Can gifting help you save tax?

Is it true that you can also save on your tax by gifting money to your parents? If yes, then what are the ways in which you can do so? Is there any maximum limit for gifting?

Also, would you get any tax benefit if you pay the premium on your wife's insurance policy? Can losses incurred by you in share trading be offset against profits made by you?

In a chat with readers on March 27, Get Ahead tax expert Mahesh Padmanabhan answered these and many more queries related to tax claims on HRA, home loans and capital gains tax?

For those of you who missed the chat, here is the transcript.

amit1977 asked, Dear Mr. Mahesh, I want to know how one can save tax other than 80C, i hv read an article that by gifting to ur parents can save tax. As i am sending my parents approx. 5000 rupees per month in cash can i get the rebate on this? how? and if yes wether i hv to fill ITR for my parents and if cash can be considered as gift or should i send Cheque or DD? what is the limit of this gift?

Mahesh Padmanabhan answers, Gift made to relatives is not taxable in the hands of the receiver of the gift. But you would need to understand the essence of gift concept; a regular stream of payments would be difficult to prove that it carries the nature of gift. One time / periodic payments could definitely be considered for the purpose of gift. You would not get any deduction or rebate for such gift as it merely is application of income. You would need to file the returns of your parents only if they have any taxable income and as gift to your parent is not taxable there seems to be no need to file their returns.

Padma asked, Hi Mahesh,Good day to you. What are the ways of accumulating wealth, BEST & EFFECTIVE WAYS TO MULTIPLY THE HARD-EARNED MONEY of an investor, after beating inflation? Is Mutual fund the only option even after considering market volatility?

Mahesh Padmanabhan answers, Using history as a guiding force, it is apparent that in order to generate positive returns after inflation is to use the equity investment route. Either, in the form of direct investment in equity shares or using the mutual funds route. The idea of generating minimal risk returns is to be disciplined in your investment pattern, hence using SIP route on monthly basis is a good tool to beat the downside risk of market performance and to use rupee averaging cost concept.

jeba asked, Dear Mr. Mahesh, How can I avail HRA exemption benefit as i draw a salary of Rs 15,000/- p.m. which doesn't have a HRA components. If i pay a rent of 2000 p.m. (24000 annually). How to work out tax implication? what are the document to be produced for the same?

Mahesh Padmanabhan answers, For salaried individuals who do not get any HRA and self employed professionals, deduction under section 80GG is available. The working for deduction under this section is as follows: Deduction is the least of the following: 1. Rs. 2,000 p.m. 2. 25% of total income 3. Excess of actual rent paid over 10% of total income.

rohit asked, Hi Mr. Mahesh, My wife have been paying SIP of Rs.2000 in Birla Dream Plan for last 12 months for Tax benefit. The policy is in her name. My question is: Since she is not working anymore can i start paying those SIP from my a/c(currently it gets ECS from her a/c). Would I get tax benifit in that case, let the policy be in her name?

Mahesh Padmanabhan answers, Birla dream plan is a quasi term insurance plan and when you say SIP it really does not mean the same as in SIP of mutual funds but here it means the insurance premium payment with monthly mode. Also, in case you start paying for the insurance of your spouse, then the deduction would be available to you u/s 80C. The moot point here is that the payment should be made from your account, hence you would need to change the ECS mandate to your bank account and get it shifted to your account.

ushap asked, Hi Mahesh, I am going to invest 30K in ELSS to save tax by tomorrow. Which ELSS is suitable for me for a long term investment cum savings? Pl. advise. Thank you.

Mahesh Padmanabhan answers, We do not promote any specific MF in the public medium. You would need to note that most of the tax funds perform well as the funds are available with the fund manager for longer duration of time. Going by past track would do good and accordingly stable and conservative ELSS funds could be SBI Magnum Tax gain fund, HDFC Tax saver fund etc.

Subramanyam asked, How is home Loan affected by Tax changes?

Mahesh Padmanabhan answers, Home loan is affected by tax changes if the deduction section is touched upon; e.g. if the limit for deduction of interest on loan for self-occupied house property is increased, the resulting tax benefit could go towards reducing the overall borrowing cost. Other deductions that are available are standard deduction for let out property (30% of Net Adjusted Annual letting Value), Deduction for principal repayment u/s 80C.

Tax Planning asked, hi Mahesh, Gud Afternoon. I paid 20K by Demand Draft towards shortfall in notice period when i resigned my last organisation. Can i show this 20K as loss of income, or will it still be a part of my annual income? Please Clarify. Thanks.

Mahesh Padmanabhan answers, Good afternoon, you would not be eligible to get any deduction for the notice period payment made by you. The reason being that such payment is merely an application of income and unless there is any specific deduction specified in the IT Act, you cannot claim the same as a deduction. As regards notice period payment being part of annual income, as mentioned earlier this being application of income already earned by you and hence the same would not be again added to your income.

TaxPayer asked, Which is the best plan to start investment targetted for kids education? I have newly born baby.

Mahesh Padmanabhan answers, This seems to be an ideal time for you to start investing for your child's higher education. The time frame of about 15 years is a good period of investing in either MFs or Insurance. Insurance is a preferred route as it covers the life risk of the parent and at the same time provides for the education of the child. Lot of insurance companies provide such child plans that run on ULIP route or guaranteed benefits route. Based on your risk appetite, you could go ahead with the investment option.

