8/3/2019 Article on HRA

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SUNDAY 22| JANUARY 2012HYDERABAD MONEY

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The stock market is filled with people who knowthe price of everything, but the value of nothing

How many do you know who have become richby investing in savings accounts? I rest my case

PHILLIP FISHER

Invest | powerROBERT G. ALLEN

Equity investorsshould scaledown theirexpectations onreturns

K.C. Cha

krabar

t

y,RBI deputy governor

MACRO QUOTE

The introduction of theDirect Taxes Code fromnext year will, among otherthings, end the tax-savingprovisions of severalinstruments, such as Ulipsand equity linked savingsschemes (ELSS). This ismaking many investorsrush to ELSS funds thisyear. They are also encour-aged by the fact that themarkets are at attractivelylow levels and are poised togive good returns over thenext two to three years.ELSS funds are said towork well because thefunds are locked for threeyears at least and the man-ager thus has the comfortof knowing that he caninvest for the long term.This does not always work-the last year or so has beenamong the worst in recentmemory. But the tax incen-tive is a big bonus, so fundmanagers are bracing for agood influx of money in thenext few weeks.

The crunch faced bybuilders and developers isfinally beginning to bite.For months, even while liq-uidity was becoming tightand buyers were stayingaway, builders, especiallythe big ones held on to theirrates, refusing to lowerthem. Buyers too were ner-vous about the high inter-est rates. Now things areeasing up. Dont expect out-right discounts, but whenyou are ready to commityou might get a few free-bies such as free or dis-counted parking. It depe-nds from city to city, but inhot markets like thenational capital region andMumbai, where built upinventory has shot up, gooddeals are now possible.

news you can use

INVESTORS RUSHTO EQUITY LINKEDSAVINGS PLANS

REALTY BUYERSLIKELY TO GETGOOD DEALS

Opt for individual health cover, not family floater I owe `1.5 lakh towards apersonal loan and a cred-it card. Because of this,banks are refusing tosanction a home loan tobuy a flat. Please suggesthow to manage my duesand avail the housingloan.

If you have an overdueamount of 1.5 lakh on yourexisting personal loans andcredit card, you will find itdifficult to get a home loanfrom anybody. If this amou-nt is just an outstandingand you are regular in pay-ing your instalments, thenyou get a loan, but it will bereduced to that extent.

If I am already payingfees to the institute, can I

get an education loanfrom any bank?

This is possible only bythe way of refinancingwithin one months time.However, you can checkwith your bank regardingthe terms of refinancing.

What is the ideal healthinsurance coverage?

The sum assured can bedecided based on the num-ber of family members thatyou want to cover under thepolicy and their age.

You need to estimate thecost that you expect on thetreatment in case of anyhospitalisation and also theamount of premium thatyou are willing to pay.

While calculating the costof hospitalisation, youshould keep in my mind the

city you are staying in thehospital you would like the

treatment to happen in andvarious other factors.Given the rise in hospitali-sation costs, it is essentialto have a cover of at least 3

lakh for each member inthe family. My advice is

that you should preferablygo in for individual coverfor each family memberand not a family floater.

What should be thebasis for selecting thepolicy term for life insur-ance? Should it be tillones retirement or earn-ing age?

The term for life insur-ance policy should be tillearning age. Obviously, if you are very young (say 25years old) and if yourretirement age is 65 years,then you may opt for themaximum available tenureas a 40-year policy tenuremay not be available.

You can buy another poli-cy with a higher tenure

after a few years to coverthe leftover years.

Last year, I had pur-chased a life insurancepolicy. Recently, Iapproached the insurerfor a loan against it. ButI was told that the policyis not eligible for loanuntil three premiums arepaid. Can I pay two pre-miums in advance andbecome eligible for theloan?

Most policies do notacquire a surrender valuetill they have completedthree years (even if the pre-miums are paid inadvance). So the answer tothe question is no. You arenot likely to get a loan on aone-year-old policy, even if you pay the premiums inadvance.

