My wife and I hold shares of a reputed company. We want to sell them and invest the proceeds so that we can get a steady monthly income. Is it advisable to sell these shares? If yes, what is the detailed procedure, including the tax implications, for the same? What is the best and safe investment avenue so that we can get a steady monthly income for life?
—V. Swaminathan
If the shares of one company forms a substantial part of your portfolio, then you should surely consider disinvesting the same partially if not completely. It is good to diversify the portfolio instead of holding one share; even if it is a reputed company as you say, you are subject to the risks that the company may hold. The capital gains on listed equity shares exceeding ₹1 lakh in a financial year is taxable at 10% plus surcharge and cess as may be applicable. You will be eligible for grandfathering clause if you had invested before 31 January 2018 and any gains will be exempt from tax.
The reinvestment of the sale proceeds can be made in accordance with your risk appetite, as you need a regular income; so, you should consider a debt portfolio.
I want to take an education loan. I have two options. The first is to use my fixed deposits and use an overdraft on it. The second is the more traditional education loan on which I will be charged close to a 9.5% reducing interest rate. I’m leaning towards the first option, but I want to be sure that there are no caveats and tax implications.
—Name withheld on request
The key factors for you is the cost of borrowing and convenience when you compare both the options i.e. overdraft facility vs education loan. The cost in the overdraft facility comes at 6.5% (5.5%+1%). And in the case of a study loan, the cost is around 9.5%. As the interest is allowed as deduction under Section 80E of the Income Tax Act, the tax benefit will reduce the cost of borrowing. Assuming the tax rate at 30%, the net cost of borrowing comes to 6.65%. In case both are more or less equal, then you have to see the convenience. An education loan needs an earning co-applicant as well as collateral vs overdraft facility, which is easier in this process and does not require any co-applicant.
Surya Bhatia is managing partner of Asset Managers.
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