NRI Investment
I am a non-resident Indian working in USA from last nine months. My regular investments continue in ELSS mutual funds and provident funds. Being a NRI do I enjoy basic exemption limit while filing tax returns for the financial year 2015-16?
– Harish Gupta
Yes. For all income that is taxable in India, you get the same exemption limits as are applicable to a resident Indian.
Income Tax
In last month, I received intimation from the Income Tax Department under Section 245 of the Income Tax Act. Please explain the meaning of this intimation and what action do I need to take?
– Radhika Shah, Ahmedabad
Section 245 of Income Tax Act empowers the Income Tax Assessing Officer to adjust refund (or a part of refund) against any tax demand which is outstanding from the tax payer. In simple words, the IT department wants to adjust your refund due to you against a demand which is due from you. This demand may pertain to an earlier assessment year. But Assessing Officer can adjust the refund amount against the liability only after giving intimation in writing to such person under this section.
The details of your outstanding demand can be viewed on the website www.incometaxindiaefiling.gov.in by logging in with your login and password for this site. Go to the tab named ‘e-File’ and click on ‘Response to Outstanding Tax Demand’. Here you can view the details of your demand and also submit a response if you believe ‘demand is correct’, ‘demand is partially incorrect’ or if you ‘disagree with the demand’. In case no submit response option is shown, the demand has already been finalized by your Assessing Officer. However, this process is applicable only if the tax returns were filed by you through online mode. Else, you will have to use the physical letter mode for corresponding with your Assessing Officer.
Mutual Funds
What is the difference between balanced fund and dynamic asset allocation fund category? Looking at the current bearish trend which fund category do you recommend investing?
–Abhijeet Gaikwad, Pune
Asset allocation and balanced funds contain a mix of equities, bonds, cash and cash equivalents. Managers of asset allocation funds adjust the asset mix based on market conditions, while managers of balanced funds generally target a fixed allocation.
Asset allocation funds dynamically manage the equity allocation in the fund, depending upon the respective valuation of equity and debt markets at any given point of time. The parameter used to base a decision on when and how much to re-balance the portfolio is very important for these funds. However what is to be remembered is that the allocation changes as per market conditions and not as per the requirements of the individual investor. Balanced funds generally have a predictable asset allocation. Hence, when an investor subscribes to it, he knows what he is getting into and how much is it likely to change with market conditions.
I feel balanced funds always work better than dynamic asset allocation funds in almost all market conditions when seen from an investor’s point of view. This is because investors get better control over asset allocation, depending on their requirements and risk-taking attitude and aptitude. The net exposure to the fund can be changed as per an investor’s requirements and risk-taking ability. Also, asset allocation for the rest of the wealth portfolio can be decided based on the exposure taken by such funds.
Reverse Mortgage
My age is 67 years. During my tenure of working I couldn’t build desired corpus to take care of regular expenses in retirement period. I have my own resident house at Gurgaon. So, wanted to know is a reverse mortgage a good option for us and which are the major banks dealing in reverse mortgage loans?
– Giridhar Tripathi, Gurgaon
Reverse mortgage scheme is exact ‘reverse’ of a home loan scheme. In case of a home loan, one takes a lump sum loan and repays it in installments in future. Under the reverse mortgage scheme, you get installments and the loan is repayable in lump sum in future. Here, the payment stream comes to the borrower for a fixed period of time in the form of monthly, quarterly or yearly payments, as contracted for. You can even get lump sum payments under reverse mortgage loan, however, the total amount which you can get as lump sum cannot be more than half of the total eligibility amount, subject to a maximum of Rs 15 lakh.
The maximum loan is up to 60% of the value of the residential property, subject to maximum of Rs 50 lakh. The maximum period of property mortgage is generally 15 years, and can be issued by either a bank or an HFC (housing finance company.) The minimum tenure is 10 years. The bank or HFC must undertake revaluation of the property every five years. The amount received through reverse mortgage is considered as a loan and not income; hence the same does not attract any tax liability. During the tenure of the scheme, the owner continues to receive periodic payments, but after the tenure of the loan, the payment stream stops and owner can still continue to stay in the house. On death of the owner, the spouse can also continue to stay in the same house without having to worry about repayment of the loan. After the demise of the owner and the spouse, the legal heirs receive an option to either to pay off the lender’s dues, or the lender receives possession of the house, which it then sells to recover its dues. If the amount recovered from the sale is greater than the loan outstanding, the lender must pass on the gains to the legal heirs. However, if the amount from the sale is less than the loan amount, the lender must bear the loss.
Reverse mortgage is a good option for people like you. In fact, when you take a reverse mortgage, you effectively unlock the value of the costliest asset of your lifetime to some extent. The only reason it is not popular in India is that people are very emotional of their houses and want to pass it on to their children rather than mortgage it with a lender, even if this severely curtails their lifestyle. A typical case of ‘asset rich, cash poor’. Almost every major bank offers a reverse mortgage, with PSU banks like PNB, SBI, Union Bank, IDBI, Bank of Baroda, Canara Bank etc taking a lead in this area.
National Pension Scheme
Please explain the withdrawal process from National Pension Scheme after my 60 years of age?
– Firoz Lucknowalla, Mumbai
At least 40% of the accumulated pension wealth of the subscriber has to be utilized for purchase of annuity providing for monthly pension of the subscriber. The balance is paid as lump sum to the subscriber. In case the total corpus in the account is less than Rs 2 lakh as on the date of retirement (government sector)/ attaining the age of 60 (non-government sector), the subscriber can avail option of complete withdrawal. The annuity allocation is not taxed, but the pension derived from the annuity will be taxed as income. Of the withdrawal amount, returns are taxed as per capital gains rules. Withdrawal of the lump sum can be deferred by a maximum of 10 years. Withdrawal forms are available on the NSDL-CRA corporate website: www.npscra.nsdl.co.in.
A subscriber to the NPS account can request for an extension of a maximum of three years from the date of turning 60 years of age for purchase of an annuity. This flexibility will be very useful for subscribers who have opted to place some portion of their investment in equity in case the equity market is not in good shape at the time of retirement. Subscribers can opt to continue subscription beyond 60 years of age and up to 70 years of age. This provision is beneficial for self-employed people who work beyond the 60 years of age as well as corporate employees who take up other employment or consultancy assignment after their retirement. A likelihood of withdrawals from NPS not being taxable is also being discussed right now which, if accepted, is likely to come through in the next Budget.
Col. Sanjeev Govila (retd) is CEO, Hum Fauji Initiatives. He is a Certified Financial Planner and SEBI Registered Investment Advisor.