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I am a retired person. My age is 65. I have a house, and my savings. I don’t have any insurance.

I live in my own house with my wife. The cost of living is around Rs. 3000 per month. How much insurance should I buy? How should I invest my savings? Please suggest. Thanks.

Here is a small analysis:

Your only dependent is your wife (assumption - she doesn't have an income of her own), so you need insurance just enough to take care of her in case something happens to you. The sum insured should be such that out of its interest, your wife can live comfortably.

If her cost of living = 3000 / 2 = Rs. 1500 per month, which is Rs. 18000 per year, she would need around Rs. 2 lakhs to earn Rs. 18000 as interest on it. With some buffer, I would suggest that you get insurance of Rs. 2.5 lakhs. Go for term insurance, which would also be the cheapest for you.

As far as investments go, at the age of 65, you shouldn't invest too much in risky avenues. Since I don't know the amount of your savings, let me give you a general picture.

A portion of your investment should be liquid, so that emergencies (like medical emergencies) can be taken care of. You can invest in bank's flexible fixed deposits, wherein the amount is kept as an FD, but can be withdrawn any time.

You can invest most of the balance amount in the government's Senior Citizen Scheme. You can also invest in normal bank FDs (with a monthly payment option) and mutual fund monthly income plans (although I personally do not prefer those).

Please remember to keep a small portion - say 10% - for equity mutual funds - they would give excellent returns in the long term and would help you beat inflation and the resulting increase in your cost of living.

Also remember - your biggest asset is your house.

First of all, since you own your house, you need not pay rent every month - that is such a big relief! Secondly, if you and your wife do not have dependents, or do not intend to leave the house to the kids, you can also explore the possibility of something called a Reverse Mortgage. In this case, you would pledge your house to a bank, and the bank would pay you a fixed amount every month!

Happy investing!

I am 28 yrs old. I am getting a salary Rs.20,000/- pm. Please tell me how I can plan my retirement.

Hi!

Here are a few pointers that you can use for your retirement planning:

1. More than the current income, observe what your current expenditure is. Find out what your expenditure would be at the time you retire, considering the changes in family situation. Don't forget to factor in inflation in your calculations - you can use the average inflation over the past 10 years.

2. So, the amount you need when you retire should be such that it gives returns that can meet your expenses as calculated above.

Now, how to invest so that you reach that amount:

Since retirement is many, many years away, invest in equities. You can do this safely through mutual funds. Do a research on good diversified MFs on www.valueresearchonline.com. Invest in top rated MF schemes through SIPs. Also review the performance of your MF scheme once a year.

Insurance: Don't invest in ULIPs or endowments, stick to term insurance plans. Cover yourself adequately, considering the needs of your dependents.

Also buy health insurance for yourself and your family, if it is not provided by your employer.

And most important - start investing NOW. The earlier you start, the more would be the benefit of compounding!

Happy investing!

Hi. I want to invest in shares for long term. Which stocks should I invest in?

To start with, let me clarify my view on "long term" as far as stocks are concerned.

Many business TV channels suggest that for stocks, "long term" is anything over one year. In my opinion, when you are investing in stocks, "long term" means five years or more.

With that in mind, let me answer your question. For long term investment, you need companies with solid fundamentals and visible growth going forward. I would recommend the following stocks:

1. Reliance Industries: It has given excellent returns in the past, and would continue to do so in the future. Its refinery business provides continuous cash flows, which the company is investing in new businesses. Its oil exploration business has also consistently proved to be successful

Reliance has entered new businesses like Retail and SEZ. Since Reliance has a very strong track record in project execution on a very large scale in the past, these ventures are also expected to be very successful.

2. ITC: Invest in it not from the cigarettes perspective, but because of the rural growth story.

While its cigarettes business provides a price insensitive, continuous cash flow, ITC's investment in the e-choupals and choupal sagars has a great potential going forward. With the economy growing at astonishing speeds, rural demand and rural supply chain would provide a big push to the company's bottomline.

ITC's hotel business is one more incentive to invest in it.