Secondly, pure insurance(term insurance) has no

surrender value and hencea loan against a term policyis not possible.

Thirdly, banks lend onlyaround 40-50 per cent of thevalue of an equity fund (in aUlip) and even for that thespecific fund needs to beapproved by the bank.

Most banks would nor-mally approve the equityfunds of their own groupsinsurance company.

Fourthly unless the firstyears premium has appre-ciated dramatically Icant see the rationale of taking a loan when youhave the ability to pay twomore premiums inadvance.

Harsh Roongta is the CEO of Apnapaisa.com. Y

ou can send in your queries tomovingmoney@deccanmail.com

Harsh Roongta

Q&A

B

ANKS 6 MON

THS - < 1 YR 1 < 2 YEAR 2 < 3 YEAR 3 < 5 YEAR 5 YEARS & ABOVE

Corporation Bank 9.25% 9.5% - 9.65% 9.25% 9.25% 9.00% - 9.25%IDBI Bank 9.00% - 9.25% 9.25% - 9.50% 9.50% 9.50% 9.50%OBC 9.00% 9.75% 9.25% 9.25% 9.25%Union Bank of India 8.60-8.75% 9.25% 9.25% 9.25% 8.50% - 9.40%

Central Bank of India 8.50% 9.25% - 9.30% 9.30% 9.25% 9.09%Axis Bank 7.50% 9.30% - 9.40% 9.30% 8.50% 8.50%Dhanlaxmi Bank 8.50% 8.75% - 9.75% 8.75% - 9.00% 8.75% - 10.10% 9.00% - 10.10%Canara Bank 8.10% 9.25% 9.25% 9.25% 9.00%Dena Bank 8.00% 9.50% - 9.60% 9.50% 9.30% 8.75%Bank of India 8.00% 9.00% - 9.25% 9.00% 8.50% - 9.00% 8.75%Syndicate Bank 8.00% - 9.55% 9.35% 9.35% 9.25% 9.25%Vijaya Bank 8.00% 9.25% 9.35% 9.00% 8.75%Indian Overseas Bank 8.00% - 8.50% 9.50% 9.25% 9.25% 9.00%Kotak Mahindra Bank 7.75% - 9.00% 9.40% - 9.50% 9.25% 9.25% 9.25%HDFC Bank 7.25% - 8.00% 7.25% - 9.25% 8.50% - 9.25% 8.25% - 8.50% 8.25%State Bank of India 7.00% - 7.75% 9.25% 9.25% 9.25% 9.25%The Federal Bank 7.00% - 9.50% 9.50%-9.75% 9.50% 9.25% 9.25%ICICI Bank 7.00% - 7.75% 8.25% - 9.25% 8.50% - 9.25% 8.75% 8.75%Bank of Baroda 7.00% - 7.75% 9.25% - 9.35% 9.25% 9.00% 8.50%Bank of Maharashtra 7.00% - 8.80% 9.30% 9.30% 9.00% - 9.35% 9.00%DCB 6.75% 8.00% - 10.00% 8.00% - 9.50% 8.00% - 9.30% 8.00% - 9.30%IndusInd Bank 6.50% - 8.50% 9.00% - 9.50% 8.75% - 9.50% 8.75% 8.75%

Source : Apna Paisa Research Bureau

FIXED DEPOSIT INTEREST RATES (UP TO ` 15 LAKH AS ON OCTOBER 20, 2011)

Hansika Motwani is a seasoned actress. She hasworked in Hindi, Tamil, Telugu and Kannada films.

Q Are you a big investor? Where do you invest? I began to earn from the age of 10 and I have been a

professional investor. I would like to stay invested ingold, properties and mutual funds.

Q Who advises you on your investment strategy? I want to safeguard each paisa that I earn. So I seek

the help of my mother as well as investment experts.

