All joint home loan takers can claim I-T deduction

All joint home loan takers can claim I-T deduction


Which category of funds are the safest and the strongest on performance?


Safety and performance are opposite ends in the mutual fund space. The safer your fund is, the lesser will be its potential to deliver high returns. Your potential to earn higher returns goes up only if you are willing to take on more risk. For instance, equity funds have the potential to give you the highest returns over a long-term period, but carry the maximum risk as they invest in the equity markets and, therefore, are prone to market volatility. On the other hand, liquid funds are the safest among all mutual funds, but they invest in securities that mature within a day to three months and, therefore, yield modest returns.

I will retire in February next year. How should I invest my provident fund (PF) and gratuity amount of around Rs8 lakh in mutual funds?


Keeping in mind your need to earn some regular income during your retirement years, and thereby assuming that you have already invested in bank fixed deposits, which would give an assured monthly or quarterly income, it would be prudent to consider monthly income plans (MIP) of mutual funds (MFs). MIPs invest substantially in debt instruments and a portion—typically 5-15%—in equities. While the debt portion will give you stability, equities will give the kicker in returns. Opt for dividend plans. Finally, invest up to 20% of your sum in equity funds (dividend plans) with good, long-term track records, such as HDFC Top 200, DSP ML Opportunities Fund and Fidelity Equity Fund.

I hold units in SBI Bluechip (dividend), ICICI Dynamic (dividend) and Franklin Opportunities. I am not happy with their performance. Should I hold them or reinvest in another fund(s)?


Launched in January 2006, SBI Magnum Bluechip’s performance has not been inspiring so far. As the scheme is less than two years old, it’s too soon to ascertain the long-term prospects of this fund. SBI Mutual Fund’s management is conservative, but good. In case you invested in this scheme because you wanted an exposure to large-cap scrips, note that the track record of Franklin India Bluechip Fund (FIBF) is better over a longer period and that makes it a better option. Either stay invested for another year for a turnaround in performance or switch to FIBF.

ICICI Prudential Dynamic Plan’s performance has been above category average and does not warrant a sell. Stay invested. Franklin India Opportunities Fund is an aggressive fund that dabbles in a few sectors at a time and is meant for the high-risk taker. If you’re comfortable with its high and volatile returns and a high-risk profile, stay invested, else switch.

After a bad experience with a broker, I invested in a few diversified equity funds by directly going to the asset management company (AMC) office of the respective fund house. There is no agent/broker’s name in the account statement also. Is this OK? Will I have to suffer some loss?


Going directly to the fund house and avoiding your broker will not incur you any losses. Your broker’s name will appear in your account statement only if you go through the broker.

However, should you need to contact your fund house for any queries that you may have on this particular investment, the chances are that you will have to contact the fund house on your own. Even if, in the future, you find a broker who satisfies you with the service and you choose to route all your future investments through the person, the chances are that your fund house will not entertain any queries that go through the broker on this particular investment. Typically, fund houses do not give any investment details to brokers that are not routed through them. Do not worry, though. These days, almost all fund houses have dedicated call centres to solve all your queries. You can find these phone numbers on your account statements.

I am 26 years old and plan to invest in mutual funds through systematic investment plans (SIPs) from next month. How should I start and what should I be careful about?


Invest for the long run. As equities outperform all other assets over a long period of time, it’s important that you stay invested for the long haul. Do not churn your investments frequently either on account of the market volatility or on the insistence of your broker, who might tell you to switch from one fund to another after one year is over, for flimsy reasons.

Some equity funds with good, long-term track records would be Fidelity Equity, HDFC Top 200, DSP ML Opportunities and Reliance Vision.

Please suggest some good, tax-saving systematic investment plan (SIP) schemes.


HDFC Long Term Advantage Fund, HDFC Tax-saver, Principal Tax Savings, Fidelity Tax Advantage and Reliance Tax Saver Fund. All these schemes permit you to start an SIP.


Can my brother and I both claim tax deduction for a home loan we have taken jointly?


Yes, that can be done. If a house is owned by more than one person and is also self-occupied by each co-owner, then each co-owner is entitled to a deduction individually up to a maximum of Rs1 lakh on account of repayment of principal amount of the loan taken to buy the house under Section 80c of the Income-tax Act. Co-owners are also entitled to a deduction up to a maximum of Rs1.5 lakh each on account of interest paid on the home loan. However, if the house is given on rent, then there is no limit on the amount of deduction on account of interest paid on the borrowed capital.

My tenant is asking me to issue him a composite rent receipt, including the fees for services rendered by me, such as maintenance, gardening and water, that I charge separately. Will it affect my taxability?


The tax liability will remain the same because for tax purposes, you have to anyway separate the amount received for rendering services.

The services provided by the landlord such as electricity, water, maintenance of common area and staircases, and watchman are not included in the rental income from the house because they constitute separate activities distinct from the letting of the house. The service charges received are not part of the income derived from the house and have to be shown under a separate head as ‘Income from other sources.’ The actual expenses incurred can be claimed as a deduction from the total amount received for rendering these services.

My wife is a part-time tutor and earns about Rs7,000 a month. She receives the amount in cash. Does she have to declare her income and file income tax returns? How should I manage this?


The basic exemption limit for not filing return in the case of women is Rs1.45 lakh per annum with effect from financial year 2007-08. Your wife is earning about Rs84,000 per year, which is below the threshold limit for filing returns. Therefore, it is not mandatory for her to file her income-tax return.

However, it is advisable for her to open a bank account and deposit her earnings in it. When her income becomes more than the basic exemption limit in the future, she can apply for a permanent account number (PAN) and file her return.

My private sector employer is trying to restructure salaries to reduce the tax burden on employees. Please give some suggestions on how the tax on salary income can be reduced?


Your income tax liability actually depends on your salary structure. Salary consists of basic pay plus allowances and perks. Perks are either taxable in the hands of the employee or in the hands of the employer, wherein the employer has to pay fringe benefit taxes, unless specified to be exempt. Allowances that are in the nature of reimbursement are generally exempt in the hands of the employee.

Certain allowances are exempt. Conveyance allowance for commuting between residence and place of work is exempt up to Rs800 per month. Leave travel allowance given as reimbursement is exempt once in two calendar years.

Reimbursement for medical expenses is exempt up to Rs15,000 in a financial year. Children’s education allowance is exempt up to Rs100 per month per child for two children.

If you are staying in a rented accommodation and paying rent, then your house rent allowance will also be exempt in your hands, subject to certain conditions.

A uniform allowance to meet the expenditure incurred on the purchase and maintenance of a uniform worn during the performance of office duties is exempt from tax. Payment or reimbursement by the employer for landline and cell phones is not a perk. Your employers can structure salaries keeping the above in view.

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