3. Tata Motors: It has a wide range of car and bus / truck models under development, and these would provide a renewed push to the company's sales. Its Rs. 1 Lakh car is also expected to create ripples in the low-end car market, like Indica did when it was launched.

With booming economy, its transport vehicles would also have a good growth in sales.

The company is a fore runner in the acquisition of Land Rover and Jaguar brands from Ford. If this becomes successful, it would benefit from the technology that it gets, and would also get a ready presence in the European market.

4. Tata Steel: With the acquisition on Corus, it has access to the latest technology, which would enable it to produce products having a higher margin. It has also obtained a stronghold in the European market.

5. Reliance Communication: It is the largest player in CDMA, and is now entering the GSM market. With nation wide presence and deep pockets, it is bound to be successful in a short time.

With more and more people purchasing mobile phones, and also upgrading to various value added services, both the top line and the bottom line should keep growing for quite some time.


Apart from these stocks, you should also look at some mid-cap mutual funds (MFs), so that you can benefit from the high growth rates for top quality mid cap stocks. Reliance MFs Growth fund can be a good option.

Happy investing!

I have identified a good mutual fund, but it charges an entry load.

Can you please explain what it is? Also, can you please also tell me about open ended and close ended mutual fund schemes? Thanks!

Entry load: This is largely levied to recover the marketing expenses of the MF. It is usually 2.25% of the investment, and is charged at the time of purchasing the units of the mutual fund (MF).

Exit load: It is levied to penalize early exit so that such exits are minimal. The exact time depends on the MF scheme - some schemes levy an exit load for exit before 12 months, some for 6 months. There are many schemes though that do not charge any exit load.

Open Ended: Here, the MF itself buys and sells units every day at the daily NAV value.

Close Ended: The MF redeems the units only at the end of the period for which the units were issued - that is the lock in period. But the units are listed on stock exchanges, and can be traded like normal stocks.


For more useful definitions, please visit the "Definition of Common Terms" section.

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Then, click the "Save Changes" button.

Hi,

I am thinking of investing in stocks right now. My intention is to buy stocks in small quantities and stay put for few years. I am saying that I want to be an investor as opposed to being a speculator.

Most of blue chip companies are in thousands and this prompted me to look at the mid cap and small cap stocks. I am trying to find the stocks that offers dividend among the mid and small cap.

As I work hard to earn each and every penny, I would like to invest in stocks that yields some returns apart from appreciating a bit.

I request you to provide me a resource where I can find information such as mid and small cap stocks that provided dividends in the past few years. If there is no such resource, please advice me on few stocks from each sector.

Thanks
Santhosh

Hi Santosh,

It is a good decision to invest for the long term and be an investor. Congratulations - you have taken a very wise first step!

Since your investment horizon is long, your decision to invest in mid caps and small caps is also correct. These are small companies that have the potential to become the leaders in their fields. Also, since they are small in size, their growth rate (in percentage terms) is also usually very high.

The real problem lies in identifying good mid caps and small caps. There are lots of mid and small caps, and identifying a potential winner can be really tough. Therefore, I would advise you to invest through mutual funds.

A good mid cap MF with an excellent track record is Reliance Growth Fund. (That’s where I have invested!) Another good scheme is Franklin Templeton Prima fund, but its performance in recent times has not been very good.

But if you want to do research about individual stocks, you can go to www.MyIris.com. Another very good site is the research section at www.icicidirect.com (http://content.icicidirect.com/research/predefinedsearch.asp?icicicode=type%20symbol) Here, there are many predefined filters that you can choose to isolate the stocks that interest you. (One of the filters gives you large and mid cap stocks with a high dividend yield).

Happy investing!

What is CAGR? How it is calculated?

CAGR stands for Compound Annual Growth Rate.

Its meaning is very simple – it is the growth rate of a company expressed on an annualized basis. This is the average growth rate of the company over some years, and takes into consideration the effect of compounding.

Understanding the principle of CAGR is very important, because it is used at many places. For example, it is looked at while examining at returns generated by mutual funds (MFs). CAGR should also be used while considering any other investment.

