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What are the benefits of Sukanya Samriddhi Yojana?

Author: Col. Sanjeev Govila(Retd)/Saturday, January 6, 2018/Categories: Ask the Finapolis

What are the benefits of Sukanya Samriddhi Yojana?

I want to create a corpus for my daughter’s education and marriage in next 20 years. Where should I invest? Should I open an account under Sukanya Samriddhi Yojana? I am thinking of opening SIPs of mutual funds but not sure about specific schemes. My earning is Rs 7 lakh per annum of which I spend around 70 percent on consumption and EMIs. Please advise me on this matter.

-- Abhishek Singh, Mumbai

Abhishek, since your investment tenure is quite long of 20 years, no other option will be most suitable for you than monthly SIPs in a diversified Equity Mutual Fund portfolio, which can provide you a decent tax-free and inflation-beating returns. You should have a portfolio with appropriate mix of both Sukanya Samriddhi and diversified Equity MF portfolio which will serve the purpose of maintaining asset allocation since investment in Sukanya Samriddhi account will serve the purpose of debt in your portfolio. In Sukanya Samriddhi Account, you are eligible for EEE (Exempt- Exempt- Exempt) benefit with 8.3% annually compounding returns and also you become eligible for deduction under section 80-C under IT Act, 1961 upto Rs 1.5 lakhs per annum.

But remember, the interest rate in Sukanya Samriddhi Account might come down in future; so major portion of your monthly contribution should be invested in MFs via SIP route which has a capacity of proving much higher tax free returns considering this long investment tenure. You should consult a good Financial Advisor and get yourself goal-based investments done, where the advisor will guide you with appropriate amount required for investment to save for daughter’s education and marriage amongst both the avenues.

Recently, I bought my second house in Bangalore. I am planning to let this property out on rent which will help me in reducing my EMI burden. I am currently staying in my first house. I want to know that whether I can claim deduction for paying interest and capital towards my second home. Also, do I have to pay tax on the rental income?

-- Suhas Bane, Ratnagiri

Yes, you can claim deduction for the property which you are planning to let out on rent. In case you own more than one house property, you have to choose any one property as self-occupied and the other property/properties are treated as let-out for which a notional rental income, based on the rent the property is expected to fetch, is required to be offered for taxation. So, once any such property is treated as let-out, you can claim the tax benefits under IT section 24(b) for the interest paid, for money borrowed in respect of any of the property that is treated as let-out. A total of income obtained from all the house properties owned by you, will be treated as income from house property and added to your total income. If the income under the head house property is negative (loss), you can offset that loss against your other taxable income including salary. But, Budget 2017 has put a cap of Rs. 2 lakh on the house property loss which can be adjusted against income from other heads in a financial year. So it means that now you will be able to offset a maximum of Rs 2 lakh house property loss against your other income and balance may be carried forward for maximum next 8 assessment years to be adjusted against income under the same head.

As per the provisions of Section 80C, you can claim up to Rs 1.5 lakhs for repayment of housing loan taken from specified institutions, including cost of registration and stamp duty of a residential house. Although you can take home loans for more than one property, the amount of deduction shall be restricted to Rs 1.5 lakhs. The overall amount of deduction includes other items like provident fund contribution, life insurance premium, tuition fees, PPF contribution, NSC, ELSS, etc.

This deduction can be claimed only after you have taken possession of the property. Please note that repayments of loan taken from your friends and relatives, are not eligible for this deduction.

I have an agricultural land of around 10 acres at my native place which is 50 km from Meerut. Last year, a movie crew rented 1 acre of land from me for 6 months for shooting a film and paid me Rs 3 lakh. Considering this as agricultural income, I didn’t pay tax on this amount. However, I got an IT notice last month with tax demand on this income. Please advise me whether I should pay the tax or contest the decision.

-- Raghuvir Rawat, Noida

As per section 10(1), agricultural income earned by a taxpayer in India is exempt from tax. Agricultural income is defined under section 2(1A) of the Income-tax Act and it means: (a) Any rent or revenue derived from land which is situated in India and is used for agricultural purposes. (b) Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce. (c) Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A).

Income earned by you by way of renting agricultural land to a movie crew for movie shooting does not amount to agricultural income. The shooting of films is an activity which has no connection whatsoever with agricultural operations, or with the land, except that the shooting is done on land which is agricultural land. Hence, it is not an agricultural income but, income from business and profession and you may have to pay tax as IT department is quite rightly sent tax demand notice on this income which is not part of your agricultural income.

I am a software engineer currently working in Pune. I have been reassigned on a project in US for a period of 5 years and will soon relocate. Recently, I came across the news that PPF and NSC will earn far lesser return if you turn a NRI. As I am planning to move to US on a longer assignment, should I close my PPF account. What other avenues are available for me as part of pension planning?

-- Deepak Nanda, Pune

As per the guidelines of RBI, a person with residential status of NRI, has to close his PPF account and NSC with immediate effect. As you are going to US for a period of 5 years, your residential status will change to Not Ordinarily Resident (NOR), not as NRI, after completion of 5 years abroad. According to the rules, a person is said to be a NOR if he satisfies the below mentioned conditions:

1. Stayed in India for 182 days or more in a financial year, Or

2. In India for 729 days in last seven years immediately preceding the years when he leaves India.

As you will be NOR after five years, you can continue the PPF account and your NSC. For your retirement expenses, which is far away right now, you should take some equity products like direct stocks and/or mutual funds which will help you in accumulating a sustainable retirement corpus as per your investment. Go in for monthly investment options (SIPs) in such investment avenues and continue to increase your SIPs by 10-20% every year as per your comfort level. Mutual Funds are flexible, tax-efficient and give good returns, if planned carefully and regularly monitored. Moreover, you will have the systematic withdrawal (SWP) option from the funds after your retirement which can even give you tax free outflow if planned properly.

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Col. Sanjeev Govila(Retd)
Col. Sanjeev Govila(Retd)

Col. Sanjeev Govila(Retd)

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