stand-alone products with their own separate administrative charges. However, it restricts the scope of an additional rider benefit.
Do car companies accept insurance premium in instalments? If yes, which are these companies?
—RAJAT YADAV, EMAIL
The Insurance Act, 1938, governs the payment of premium on car insurance. According to the Section 64VV of the Act, in all general insurance contracts, the insurance premium must be paid in advance. By implication of this section, no insurer can accept the premium on a motor policy in instalments. As per the general regulations of the India Motor Tariff Act also, the insurers must collect the full premium before the commencement of the insurance cover. Further, this Act specifically prohibits the collection of premium in instalments. Therefore, since the government prohibits the payment of premium in instalments, no insurance provider will agree to receive the car premium in instalments.
I have bought a new flat and took a standard fire and special perils policy for it. Will my policy automatically cover the risk of earthquake? If not, should I take a new policy or can the risk can be added to the existing policy?
—ARUN RAHAR, EMAIL
The standard fire and special perils policy does not automatically cover the risk of earthquake. The risk of earthquake, however, is listed in the standard fire and special perils policy as an additional peril, which can be covered under the same policy by making additional payment on account of premium. You don’t have to consider taking another policy to cover the earthquake risk; you can only advise your present insurers to include the risk of earthquake in your existing insurance policy. They will calculate the additional payment to be deposited by you for securing the cover.
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