Please read the article “What is Compound Annual Growth Rate (CAGR)?” to get a more detailed explanation.

Hi,

I am NRI living in North america. Can NRI's living in NA have a trading account and trade themselves? If not, why are we not allowed to do so? What is the best alternative for this?

Thanks
Santy

Hi Santy,

A very valid question.

The scenario for investment in India by NRIs from USA is not very good. The information about investing in India is not readily forthcoming, and whatever is available, is not very clear. Institutions too have unclear rules – for example, some MFs like Franklin Templeton, Fidelity and DSP ML have clear rules that US NRIs can’t invest in their schemes, but other MFs are less than clear about this.

Anyway, the conclusion is this: Investing in India on a non-repatriable basis is not difficult. You need an NRO bank account, a PAN number and a demat account. You also need a trading account with a broker. Then, you can invest in Indian equities by placing orders with the broker.

It might also be possible to invest using an NRE account and a demat account, but at his time, I do not have enough information about it.

I would write a detailed article on this topic once I have enough information. Please keep checking this website.

If a reader knows more about this subject, I request her / him to provide the details in the comments.

---------------------------------------------

Other good options:

(A) If you want to invest in the leading, large cap stocks from India, there are some domestic (USA) options available to you.

One is to invest in the ADRs of the companies listed in the USA. Some of the finest Indian companies have listed their ADRs in the USA, some very good examples being ICICI Bank, Infosys Technologies, Tata Motors and Dr. Reddy’s Labs. Of course, your investment universe would be limited to the companies who have issued ADRs, but there are two advantages – One, these are some of the best Indian companies, and, two, investing in ADRs is very straight forward and easy.

The other option is to invest in India through a fund.

One very good fund is the Matthews India Fund, or MINDX. It is a fund that invests in the large cap companies from India, and has given returns very much in line with the returns provided by the Indian markets in general.

You can find more information on MINDEX at (1) http://finance.yahoo.com/q/hl?s=MINDX , or (2) http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&Symbol=MINDX

Another good fund is “iPath MSCI India Index ETN”, or INP. It is an Exchange Traded Fund (ETF). It has given a return of 87% in 2007, again in-line with the India stock markets.

You can find more information on INP at (1) http://seekingalpha.com/symbol/inp , or (2) http://finance.yahoo.com/q?s=inp

India Fund, Inc. (IFN), which is managed by the Blackstone Group, is a close ended fund and is another good option.

You can find more information on IFN at http://finance.yahoo.com/q?s=ifn

(B) If you have large sums of money to invest, you can consider being a private equity investor. Institutions like ICICI Bank provide services to NRI regarding this.

----------------------

I would write a detailed article on this topic once I have enough information. Please keep checking this website.

If a reader knows more about this subject, I request her / him to provide the details in the comments.

Hi All,
Plz Let me know how to calculate Leave Encashment? I need the formula with example.

Please refer to the discussion going on in the Discussion Forum at the following URL:


http://www.raagvamdatt.com/module-pnForum-viewtopic-topic-8.html

How to calculate leave salary. plz answer this with an example.

Please refer to the discussion going on in the Discussion Forum at the following URL:


http://www.raagvamdatt.com/module-pnForum-viewtopic-topic-8.html

The reader "Srinu" asks:

can you please suggest me whether buying mutual funds of
"SUNDARAM BNP PARIBAS" entertainment sector growth fund is a good idea????
its ipo opening is on 24th april
is entertainment sector a booming one as said by them??
can u also tell me whwther to buy a growth fund or a
D-fund and the diff between them????

The Sundaram Entertainment Sector fund is a thematic fund - which means that it focuses on just one sector. Therefore, it comes with substantial risk, as there is very little diversification. You should invest in it if you think that the entertainment and media sector is going to outperform the overall market.

In my opinion, the media and entertainment sector has huge potential, and is likely to grow very fast. This is especially true because the entertainment sector largely depends on spending by young people, and we have a very large young population with rapidly rising disposable incomes.