Q What is the investment mantra you follow? I believe in long-term investments of 10 years and

above and also prefer quick liquidity in cash invest-ments.

Q Do you prefer fixed deposits, property, mutual funds orsomething else?

Of course I invest a smallportion of my money infixed deposits and equitiesfor the sake of liquidity.

Q Would you define yourself as a conserva-tive or a risk taker?

I am a conservativeinvestor as I dislike takingrisks.

Q How often do you trackbusiness news, stocks and

financial newspapers? Frankly, I dont have

the time to browsenewspapers and chan-nels. So my mother,who is a doctor,helps me out alongwith investment

bankers.

Melwyn O. Rego is theexecutive director IDBIBank Ltd. Prior to this,

he served as the CEOand MD of IDBI Homefin-ance Ltd. The bank hasrecently launched thesale of Government of India securities thesafest investment option

on its webportal.Mr Rego speaks to Olga

Tellis to explain why aninvestor need to havegovernment securities inhis investment basket.

Q Bonds are generallysafe instruments. Sowhat makes the govern-ment, securities (G-Sec)that you are selling through the IDBI Samriddhi G-Sec

Portal special? If you evaluate the var-

ious investment opportu-nities you will find G-Sectotally safe because thegovernment just cannotdefault ever on its bondsin any country. Anotheraspect is that it givesgood returns on longmaturity investments of about 10 years. All youneed to have is a demataccount and access to theinternet.

Q So, who would G-Secs benefit?

It would appeal to thosewho want decent returnsin the long term. Forexample, if you look at itfrom the reward/riskpoint of view, there iszero-risk and good retur-ns. The minimum invest-ment level is 10,000. Youcan invest for 20 or 30years. While you getyour principal back atthe end of tenure, theinterest would be deposi-ted in your Demat acco-unt every six months.The investor would havean option to reinvest theinterest money in G-Sec.

Q What is the rate of interest offered for G-Secs?

It depends on thetenure of the bond. But atan annualised rate, itcomes to 9-10 per cent fora 30-year bond. We call itan SLR, which stands forsafety, liquidity andreturns. The governmentbonds are the most liquidand 100 per cent safe.Bank deposits are safebut they are for shorterduration. There is noother instrument thatoffers risk-free invest-ment for over 10 years.

Q What happens if the investor needs moneyurgently, does he have to sell his bonds?

No. If he needs themoney, we can give himan overdraft facility forthe short term.

Q What is the processof investing throughthe IDBI portal?

You have to go to the

IDBI Samriddhi G-Secportal and put in yourtransaction and the nextday you can make yourpayment through eitheran internal transfer, if you have a savingsaccount with IDBI Bank,or through the RTGS orthrough NEFT. You willget your bonds in yourDemat account the nextday. There is not a singledays delay even with thesix-monthly interest pay-ment.

Q How are government securities different

from corporate bonds? In the case of corporate

bonds, you are not assur-ed of the safety. Liquidtyis very little, though thereturns are higher thanthe government bondsbecause of the risks inv-olved. Corporate paperusually has a tenure of

just five years. In G-Secs,there is no tax deductionat source and so a personcan do his tax planningindependently. Thisfacility is not availableon any other instrument.Besides, there is also anomination facility.

Q How was the response to your G-Secs

portal from investors? Our first customer inte-

restingly was a softwareengineer from the smalltown of Vadakancherryin Trichur district inTamil Nadu. Though itspeaks of the responsethat we got, the bankplans to use its nearly1,000 branches to spreadawareness about thesebonds. Around 200 peo-ple from investor associ-ations from have attend-ed our camp in Mumbaiand this will have a mul-tiplier effect.

Our portal will play akey role in mobilisingretail savings for govern-ment bonds. The RBI hasbeen urging banks tohave a portal to sell gov-ernment bonds to retailinvestors and IDBI Bankdecided to be the first todo so. In India, there is ahuge scope in G-Sec mar-ket as the participationof retail investors in G-Sec market either direct-ly or through mutualfunds is very minimal.

