A year-end checklist for couples (A Case Study)
Anshul Jain an IT professional, and Priya, a freelance TV actress, live in Mumbai with their son Aryan. Anshul pays Rs 25,000 as home loan EMI. In 2013-14 (FY14), he switched jobs and also redeemed some of his equity mutual fund schemes, sold one residential property and surrendered a pension plan underwritten by a private insurer. The MF units redeemed were held for more than 12 months, which qualify as long-term capital gains (LTCG) and are thus exempted from tax, while the sale proceeds from the pension plan are added to his income and taxed at the slab rate applicable to him.
Anshul earned a total profit of Rs 35 lakh from the house he sold, and after considering indexation benefits, his total LTCG is Rs 28.4 lakh. Under the current taxation rules, he can save LTCG tax if he buys another residential house within two years or constructs a house within three years from the date of sale. But he should park Rs 28.4 lakh in a capital gains account scheme before filing his I-T returns for the assessment year 2014-15, if he is unable to buy the house before that.
Anshul’s salary slip shows that his current employer calculated his tax liability without considering his income from the previous employer and at a lower tax rate. His father gifted Rs 50,000 to Aryan, which was kept in an FD in Aryans name. Here, interest earned will be clubbed with Anshul’s income. His total contribution to the employee provident fund (EPF) scheme is Rs 48,000 during FY14.He paid Rs 11,500 as a term insurance policy premium, Rs 93,000 towards principal and Rs 2.07 lakh towards interest during FY14.
Recommendations for Anshul
Anshul’s contributions to EPF, home loan principal payment and Aryans tuitions fees qualify for deduction under section 80C of the I-T Act and the total amount exceeds Rs 1 lakh the upper limit under this section. So he doesn’t need to invest more in this category.
He can claim a deduction of Rs 1.5 lakh towards interest paid on home loan for the self-occupied property. Since income from various sources for the whole financial year is assessed together in the subsequent financial year, we calculated his gross total income from all sources and advised him to pay advance tax to avoid paying interest.
Recommendations for Priya
Priya earned a total income of Rs 10 lakh in the current financial year and has not made any qualifying investment for claiming deductions till date .There are various investment schemes eligible for claiming deductions under the I-T Act, which include PPF, NSC, bank FDs of five year tenure, Post Office time deposit with five-year tenure equity – linked savings schemes (ELSS), etc.
Considering that Priya earns and contributes towards her family’s expanses, we recommended she buy a term insurance policy with a sum assured of Rs 50 lakh with an annual premium of Rs 11,000.Since she is self-employed and cannot get the benefit of EPF, we advised her to invest Rs 60,000 per annum in a PPF account. Also, since equity investments have the potential to deliver higher returns and can help her create wealth in the long term, we recommended she start investing Rs 29,000 in an ELSS. This total contribution of Rs 1 lakh will qualify for claiming deductions under the I-T Act.
Since Priya and Anshul are both covered through a group health insurance policy from Anshul’s employer, they are not interested in buying an additional cover at this moment. However, Priya has paid Rs 5,000 for her preventive health checkup for which she can claim a tax deduction. Also, since Priya has never invested in equities earlier and her income for the current financial year is below Rs 12 lakh, she is entitled to claim further tax deductions. We advised her to invest Rs 50,000 in RGESS of a mutual fund.
All names in the case study have been changed. Story published in Times of India on 11th March, 2014.