This fund would provide some diversification in the form of foreign holdings - it has kept an option of investing upto 35% in foreign stocks from the entertainment segment.

The fund should provide good returns in the long term. But you should invest in thematic funds only if you have other, larger holdings in diversified equity funds.

Thus, if you are already invested in some diversified mutual funds, you can invest some amount in this fund.

For more information on growth and divident options, please read "Mutual Funds - Growth or Dividend option?" at: http://www.raagvamdatt.com/Article98.html

Hi Raag,

Do you have any article on Vehicle Finance.

Regards,
Ketan

Hi,

I did not have an article on Vehicle Finance, but its an interesting topic. Thanks for asking!

I have written an article on auto loans based on your question - you can find it here: An Introduction to Car Loan / Auto Loan / Vehicle Finance.

Sir,I have a corpus of 20lakhs in mutual funds,and wish to retire,i am 40 years old, is it wise to retire,assume i have cash liquid say 8lakhs, my expenses are minimal,no commitments

Let’s examine your savings:



Money in MFs: Rs. 20 Lakhs

Cash: Rs. 8 Lakhs

Total: Rs. 28 Lakhs



If you retire, you should invest most of the money in safe instruments that give a steady stream of income, like bank a Fixed Deposit (FD), Post Office Monthly Income Scheme (PO MIS) or Senior Citizen Scheme.



Some portion of the money should be invested in diversified equity mutual funds (MFs), so that you get an inflation beating return in the long run. This would help your principal grow, so that you can earn more in subsequent years and take care of increased prices.



Let’s say you invest 20% in diversified MFs, and invest 80% to earn regular income.



Today, you can earn around 7% per annum post-tax using safe avenues like bank FDs. Thus, your post tax income on Rs. 22.4 Lakhs investment would be Rs. 1,56,800 per year. Or, around Rs. 13,000 per month.



The remaining 20% (Rs. 5.6 Lakhs) would be invested in equity for the long term, and any income from that should not be considered as a part of your annual spend-able income. It would be used periodically to enhance your interest bearing capital over the years.



Thus, if your current expenses are less then Rs. 13,000 per month, you can retire today with your corpus of Rs. 28 Lakhs.



In my opinion, this income might be a little low to take care of day to day expenses, with costs increasing every day! Here are a few thing to consider:



1. You work for a couple of more years, and increase your corpus so that you can get a higher income.



2. Have you considered all your savings? You have mentioned Rs. 20 Lakhs in MFs, and Rs. 8 Lakhs cash. Do you have some money at other places – like Provident Fund (PF), Public Provident Fund (PPF) or National Savings Certificates (NSC)? If so, include it in your corpus!



3. After retiring from your regular job, take up a part-time supplemental job in a field that you like – related to something that you always wanted to do. If you like painting, you can teach people to paint. Or you can teach kids at a pre-school. Anything that you absolutely enjoy. That will augment your income, and would keep you occupied in a way you enjoy!



Note: Since I didn’t have enough details, I have made the assumption that you don’t need to make any big-ticket spends in the future, like buying a house or a kid’s marriage.



For more on planning for retirement, please read "Want to retire early? Here’s what you need".

I am looking for a short term investment (lets say ONE year)... What are the best & safe available options? Wanna invest 2.5 lacs Rs in near future. Pl. advice.

1 year is quite short a duration to explore too many options. Especially, when you are looking for safe options. Equities would be the the safest option - if you are looking at 5 years or more.

I believe a bank fixed deposit (FD) would be the best option for 1 year. You can have a look at what ICICI bank is offering - you can earn 8.5% for a 390 day term deposit, which is among the best rates available today.

Hi,

Grateful if you could answer following queries

1. Is deduction for Housing Loan Principal Repayment is allowed for house under construction?

2. When NSS (National Savings Scheme) is matured the entire amount including the principle is to be added in total income of the year in which withdrawal is made or total interest earned on NSS is to be added in total income?

