How to structure a tax-friendly salary

In a chat with readers on May 7, Get Ahead tax expert Mahesh Padmanabhan answered these and many more queries related to tax claims on home loans, HRA benefits, capital gains tax and how to plan and invest your money in 2008-09?

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

Kunal asked, Hi Mahesh, My query is, while taking home loan is it better to take it from Cooperative bank or nationalised bank. I heard that coperative banks charge lesser interest rate.

Mahesh Padmanabhan answers, That may not be true, generally co-operative banks charge higher interest rates as their cost of borrowings is higher. However, in case you get a cheaper loan from a co-operative bank, you can go ahead and take the loan. You would need to pay attention to the documents required of you and make sure that copy of all such documents are available with you separately.

Mukesh asked, I have one more query that I am working in Mumbai but I want to take home loan to buy plot (and make home) in my hometown Bihar. So, can I take homeloan in Mumbai, bcoz I am working in Mumbai. (Note: There is not yet facility of home loan in my hometown) Please guide me.

Mahesh Padmanabhan answers, You would get the home loan benefit even if you are not residing in your own property on account of your employment at another place. However, please note that you would need to get the property constructed first in order to avail of the home loan benefits.

Ameya asked, Hello, Whats your view on best taxsaver from this,Sundaram, DSP, DWS. Plz let me know as I want to invest some money in ELSS.

Mahesh Padmanabhan answers, Most of tax funds are reasonably good because of the longer timeframe of funds being locked in. SBI Magnum Tax Gain, Birla Tax Relief, HDFC Tax Saver, Principal PNB etc are good funds to invest in.

Suyash asked, Hello Sir, I am 25 yrs. I feel share mkt very interesting, but I dnt knw anything abt shares, intraday trading. I had applied for IRB Infrastructure IPO & got 30 shares@ 185. Can you tell me any website, magazine, books where i can get stock market knowledge & intraday trading. Also can you suggest any course abt share mkt investing. Thanks in advance.

Mahesh Padmanabhan answers, Hi Suyash, as you are new to the stock market, you should be careful in terms of investing directly in shares. Focus should be on long term stocks preferably you should start your investments in equities using the mutual fund route where there is a fund manager who is actively managing the portfolio of stocks in the fund. Intra day trading is a volatile & high risk proposition for a beginner and accordingly unless you have free money to splurge, you are advised not to go in for such transactions. As regards training in terms of stock market operations, Bombay Stock Exchange (BSE) training cell conducts lot of courses on various aspects of the stock market.

Sajith Balan asked, Sir, I have a personal loan taken 2 yrs back (for tenure 4 yrs) with an EMI of 5170/month. I am in a dilemma now whether to close this loan and save the EMI for something better or should I continue with it. If I close then where can I invest the EMI which I was paying for per loan, else if I don't close it where should I invest that bulk amount. Please advise. Thanks, Sajith.

Mahesh Padmanabhan answers, In case you have disposable surplus available with you, then it would be advisable to square off the loan. Such decisions are generally helpful in the earlier years of the loan as the interest is generally recovered in the initial years and principal portion increases only in the later years. You could definitely start a SIP investment in a mutual fund in lieu of the savings on account of closure of your loan.

Dinesh asked, Sir, Can a co-applicant claims tax benefits of Housing Loan, in case main applicant expires and co-applicant pays the interest & installment and ownership is still in the name of main applicant.

Mahesh Padmanabhan answers, In order to claim the home loan benefits by more than one person, such persons have to be co-owners too. The case that you have mentioned it is not clear if the co-applicant is the co-owner. In case the co-applicant is also the co-owner, then the benefit can be availed of seamlessly. However, if this is not the case then the inheritance formalities needs to be completed first and the ownership of the property has to be transferred to the co-applicant to start availing the benefit.

Narayana asked, for Tax planning, i have started investing 3000 PM, in SUNDARAM Tax Saver. i want to invest 3000 more in any ELSS fund.. can you suggest ?

Mahesh Padmanabhan answers, Most of tax funds are reasonably good because of the longer timeframe of funds being locked in. SBI Magnum Tax Gain, Birla Tax Relief, HDFC Tax Saver, Principal PNB etc are good funds to invest in.

ravimittal asked, I am oberving that diversified Equity MF are not performing so well over last 6-7 months.. DO u still recommend investing i them?

Mahesh Padmanabhan answers, Diversified equity MF investment is one of the safe way of investing in the stock market. The returns may not compare with high yield sector funds but at the same time the loss on account of downfall in the market is also marginalised due to its wide base. Unless you are sure of taking a call on certain specific sector funds such as Infrastructure, Power etc, you would be advised to stick to investing in the diversified funds

Shobhit asked, what is the maximum amount on which no tax is deducted

Mahesh Padmanabhan answers, In case you are referring to Tax Deduction at Source (TDS), then each category of payment has a different cieling limit defined. Salary TDS is attracted only if you have any tax liability, Professional fees TDS is @ 10% in case the annual payment is to exceed Rs. 20000 etc. In case you are referring to the threshold exemption limit then for the current year (2008-09) for Men the zero tax status is on taxable income upto Rs. 1.5 Lakhs, for women - Rs. 1.8 Lakhs and for senior citizen - Rs. 2.25 Lakhs

raj asked, Isis mandatory to show the income earn from mutulfund

Mahesh Padmanabhan answers, Income from mutual fund can be on account of dividend and on account of capital gains. While currently dividend from MF is not taxable, short term capital gain is taxable at 15% & long term capital gain is exempt from tax. hence in case you have income from MF which is exempt from tax, then the income tax return would just require a disclosure of such exempt income

Narasimha asked, Hi My mother has a house. she doesnot have any other source of income. can i show that i am staying in that house and paying rent of 20000 per month. i heard that if rent is more than 10000 i should also provide the PAN no of the owner of the house. My mother has a pan card. please tell me how much tax she needs to pay.