G-Securitiesare the safest

CELEB TAKE: HANSIKA MOTWANI

I prefer long-terminvestments only

Melwyn O. Rego

House Rent Allowance (HRA) is given by the employer to the employee to meet the expenses in connection with rent of theaccommodation. HRA is exempt under Section 10(13A) to the extent of the minimum of the following three amounts :

Actual house rent allowance received by the employee Excess of rent paid for the accommodation occupied by him over 10 per cent of the salary. 50 per cent of salary, where the taxpayer stays in Mumbai, Calkata, Delhi or Chennai and 40 per cent of the salary, if the

taxpayer resides at any other place.

HOUSE RENT ALLOWANCE CALCULATION

YOU LIVE IN YOUROWN HOUSE:You have taken a homeloan and residing in thehouse purchased with it.Since you are residing inyour own house, you willnot be able to claim HRA.However, you will be ableto claim tax benefits onboth, the principal andinterest repaid on thehome loan.

YOU HAVE A HOUSEWHICH IS READYFOR OCCUPATIONBUT YOU CANTRESIDE IN IT:You have bought ahouse in Delhi takinga home loan and nowyou arent residing init but are living in arented apartment inthe same city for gen-uine reasons thehouse that you havebought is far awayfrom your office. Insuch cases, theIncome-Tax Act per-mits the individual toclaim HRA and homeloan benefits, whichincludes both princi-pal and interest repaidon the home loan.

Also, please note thatif your house remainsvacant, then you willstill need to pay tax ona notional rentincome.

YOU HAVE RENTED YOUR HOUSEAND STAYING IN A RENTED HOUSE:You took a home loan and your house isnow ready for occupation. You have rentedthe same out while you reside in a rentedhouse. The Income-Tax Act allows you toclaim both HRA and home loan benefits.However, in such a case, since you are therecipient of rent because you have let outyour own house, that income is taxable atyour hands.

The Income-Tax Acttreats HRA and homeloan deductions underseparate sectionsindependently. Thetwo are not intercon-nected to each other.HRA is dealt with insection 10(13A) Rule2A while home loansare entitled for taxbenefits under section80C (tax benefit onprincipal repayment)and Section 24 (taxbenefit on interestpayment) of theIncome Tax Act.Hence, figure outwhere you stand toavail both tax benefitsaccordingly.

Solving

HRA puzzle Income-Tax Act allowsclaiming HRA and homeloan deductions

Money talk

By Adhil Shetty

YOU OWN A HOUSE IN ANOTHER CITY:This situation was the one faced by Ajit. Hestays in Mumbai but had bought an apartmentin Chennai with the help of a home loan. Ajitwill be entitled to HRA exemption and tax ben-efits on both, the principal and interest repaidon the home loan.

A jit Kumar is a salaried per-son, who stays in a rentedapartment in Mumbai. Buthe has bought himself a

property in Chennai, which is part-ly funded by a home loan.

He finds himself in a dilemmawhile filing tax returns as towhether he can claim both HRAand home loan benefits. This seemsto be a confusing factor for manytax payers, who have invested in aproperty but do not live in it andinstead live in a rented property.When Ajit pays rent, under theIncome-Tax Act, he is definitelyallowed to claim both HRA andhome loan benefits (interest pay-ment and principal repayment).

Let us evaluate various possiblesituations an individual can findhimself in and understand what theIncome-Tax Act permits him to do.

YOUR HOUSE CANNOT BE OCCUPIED AT THIS POINT:You have bought a house in Mumbai taking a home loan andyou are currently living in the same city in a rented apart-ment because the house is under construction. In such acase, you are eligible to claim HRA. In the case of tax breakson the home loan, you can claim tax benefits only for yourprincipal before the completion of your house. Once yourhouse is completed, you can claim tax benefits on the totalinterest paid up to the date of completion in five equal instal-ments in five years beginning from the year of completion.