Regards

good_friends

Hi Good Friend,

1. The deduction of housing loan principal amount repayment is not allowed for a house under construction.

It is only allowed from the financial year in which the construction of the house is completed. Thus, if you have been repaying principal for the entire year, and the construction gets over in March (or any previous month), then you can claim deduction for the full principal amount paid. But if the construction gets completed in April, then, you cannot claim deduction of the principal amount that you have repaid.

For this reason, most banks do not fully disburse the loan before the construction of the house is completed. They release a partial amount, and you pay a pre-EMI interest on it. This interest can be claimed for deduction in 5 equal parts for the following 5 years.

If you have paid the stamp duty and registration during the year in which the construction gets over, even that can be claimed for deduction for that year.

2. The answer to this depends on which NSS scheme you have invested in. The tax treatment for National Savings Scheme (NSS) 1987 and NSS 1992 is different.

For NSS 1987 (which was closed with effect from April 1, 1992, and a new scheme was launched), the entire contribution was deductible from taxable income. Here, the entire amount - both principal and interest – are taxable on withdrawal.

For National Savings Scheme 1992, the contribution was deductible subject to the ceiling under Sec. 80C. Here, only the interest income is taxable. The principal is not taxable on withdrawal.

Even for interest, you have two options: You can show the interest on accrual basis (that is, show each years interest as an income for that year, and pay income tax on it every year). Or, if you haven't done so, you pay income tax on the interest earned in the year of withdrawal.

i have taken a home loan jointly in my name and my brother's name. if the interest paid in a year is Rs. 3 lacs, will both of us get tax benefit of Rs. 1.5 lacs OR will we get tax benefit of 75000/- each ?

Hi,

Both of you can claim deduction of interest upto Rs. 1.5 Lakhs each, which is the upper limit per person.

The claim should be in proportion to the repayment of the loan.

For example, if both of you have repaid the EMIs for 6 months each (50% each), both of you should claim 1.5 Lakhs as interest paid (50% each).

But if you have paid 8 EMIs (67%), and your brother has paid 4 EMIs (33%), even the interest needs to be claimed in the same proportion.

Thus, your portion of interest paid would be Rs. 2 Lakhs - 67% of total interest of Rs. 3 Lakhs. Of this, you can claim Rs. 1.5 Lakhs, as that is the upper limit per person.

Your brother's share would be Rs. 1 Lakh - 33% of the total interest paid, which he can claim fully (as it is below the limit of Rs. 1.5 lakhs).

my tax on taxable income is Rs.5,120
i come under 10% bracket.

how much i must save to save rs.5,120

Under section 80C, whatever you invest gets deducted from you taxable income, and you do not pay tax on it.

For having a Rs. 5,120 tax liability at 10%, Rs. 51,200 of your income would be taxable.

Thus, to make your tax liability Zero, you would need to invest Rs. 51,200 in instruments qualified u/s 80C.

You can read more on section 80C at: Saving Income Tax – Understanding Section 80C Deductions


(I hope you are asking this question for the next year, as for the last financial year, you can not have a tax liability of Rs. 5,120 being in 10% slab)

How does an American open a NRI account from America in India for a bank term deposit?

(Query from reader S Hall)

NRI accounts are meant for Indian citizens who are not residents of India. That is, these are meant for Indian citizens residing in foreign countries.

NRI accounts can not be opened by non-Indians. Therefore, it would not be possible for an American to open an NRI account.

I understand that the returns - from stock markets and from fixed income bearing instruments - are far superior in India compared to USA.

A good option to earn a higher return woud be to invest in India using India specific funds. You can read more about one such option at:

Matthews India Fund MINDX: A good proxy to invest in India

[A query from reader "Rajesh"]

Dear Sir,

I had bought a peice of land in hyderabad in dec07 and need to sell it off. Registered price of that land is still the same.

I am an NRI. As per my understanding,since the purchase price and sale price is the same, there is no gain, therefore there is no capital gains tax(please correct me if i am mistaken).

Is there any thing else that I need to do. I have a pan card with me which was made this year, have not filed any return of income in India as I have no income there.

Do I have to file income tax return because of this transaction and is there any other tax applicable...

