Tax benefits on joint home loans

Tax benefits on joint home loans

Mutual Fund

I am 25 and earn Rs3-4 lakh a year. Is it feasible to invest in high-risk mutual funds at this stage?


As you are young, your allocation in equity funds should be high. Funds such as Birla Sun Life Equity Fund and DSPML Equity Fund can form the core of your portfolio. Funds that concentrate on the less liquid segments of the market—the mid- and small-cap segment—such as Reliance Growth should also be included in your portfolio. You can also consider thematic funds such as ICICI Prudential Infrastructure Fund. Select one or two equity-linked saving schemes (ELSSs) with diverse strategies because these will give you tax benefits as well as good returns. SBI Magnum TaxGain and Sundaram BNP Paribas Tax Saver are good tax-saving schemes to invest in.

Is it a good idea to opt for infrastructure funds? How is Tata Indo Global Fund?


The infrastructure sector stocks have been performing really well in the last one year and are expected to continue to do so for some more time. But you should be able to handle some volatility in these funds. The Tata Indo Global Infrastructure Fund looks at the infrastructure theme not only in India, but also in other developing economies. With 65% proposed to be invested in the Indian infrastructure sector and 35% in the overseas markets, for which tie-ups with global fund houses are being formalized, the fund should be able to capitalize on this boom.

I have opened three systematic investment plan (SIP) accounts with HDFC Equity Fund, Franklin India Flexi Cap Fund and Reliance Diversified Power Sector Fund. Are my choices good? What returns can I expect after three years?


Your decision to invest through SIP is correct. HDFC Equity is a fund with long-term performance that can form the core of a portfolio. Franklin Flexi Cap has the mandate to rebalance the portfolio to take advantage of opportunities across market capitalizations. Reliance Diversified Power has given excellent returns in the past. If you are comfortable with the highly concentrated portfolio, which focuses on the power sector alone, you can continue with the fund but tone down the expectation on the return because the past returns are not sustainable. As a sector fund, it should not be the mainstay of your portfolio. Allocate only a small proportion to it.

I want to invest Rs50,000 in a mutual fund (MF) scheme that will help me save tax. Please suggest me one. Does the time period for which a fund has been in the market matter?


SBI Magnum TaxGain, Franklin India Taxshield and Principal Tax Savings Scheme are all good tax plans. It is better to invest through an SIP to take advantage of rupee cost averaging. A fund that has been in the market for a longer period shows its performance across market cycles.

I can save Rs1,500 per month. Please suggest a good ETF.


The Nifty Benchmark Exchange-Traded Fund (ETF) is an exchange-traded fund that tracks the Nifty. You can buy units on the National Stock Exchange (NSE) on any trading day. You need to have a trading and depository (demat) account to invest in ETFs.

I have Rs7 lakh to invest in mutual funds. Should I invest a lump sum or parts of it at separate intervals?


Investing periodically allows you to get the benefit of rupee cost averaging. Identify the mutual funds that you want to invest in and start a systematic transfer plan. In this, your lump sum is invested in a short-term debt fund and periodic transfers made to your funds of choice within the same fund house. Look at the applicability of loads and the effect of taxation when you invest.

What is the difference between income funds, gilt funds, liquid funds, monthly income plans and fixed maturity plans? I need to park some money for six to eight months. Which debt fund should I go for?


All of them are debt funds that meet different needs of the investor. Income funds and gilt funds are suitable for investors with a longer investment horizon. Liquid funds meet the need with negligible volatility to park funds for very short-term periods. Fixed maturity plans are closed-end funds, which invest in debt securities whose maturity term matches with that of the fund. This makes their interest rate risk neutral and they are able to indicate the likely return at the time of investment. Your need should be met by short-term bond funds such as HDFC Cash Management Savings Plus Plan and Tata Short Term Bond Fund, among others.

I want to invest in SBI Magnum Contra Fund through a systematic investment fund (SIP) for three years. How has the fund performed? In order to get money regularly, should I invest in the dividend option?


The SBI Magnum Contra Fund is good for long-term investment. Its three-year returns at 64.9% have been exceedingly good, just as its five-year returns at 70.4%. The dividend option is a good choice as you need money regularly. Investing through an SIP will help you in case of market volatility.


I am planning to buy a house jointly with my wife and take a joint home loan. Can we both claim income tax (I-T) deduction?


If your wife is working and has a separate source of income, both of you can claim separate deductions in your I-T returns. For claiming I-T deduction regarding the housing loan, the equated monthly instalment (EMI) amount is divided into the principal and interest components.

The repayment of the principal amount of the loan can be claimed as a deduction, under Section 80c of the I-T Act, up to a maximum amount of Rs1 lakh individually by each co-owner. The repayment of the interest portion of the EMI is also allowed as a deduction under Section 24 under the head ‘Income from house property.’

In cases where the house is owned by more than one person and is also self-occupied by each co-owner, each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs1.5 lakh. If the house is given on rent, there is no restriction on this amount and both co-owners can claim a deduction in the ratio of ownership.

I plan to sell an ancestral property, which was bequeathed to my father by his. We are two brothers and have agreed to part it equally; there are no other claimants to the property. What will the tax liability be? The property was purchased in 1949 for about Rs5 lakh. It is difficult to estimate the cost of home improvement. Its sale value is around Rs45 lakh. Also, pleasesuggest how we can reduce our taxability.


The taxability of the ancestral property will arise only at the time of its sale. As it is co-owned by your brother and you, each one of you will be taxed separately in respect of the capital gain earned on the sale of property. Since the property was first acquired in 1945, the profit on sale will be termed a long-term capital gain and be taxed at the rate of 20% after indexation of cost as per the rates applicable for the year of purchase and sale. The cost of acquisition in this case will be substituted by the fair market value of the property as on 14 January 1984 and will be indexed accordingly.

You can reduce your taxability by investing the amount of gain or the total amount of sale proceeds in a new house property within one year of the date of transfer of such property, or within two years thereafter. The exemption is also available if you construct a new residential property within three years from the date of transfer. In this case, the entire amount of capital gain shall be exempt from I-T under Section 54 of the I-T Act. Alternatively, you can also invest the amount of gain in tax saving bonds such as those of Rural Electrification Corporation or National Highways Authority of India.

Is it permissible to set off short-term capital loss from shares in the current year against ‘other incomes’ earned during the same year?


For the purpose of I-T, the profit or loss for all shares retained for less than one year shall be termed short term. If the holding period is more than a year, it will be classified as long term. As per the provisions of Section 70 of the I-T Act, short-term capital loss can be set off against long-term or short-term capital gain, but long-term capital loss can only be set off against long-term capital gain. You, however, cannot set off loss from shares from ‘other incomes.’ In case the loss cannot be wholly set off in the same financial year, the amount of loss can be carried forward to the following assessment year and for a maximum of eight assessment years immediately after the assessment year for which the loss was first computed.

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