Will I get any tax deduction if I gift a lump sum or a regular monthly amount to my family members? Is a gift deed necessary?
Gifting any sum of money to your relatives does not entitle you to claim deduction from income tax. If your parents, wife or dependent minor children invest the money that is gifted by you, the income earned from the investment will be clubbed with your income for income-tax purposes.
However, income earned by adult children from the gifted sums will be taxed in their own hands. You may draw a gift deed in favour of your adult children for the sake of your own records.
I took a home loan jointly with my father to renovate my house. I have already received the completion certificate and the tax exemption certificate from the bank. Will I get tax deduction on the principal as well as the interest amount?
A loan taken for renovation or alteration to an existing house—that is, after the issue of completion certificate or after the house has been occupied or let out—is not eligible under section 80C for exemption for the principal component of a loan.
However, its interest component is still eligible for deduction under section 24(b) under the head “Income of house property”.
In case you are living in this house, the maximum amount of interest allowed is restricted to Rs30,000 (as it is a loan for renovation of an existing house), but if the house is given on rent, the full amount of interest on the loan will be allowed as a deduction.
I am retiring next month. I want to receive my pension in a lump sum. How much amount can I receive in this manner? Please tell me the tax liability on this.
Pension received after retirement or voluntary resignation from the employer is taxable under the head of salaries as per the income-tax rates applicable to an individual. As per the pension rules, you can receive, that is, commute some amount of your total pension amount in lump sum at the time of retirement, but in no case will the total pension amount be commuted or withdrawn at any time. The commuted value of pension is specifically exempted under section 10(10A) of the Income-tax Act, 1961, and the quantum of exemption depends on whether you have received gratuity or not at the time of retirement. In the case of receipt of gratuity by the employee, the commuted value of one-third of the pension is exempt from tax. In the case of non-receipt of gratuity, commuted value of half the pension is exempt from tax—the rest of the commuted pension is taxable.
My 15-year-old daughter is working with a theatre group and has earned some money. My wife and I are taxpayers and she earns more than me. Do we need to file our daughter’s returns separately, or will her income be clubbed with our income? Also, how much income in her case shall be exempt from tax?
The Income-tax Act, 1961, says a child younger than 18 years of age is treated as a minor and the income earned by the child is clubbed with the income of the parent (parents living together), whose income is greater except in certain cases. When the child has derived some income from manual work, or by application of skills, talent or specialized knowledge and experience, such income is excluded from clubbing provisions.
Therefore, income earned by your daughter from plays and acting shall be taxable in her hands and a separate return should be filed under your guardianship should her income exceed the basic exemption amount, that is, Rs1.45 lakh for women for fiscal 2008.
I am changing my job after seven years in a company. Am I liable to pay tax on provident fund (PF) withdrawal from my account? If yes, then on which gross or net amount? What will be the tax liability if I transfer my net provident fund amount to my new employer’s account?
First, assuming that you were a member of a recognized PF plan, the withdrawal of gross amount from the provident fund account on voluntary resignation from job after seven years of continuous work (that is, more than the stipulated minimum period of five years), will not be taxable in your hands.
Second, at the time of switching jobs, the employer gives the employee option of withdrawing or transferring the balance in your provident fund account to your new employer.
In such a case, the accumulated balance due and becoming payable (gross amount) shall be exempt from income tax if it is transferred to your account in the recognized provident fund maintained by your new employer (irrespective of employment period).
My annual gross income is Rs4.17 lakh. Please tell me about various schemes so that I can save on my income tax.
Under section 80(C) of the Income-tax Act, premium paid to keep a life cover in force, contributions to a deferred annuity scheme and recognized PF and PPF schemes, investments in specified bank fixed deposits, mutual funds, and specified post-office schemes can save you tax. Certain other payments such as tuition fees of children and return of the principal amount of a housing loan also qualify for deduction under the section within the overall limit of Rs1 lakh. Under section 80(D), you can also claim a deduction of up to Rs15,000 for a health insurance policy for yourself and your family.
MUTUAL FUND QUERIES
I want to invest Rs5,000 each in SBI Tax Advantage Series I, Principal Tax Saver, PNB Sundaram Pari Tax Saver and Birla Tax Relief 96 to save on my tax outgo. Are these good options?
Principal Tax Saver and Birla Tax Relief 96 are good tax saving schemes to invest in, especially if you are comfortable with the aggressive style of portfolio construction. For more conservative tax funds, look at SBI Magnum Tax gain or Sundaram BNP Paribas Tax saver.
The returns from all these schemes have been very good over various time frames. Two tax-saving plans with different styles are sufficient for a portfolio. Invest through a systematic investment plan (SIP) to average your acquisition cost of the units.
I am 25 and a first time investor. I want to invest in systematic investment plans (SIPs) of two mutual funds (MFs) for the next 18 months. I can invest Rs2,000 every month. Should I go directly to a fund house to avoid the entry load or should I go through an agent because I am a first-time investor? How can I find the addresses/location of fund house offices?
Your decision to invest through an SIP is the right one. Have a time frame of at least two years for your equity investments. Reliance Vision, Birla Sun Life Equity Fund and Kotak Opportunities are among the good funds to invest in. Invest through a distributor if you need help and advice while constructing your overall portfolio. If you want to invest directly, you can get the address and website information of all fund houses on www.amfiindia.com.
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