Manjunatha asked, I invested in stocks by taking personal loan. I made a little profit in the begining and then due to the fall of market I sold some and made loss greater than profit. will the profit be taxable or they will minus the loss amount from the profit amount?

Mahesh Padmanabhan answers, The profit / loss on such transactions are to be taxed on net basis i.e. after adjusting the loss incurred against the profit earned. These days ascribing the essence of a particular transaction has become difficult, i.e. whether share transactions are to be included under the head capital gains or business income is really a matter of interpretation of the motive of the transaction. You are suggested to talk to your tax consultant and determine the head under which this net loss has to be disclosed.

riyas asked, Hi Mahesh, I opened an ICICI demat account when i was in india, after that i came to singapore and working here. I also did some share trading like buying and selling shares. I lost some of the amount during the market crash, i also earned some money. But compared to profit, i lost more money. My question is that do i need to file a income tax return for captial gain, my profit is less than rs 25,000? Thanks.

Mahesh Padmanabhan answers, Based on the information provided by you, there seems to be no need to file your returns. This is based on the assumption that you do not have any other income in India.

Jay asked, Hi mahesh, My father wants to invest money in Unit Linked Pension Plan. He does not have a PAN card. As per the new Budget, all the market transaction needs a PAN Card. Can you please confirm for Unit linked Pension plan and ULIP do we need a PAN card?

Mahesh Padmanabhan answers, In case the premium paid per annum does not exceed Rs 1 Lakh, there is no need for PAN card to be submitted. However, it is now advisable to obtain PAN as it seems to be taking over as a common identity number.

Veekay asked, Hi Mahesh, If my mother (71 years old) has income from other sources amounting to 3 Lakhs, and I give her 50,000 as gift, is that money taxable in her hands? Or do I have to pay tax on it from my side?

Mahesh Padmanabhan answers, If you are gifting money to your mother then neither you nor your mother is liable to be taxed for such gift.

niraj asked, If I withdraw my investment in ELSS after 3 years, the gain from the investment will be taxable?

Mahesh Padmanabhan answers, In case you redeem your investment in ELSS after 36 months, then based on the current tax provisions; such transaction would be treated as long term asset and accordingly an STT would be paid on the same, any gains arising out of such redemption would be taxed at NIL rate.

rakesh asked, Can you suggest the best unit linked plan? My requirment is health benefit+money grow+insurance?

Mahesh Padmanabhan answers, You seemed to brought to many things to the table simultaneously. It would be better to examine these requirements separately, which could give cost leveraging. Like wise LIC has come out with a new health insurance cum Unit plan in the form of Health Plus.

RishiPahuja7 asked, hI i HAVE BOUGHT A FLAT WHICH IS UNDER CONSTRUCTION i HAVE RAISED A LOAN ON THE SAME ALSO i AM CLAIMING TAX REBATE ON THE SAME BUT MY FRIEND TELLS ME ITS NOT CORRECT TO CLAIM REBATE ON UNDER CONSTRUCTION PROPERTY ALSO WHAT ARE THE CONSEQUENCES IF I DO SO?

Mahesh Padmanabhan answers, He is right in saying so. Claim for deduction under house property is available only after the construction is completed. Pre-construction period interest is to be accumulated and claimed equally in 5 years after the property is completed. You will need to collect & retain the relevant certificates issued by the financial institution for records.

anand asked, Mahesh : Good afternoon, I have a questioon - I have a home loan of 30lacs and recently I vested my stock options and i would like to know if it is better to continue with my home loan or to clear it off with the money from my options? Also do you recommend any approach I should take in terms of investing the remaining money since I would like to have my principal protected as I will be quitting my job to become an entrepreneur soon? thank you.

Mahesh Padmanabhan answers, This situation needs further elaboration as to whether your inflows from your venture is assured from day 1 so as to sustain the working capital requirements and personal needs?, what could be the size of turnover that you would achieve in the initial years?. In case your inflows are not steady but on overall basis would meet your expectations, then you could possibly hold on to the home loan and retain the ESOP liquidation amount in some term deposits.

balu asked, Can I get income tax benefit if I take an insureance to cover my life insurance equal to home loan?

Mahesh Padmanabhan answers, Yes you can subject to the ceiling limit of Rs 1 Lakh u/s 80C.

Lancelot asked, Hi, I have this query regarding home loan. In case my wife and myself take a housing loan and make an agreement to repay the loan in the ratio 0.2:0.8 (any ratio other than 0.5:0.5), Can both of us individually get a deduction of 1.5 lakhs?

Mahesh Padmanabhan answers, In case you are executing an agreement, then the total interest would need to be considered in the agreed proportion subject to the ceiling limit of Rs 1.5 lakhs.

apsaa asked, I have purchased a dwelling unit consisting of 3 units ( flat) making into one flat. However, the registration of 3 flats have been done separately. and house loan company created 3 loan accounts. Now my company says there is 3 flat not one self occupied purpose and I will not get deduction for other 2 loan. Advice me any any case law which I can show to my company for saying this is one dwelling house not three and one main gate, no three boundary, only one boundary.

Mahesh Padmanabhan answers, Your company is right in saying that only 1 house is considered to be SOP. Hence in this case you would be eligible to interest deduction of upto Rs 1.5 lakhs and in case of the other 2 units you would need to work out the deemed let out value and avail of the standard deduction and entire interest deduction benefit.

Mahesh Padmanabhan says, Thank you friends for participating in this chat session. The new financial year heralds an opportunity for you to start off planning your tax and investments early. Good luck to all of you. Team RelaxwithTax