Thanks Rajesh

Dear Rajesh,

Capital gains tax is calculated on the capital gain, which in turn depends on the buying and selling price.

As you have rightly pointed out, in your case, there is no gain. And therefore, there is no capital gains tax.

Since your are an NRI, and your income in India would be less than the threshold limit for filing income tax returns (your income in India is Zero, actually!), you do not need to file any IT return.

1. I am a doctor working in hospital and drawing salary. The hospital has given form 16, so it is clear for me that i have to file this return in ITR1

2. In addition, i get paid from different firm as professional fees as visting consultant. They have issued me form 16A.

I am confused which form to use for filing this return.

(A query from a reader - he is a doctor, and earns consultation fees apart from a salary)

Hi,

Your employer has issued form 16, which is for the salary earned by you.

The Form 16A that you have received is for the TDS on your professional income (income from consultations, which is not a fixed salary).

Since you have income from profession apart from income from salary, you should fill ITR3.

I am a NRI and my rental income through a Single property in India is 12 Lakhs per annum. Please advice me about the Taxation for this rent.

(A query from an NRI reader Ganesh)

Here's how you should calculate tax on this:


Take you gross rental income (Rs. 12 Lakhs), and deduct the municipal taxes you have paid from this.


From this, deduct 30%: This is a flat deduction allowed as a provision repairs and mainteance.


If you have teken the property on loan, deduct the interest paid from the result. There is no upper limit on this.


This is your final taxable rental income from the property.


Calculate income tax on it depending on the prevailing income tax slabs / brackets - you can find this information in the article "Budget 2008 – Impact of Income Tax Slab / Bracket Changes on You".


Example:


Say you have paid municipal taxes of Rs. 1 lakh (hypothetical)


Step 1:


Rs. 12 Lakhs - Rs. 1 Lakh = Rs. 11 Lakhs.


Step 2:


30% of this = Rs. 3.3 Lakhs.

Balance = Rs. 11 Lakhs - Rs. 3.3 Lakhs = Rs. 7.7 Lakhs.


Step 3:


No loan taken, so no change to this amount. We still have Rs. 7.7 Lakhs.


Now, calculate income tax on this depending on the slabs given in "Budget 2008 – Impact of Income Tax Slab / Bracket Changes on You".


Dear Sir or Madam,

Hello! First of all thanks for providing us with this wonderful website. I'm a newbie with extremely low knowledge of money matters like commerce, finance stocks etc.

Having said that just recently I have encountered with the biggest problem of my life. It started when we got our hands on a package containing some shares in physical form acquired by my grandparents. It contains shares in extreme variety of companies most of them I believe must be closed as of now. I'm having following problems while getting the remaining shares DEMATED.

1. There are some shares in my grandparents name, who has passed away many years ago. So what do i have to do to have those share transfered to my father or any of the siblings name (They are 5 brothers and sister in all).

2. There are some shares in which has my grandfather has first holder who is no more. What is the procedure for getting them transfered to the second and third holders.

3. Most of my father's sibling's must have signed those certificate well over 30-40 years ago and they don't remember their signature at that time. So whenever i send shares in their single name for DEMAT it returns with signature mismatch.

4. How would i know if the latest state of any company ( if closed, acquired by other company, changed name, changed face value, merged etc.)

5. They are some payments of dividends come through each year. But we don't seem to find the physical certificates of the, So my natural guess is that they must be lost. What is the procedure for acquiring new of duplicate certificates.

Hoping to receive your quick feedback to help me get though this thing as soon as possible.

With Best regards,
Madhav

Dear Madhav,

I can understand your confusion! I am answering your questions in a different order, as that is more logical.

4. You can find out the latest state of the company through the Ministry of Company Affairs (http://www.mca.gov.in/), and using the many investments related websites available on the internet.

I suggest that this should be your first step – the process of dematerialization of shares for a deceased person is a little cumbersome, and therefore, it would make sense to do it only for companies that are still operational.

Once you get a list of companies that are still operational, find out their share prices, and further narrow down the list to companies in which your grandfather had significant investment (number of shares X price of each share).

