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Experts answer queries on tax, funds, loans


Kartik Jhaveri,moneycontrol.com
Mar 27, 2009 at 12:41pm IST

Readers ask: I am 35 and I am an engineer at a manufacturing company. I earn Rs 6 lakh as annual income. I invest Rs 15,000 in life insurance policies, Rs 10,000 in post office savings, Rs 5,000 in public provident fund (PPF), Rs 70,000 in mutual funds (tax planner). I have a mediclaim policies for Rs 20,000. I pay rent as well since I live in a rented house.

I want to pursue higher education at a cost of Rs 2 lakh. I have a few questions:

Query 1: Can I get tax benefit for my education?

Experts say: If you have taken an education loan from a bank, you are eligible for tax benefit of up to Rs 40,000 per financial year under Section 80C. Mere payment to fund your education would not qualify for tax exemptions.

PLAN YOUR EXPENSES: Intelligent planning of investments and knowledge of how to save taxes can help you save.

Other benefits

You are also eligible to get a benefit for the rent you pay. Check with your HR/Accounts department to know the exact amount of your house rent allowance (HRA) benefit. Your HRA benefit depends on your basic salary and the city you work in.

Calculating HRA

The HRA benefit you'd get is the minimum of the following:

  • 50 per cent of basic salary (if you live in a metro city – else 40 per cent)
  • Actual rent paid minus 10 per cent of basic salary
  • Actual HRA received

Query 2: Are the returns from mutual funds, PPF, taxable?

Experts say:

Taxation on different asset class

  • Returns from equity mutual funds are tax-free in the long-term (beyond 1 year), while you have to pay 15 per cent tax on short-term (less than 365 days)
  • Long-term capital gains on debt mutual funds long-term are taxable at 20 per cent with indexation and 10 per cent without indexation, while short-term gains are taxed at 30 per cent
  • PPF returns are tax-free

Query 3: What should my approach be in terms of investing?

Experts say:

Smart tips:

  • Party does not last forever – it holds true for all asset class, be it equity, bonds, real estate, commodities.
  • Always stick to prudent financial decisions - don’t be driven by short cuts, get rich schemes etc. Save about a third of your income and steadily keep increasing this percentage. Ensure that you keep investing no matter what.
  • Never ever over leverage – Invest what you have and what you can.

Some basic guidelines are:

  • Aim to control expense to a third of the income
  • Invest a third of your income
  • Always maintain a contingency fund equal to about three to six months expenses
  • Don’t take loans to invest in any asset – risky or risk free
  • Stay away from trading
  • Understand that there is always a fair value, whatever is the asset you a considering.
  • Flexibility is the key. All investments need to be flexible so that you can take maximum advantage when an opportunity emerges before you.

Disclaimer: The concept “I want a Plan” and contents above are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.

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