Mahesh Padmanabhan answers, In case you are not a co-owner of the house along with your mother, you could pay rent to her and claim the same as deduction on account of your HRA salary component. The reasonableness of the rent however, would need to be decided by you considering the fair market rent at your home location. An individual using a property for his residence is not required to deduct tax at source (TDS) on the rent and hence there would be no specific need to require a PAN card for entering into this arrangement. However, you would be advised to file a return for your mother including the rent as her income. In case Rs. 20000 p.m is the rent then the approximate taxable income would be Rs. 168,000 which is currently at 0% tax slab for women.

rks001 asked, Hello mahesh, is it better to invest in PPF or Taxsaving bonds keeping in mind the liquidity of the invested amount.

Mahesh Padmanabhan answers, In case liquidity is absolutely critical, you could go in for tax saving bonds, however, you would need to note that the interest earned on such investment would be taxable. This is not the case with PPF investment, where the interest is tax free

msharma asked, hello sir, i am getting rent (Rs 65,000 per year for a commercial property. Am I eligible for 30% deduction towards maintenance (as in the case of house property)

Mahesh Padmanabhan answers, Yes you can avail of the 30% deduction for maintenance

kshitij Mathur asked, Hi Mahesh, I am staying in a rented accomodation in Janakpuri-Delhi. Working in Gurgaon. I am planning to buy a house in Faridabad keeping in mind its low cost, but will start living in it after 3-4 years. But I am told by my accounts team at my office that I cant claim benifit of both HRA & Interest on Home Loan as Faridabd also is part of Delhi (so to say). If my house would have been in panipat or Karnal, i could have taken this benifit. Please advise how i can take the benifit of HRA & Home Loan interest repayment?

Mahesh Padmanabhan answers, In our opinion, you should be in a position to avail of the home loan benefit as well as the HRA benefit. The criteria is to be looked more holistically and in case your work place and home are too far apart which makes it immpossible to commute then it has to be considered for the purpose of availing both benefits.

Guru asked, I am 31 years old. I am planning to start SIPs in HDFC Equity/Top200, Franklin PrimaPlus/FlexiCap, Reliance Vision, DSPML Equity, Fidelity Equity of Rs 5000 each per month. I am also contributing Rs 10000 per month in FDs for debt. I want Rs 1 crore at the end of 10 years. Am I able to achieve my goal in the stipulated time frame. Thanx

Mahesh Padmanabhan answers, Considering the investment structure provided by you, you seem to be investing in MF to the extent of Rs. 25000 p.m. and in FD to the extent of Rs. 10000 p.m. Considering a Compounded Annual Growth Rate of 12% for MF and 8% for FD, your current investment would generate approximately Rs. 76.5 Lakhs at the end of 10 years.

hem911 asked, sir for claiming telephone bill reimbursement, is it necessary to give the employer orignal bills?. Can we give them to site the orignals and tell them to keep photocopies for IT purposes? wht is the law

Mahesh Padmanabhan answers, Theoretically, attested photocopies of telephone bills are sufficient for claiming the reimbursement from employer

Indian asked, Is it the right time to enter stock market or mutual funds... Will the market slide below further

Mahesh Padmanabhan answers, Enter the stock market using the SIP route of Mutual Funds. Be invested for a longer duration. Do not indulge in panic purchase / redemption of funds triggered by market movement. In case you follow these rules and remain disciplined, you would enhance your wealth regardless of the market movements.

maneesh asked, Hi, I am Working in Delhi and interested in purchasing a flat in Kanpur. Can I claim HRA as well Hoam Loan in my IT Return. thanks

Mahesh Padmanabhan answers, In case you do not plan to let out the property in Kanpur, you could claim the self occupied property and HRA benefit in one go

nrb asked, Sir I have taken PAN card this year for investing in mutual fund my income in below taxable limit I am working in a small private concern I do not get any salary slip do I need to file income tax return and how will I file the return

Mahesh Padmanabhan answers, In case your gross taxable income is below the taxable limit, theoretically you need not file IT returns. However, in most case people wish to file the returns to document their income, which could be used later for loan purposes

Indian asked, $Hi Sir, I get HRA from my company. Recently My dad purchased a new Flat which is still under construction. Currently we are staying in an apartment rented by my dad. But I actually pay cash to my dad for rent purposes. Can I avail HRA if my dad gives me rent receipt for the apartment rented by him?

Mahesh Padmanabhan answers, You would need to enter into an agreement with your father to take up the premises as rented by you. Pay the rent by cheque and take a signed receipt for such payment. These two documents could help you in getting the HRA deduction. A word of caution here is that you would need to go through the original agreement to see if there is any clause on sub-letting. In case this is expressly disallowed, you would be advised to get a fresh agreement executed in your name with the owner of the house.

Mahesh Padmanabhan says, It is now time for us to sign out. We thank all of you for participating in this session. Team RelaxwithTax