Concentrate your efforts only on these companies.

1. If your grandfather was a single holder, the following documents would normally be needed from the legal heirs:

- Request letter (for transmission of shares in favour of the legal heirs)
- Copy of death certificate of the deceased shareholders. This should be attested by gazetted officer or notary public.
- Certified copy of the succession certificate or will
- Original share certificates
- Current specimen signatures of the legal heirs

The actual documents needed vary from company to company, and some companies have their own forms. So, please check with each company individually. Some companies would also have this information on their websites.

Please note that you can ask for dematerialization of shares along with this request for change of name.

2. If your grandfather was a single holder, the following documents would normally be needed from the surviving holders:

- Request letter for deletion of name of the deceased shareholder
- Copy of death certificate of the deceased shareholders. This should be attested by gazetted officer or notary public.
- Original share certificates
- Name deletion form, duly filled and signed by the surviving shareholders
- Current specimen signatures of the surviving shareholders

Again, the actual documents needed vary from company to company, and some companies have their own forms. So, please check with each company individually. Some companies would also have this information on their websites.

And again, you can ask for dematerialization of shares along with this request for change of name.

3. Any change in signature has to be conveyed to the company. This usually needs attestation from your bank, and for some companies, this may also require an affidavit.


5. The process for getting a duplicate certificate also varies from company to company. But it usually involves a police FIR, and affidavits. It would be better to check with the respective companies.

As I mentioned before, this is a cumbersome process, and varies from company to company. So, it would make sense to do this only for companies where you have a significant investment.

Hi Raag,

Your site is wonderful. It is the most informative and upto date site I have ever come across when it comes to investments and tax.

I have a query for you.

My father's income is 2.5 lakhs. As he is a salaried employee, tax for him would be cut at the
source. So, cash in hand for him for that year would be (after taxes) 2.4 lakh.
(as he has no other tax saving related investments). Now, if he gifts
1,00,000 to my sister who is aged 21 and who is in her final year engineering, then will his
entire income become tax exempt? Can he file returns saying that 1,00,000 has been
gifted and will he get the 10,000 paid as tax returned?

Regards
Forest boy : )

[Query by email]

Hi,

An amount given to your sister as a gift would not be deducted from your father's income for income tax purposes. He would need to pay income tax even on that amount.

The amount given to your sister would be exempt from gift tax, meaning that there would not be any extra gift tax.

But there would be no income tax benefit due to the gift.

An investment in eligible instruments under section 80C before March 31st make that amount deductible from the income for that year, and therefore result in reducing the income tax burdon.

You can read more about saving income tax using section 80C investments in "Saving Income Tax – Understanding Section 80C Deductions" at http://www.raagvamdatt.com/Article123.html.

Hi,
I received my late father's Provident Fund and Gratuity cheques recently. I would like to know if PF and Gratuity are taxable. Thanks,

Roli

Dear Roli,

When PF and Gratuity amount is received by the legal heir of a deceased person, the entire amount is tax exempt. Therefore, you would not have to pay any tax on it.

I read your article in Dainik Bhasker today about retirment Planning. It was wonderful article.

The same issue which is taken in the article is always in my mind. What is the way? How can You get good return by putting your money today? It should not be market related and it should be one time investment. And it should not be every year commitment also.

Thanks for the wonderful article.

Naveen [Via email]

Dear Naveen,

Thanks a lot - I am very glad that you liked the article.

It is really good that you are thinking about retirement at a young age - it is best to start investing when you are young, so that you can reap the benefits of long term investment.

The bset long term returns are given by stock investments - there is no superior option. Therefore, it is wise to invest in equities, and stay invested for the long term.

Also, I understand that you want to make a one time investment - but that would mean you would need perfect timing to invest at a time when prices are the lowest. This is difficult, and therefore, it is best to distribute your investment over at least a few months.

There are many articles on www.RaagVamdatt.com related to these topics. In the comment below, there is a list of some of the articles. There are many more to explore, but you can start with these.

Happy investing!

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