Harsh Roongta Q&A: Focus on investments for your retirement and children's

I was working in Steel Authority of India Ltd. (SAIL) and took voluntary retirement on June 30, 2016.

I got the following benefits on super annuation - Gratuity Rs 17,07,666; leave Rs 57,392; VR benefits Rs 19,01,574; total 36,66,632; my employer deducted Rs 705069 as tax.

The details furnished for calculation of gratuity and benefits are as follows - Date of birth 8/8/1958; date of joining the company 11/7/1980; total period of service 35 years 11 months 20 days; pay as on date of separation basic pay Rs 43,950 +DA Rs 19,115 + personal pay Rs 10,026 + other basic Rs 95 (total Rs 73,186).

Please let me know whether they have deducted the correct amount as tax (Rs 7,05,069). I also want to know whether an employee working in public sector undertaking is treated as a government employee or non-government employee for the purpose of tax calculation. In case of govt employee the entire amount of gratuity will be exempted from tax. I came to know that one of my co-workers after filing return took refund of Rs 3,50,000 approximately from the I-T department.
—Vinod Meena

I cannot make out how the company has arrived at the tax deducted at source (TDS) figure given by you. You should first ask your company for the details of the calculation of tax deducted at source, so that it can be checked whether they have calculated it correctly or not.

Subject to the above, let me try and answer your queries:

Employees of public sector companies are not employees of the government of India, at least as far as the Income Tax Act is concerned.

The maximum limit for exemption of gratuity is therefore Rs 10 lakh as per section 10(10) in your case. Hence, the balance gratuity amount of Rs 7 lakh + will be taxable. Leave encashment of Rs 57,392 should be fully exempt under section 10(10AA). Voluntary retirement amount will be exempt upto a maximum amount of Rs 5 lakh under section 10(10C), so, the balance amount of Rs 14 lakh+ will be taxable. But, even if you take all these amounts as taxable and take into account three months salary till June 30, the tax deduction at source figure is far higher than what it should be. Hence, please get the details from your company.

I wanted to start SIP of Rs 15,000 monthly in equity. I have term insurance of Rs 60,00,000 and accident insurance of 50,00,000 and paying home loan EMI Rs 28,000. I am aged 42 years, married, and has two kids of age 13 years and 8 years respectively. Please help me to build up fund for their education and my retirement. I have done some research and selected SBI Blue chip fund, Mirae Asset emerging blue chip fund, Tata retirement savings fund and DSP Blackrock Tax saver fund. Please guide me in my choice of funds and help me in SIP allocation of Rs 15,000.
—Avanish Singh

Congratulations for following a proper process while planning your investments. Take the next step and calculate your investments required as per the specific goal. Assuming you need the money for your children when they reach the age of 18 years and further assuming that you need Rs 5 lakh in today's value for each of them. If education expenses are assumed to increase by 10% per annum (p.a.), you will need Rs 8 lakh for your elder child and Rs 13 lakh for your younger child. Given that only five years are left for the elder child's need, you should invest in a balanced fund rather than a pure equity fund. You will need to invest Rs 10,000 per month for 60 months, and if you get a return of around 12% p.a., the corpus target of Rs 8 lakhs can be achieved. Among balanced funds, you can look at L&T India Prudence Fund or Tata Balanced Fund Plan A, or both of them. For your younger child, you can look at a pure equity fund. If you invest Rs 5,500 per month for 120 months and get a return of around 13%, you should be able to meet the corpus target amount of Rs 13 lakh. From among the funds provided by you, you can invest in DSP Blackrock tax saver fund to the extent you require a tax break and balance amount, if any, can be invested in SBI Blue Chip Fund which is a large-cap fund.

You will need to invest further sums if you wish to meet your target for retirement or have higher values in mind for the education needs of your children.

This is with regard to what has been proposed in the Union Budget 2017. Both my houses are jointly owned with my wife, with each of us having 50? holding. Can we both claim Rs 2 lakh respectively for each house as rebate in interest amount, ie 4 lakh X 2 lakh = 8 lakh? If not, how much can we claim? And, what are the means for reducing tax outgo?
-Milind

There is a misconception about the changes proposed in the Union Budget of 2017 regarding the deduction of interest payable on a loan taken to acquire a house property. Firstly, the proposed changes will apply only from the next financial year and will not be applicable to the current financial year ending March 31, 2017.

Secondly, what is restricted is the carried-forward loss under the head income from house property and not the deduction for interest. Let me illustrate the difference between the two by taking some assumptions in your case. If both your properties are valued at say Rs 1 crore each and each has a loan of around 60 lakh on them (30 lakh for each of you) and the interest payable every year is Rs 6,00,000 (Rs 3 lakh for each of you). Also, let's assume the houses if rented out, could have fetched Rs 1,50,000/- per annum (Rs 12,500 per month) net of municipal taxes. Let's further assume that both houses are self occupied by you. Then, your calculation of income from house property for each of you will be as follows.

Property 1
Annual Value – taken as NIL
Less : Interest payable restricted to – Rs. 2,00,000
Loss from House Property 1 –        -Rs. 2,00,000 (A)

Property 2
Annual value (taken as notional rental value) – Rs. 75,000
Less : Interest Payable                                    -- Rs. 3,00,000
                                                                       ----------------------
Loss from House property 2                      -- Rs. 2,25,000 (B)
Total loss from Hose property (A) + (B) = Rs. 4,25,000
Out of this you will be allowed to setoff Rs. 2,00,000 against any of your other income.
Balance to be carried forward to future years Rs. 2,25,000
This can be set off against income from house property in the future for eight years

Harsh Roongta is a CA and Sebi-registered investment advisor. Send your queries to personalfinance@dnaindia.net or tweet them to @AskHarshdna