1. I am 26 years old and my savings have drastically shrunk due to unplanned equity investments. Presently, I'm single and can invest up to Rs 30,000 per month. I do not trust myself to invest in equities. Could you suggest an alternative? I plan to retire at the age of 60.
— Akash Mohapatra, Bhubaneswar
You are young, have a long span of service left and do not have any liability to take care of right now. Just because you have had a bad experience of investing in equities, probably due to investing without proper knowledge and care, you should not abandon this excellent asset class. However, instead of investing in direct equity, I would suggest you to take the mutual fund route. It will be good if you can get a risk profiling done for yourself and then take a correct asset allocation of debt and equity mutual funds. Mutual funds are managed by a professional team of fund managers and have a team of researchers who use technical and fundamental analysis on prospective stocks.
Within equity mutual funds, you can bifurcate your investments into various sub-categories as per your risk appetite. Similarly, a proper combination of various categories of debt funds needs to be taken as per your future requirements.
While equity funds will give you good tax-efficient returns over a long period of time, debt funds will give your portfolio the required stability. Unlike in direct equity, you do not have to take calls on selection of stocks and their buy/sell timings as these are taken care of by the equity fund managers.
2. What would be the ideal fixed-income or stable investment instruments to balance my equity portfolio? Around 60% of my investments are in equities and equity mutual funds. I am 28 years old and my overall monthly expenses average at Rs 25000-30000.
— Nivedita Dwivedi, Patna
Please read the answer to the previous question. There are two classes in mutual funds - Equity and Debt. To balance your portfolio, there should be a requisite combination of both in your portfolio. This combination is determined by your future requirements (called financial goals) and your risk appetite. The allocation to equity and debt MFs varies from person to person and also varies through different phases of life.
As you are young right now and have a long working life, you can keep your allocation in equity higher and invest for the long term. Just as a ballpark figure at your age, something like 60-70% of your investment portfolio should be in direct equity and equity MFs, while and the rest can be in debt products (debt mfs, bank FDs, etc). While equity funds are market linked and invest in stocks, debt funds are not market linked and mainly invest in a mix of fixed-income products such as treasury bills, government securities, certificates of deposits of banks, corporate bonds and commercial papers, etc.
3. My wife's maternal aunt plans to gift her an ancestral agricultural plot, which she inherited from her father. Could you explain the tax implications on this gift?
— Trilok Patel, Mumbai
Assuming that the plot being gifted is ‘rural’ agricultural land, there will be no tax liability/implication on such a gift.
4. I own a 1BHK apartment in Thane. Over the past two financial years, I had been able to claim the entire home loan interest paid to the bank as a tax deduction on Incomefrom House Property, as I let out the property. However, this changed with Budget2017, which limited the interest deduction to Rs 2 lakh per fiscal. I have some questions in this regard:
- Will it be a beneficial proposition to let my property out for 2017-18, or should Ikeep it vacant?
- What will be the ‘deemed rent’ that will arise for my property for 2017-18 if it lies vacant?
- Moreover, the GST has certain provisions on let-out properties (in case of rent above Rs 50,000) that need homeowners to deduct TDS. Could you throw some light on this as well?
— K. Ramakrishnan, Mumbai
Please understand that the new provision of the Income-Tax Act introduced in the budget doesn’t limit the amount of interest on home loan but the amount of negative income under the head ‘Income from House Property’ that can be charged. Please also understand that your entire rent is not subjected to tax but you get a 30% of standard deduction benefit. For example, If you receive a rent of Rs 100, Rs 30 will be the standard deduction and only Rs 70 will be offered for tax. By not letting out the property, you will be losing this income. You gain nothing by keeping your property vacant.
Provision of deemed rent is applicable only if the property is not offered for rent; however, deemed rent is a bookish concept and is normally not taken into practice. Hence, if the property lies vacant (assuming actual vacancy), for whole or part of a year, you are required to offer rent actually receivable if the property were let out, as the notional income from that house property.
Provision of TDS on rent over Rs 50,000/- per month was inserted in the Income Tax Act and not in GST. As per the newly inserted provision, any person, being an individual or a Hindu Undivided family (HUF), responsible for paying to a resident any income by way of rent exceeding Rs 50,000/- per month or part of a month, shall deduct TDS at 5% of such income.