Tax benefits on Income from house property

Will the new Direct Taxes Code be effective from next year or is it still to be cleared?

Direct Taxes Code is a comprehensive legislation for direct taxes, namely, the income tax and the wealth tax. The draft of the Code is circulated to invite public commentary
and reactions and after the suggestions are considered, incorporated and accordingly amended, the same would be placed before the Parliament for legislative approval and to be made into a law. After the approval of both the houses of parliament, the Direct Taxes Code will be applicable w.e.f. financial year 2011-2012. The Direct Taxes Code will then replace the present enactments namely, Income Tax Act, 1961 and the Wealth Tax Act, 1957, and the rules made thereunder. In case the same is not approved or delayed for any reasons, the present laws will continue to be in force.

Tax benefits on Income from house property

Will the new Direct Taxes Code take away the tax benefits available for interest and principle paid on home loans? Can you please elaborate more on future of tax benefits?

• As per the new Direct Taxes Code, the provi sions relating to income from house property are contained under sections 23-27. Section 25(1) states that the gross rent in respect of a property shall be the higher of the amount of contractual and presumptive rent for the financial year. Further, section 25(4) states that the gross rent shall, regardless of anything to the contrary contained in sub-section (1), be taken as nil if the property consists of a house or a part of a house which is not let out. Further, section 25(6) states that the provisions of sub-section shall, in a case where a person owns more than one house, shall apply only in respect of one house which the person may specify at his option. Further, section 26(2) states that the aggregate of deductions referred to in sub-section (1) shall be nil in respect of the property referred to in section 25(4). Thus, no deductions can be claimed in respect of self-occupied property which is presently available under the IT Act, 1961. If the house is rented or if the income is included in the computation of income, being the additional houses other than the self-occupied house as specified by the assesseee at his option, the interest on borrowed capital in respect of the said houses will be allowed as deduction in entirety without any limit.

Investing For High Returns

Jam 33-yea r-old and am a regular reader ofyour column. Regarding my portfolio I am contri buting to three SIPs as follows:
1. Fidelity Equity Fund - Growth Rt 1,000 p.m. since two years and still continuing
2. DSP BL Tax Saver Fund Ri’ 10,000 - 2 years back - still locked in
3. DSP BL Tiger Fund Regular - Growth SIP of Rs 1,000 since
2 years still continuing
4. HDFC Equity Fund - Growth SIP of Rs 1000, just started this month
Apart from this, I have invested in Cash Back Policy of ICICI Pru Lfr. Please suggest me how I can enhance my portfolio to get high returns in the long run.

Mitun, there is a basic contradiction in your requirements —. high returns and guaranteed returns don’t go together! You can have either of the two. As the asking rate of return increases, so does the uncertainty of it.

If you have a time horizon of more than three years, you could enhance returns by investing in better equity funds. HDFC Equity Fund is fine, and so is DSP TIGER for the next few years. But Fidelity Equity is not one for aggressive investing. You can include mid-cap oriented funds such as Sundaram Select Midcap or IDFC Premier Equity to add returns to your portfolio. These are more volatile, but then that is the price for higher returns. ICICI Pru Discovery, which is a value fund with a tendency to have more of mid- cap stocks, is another possible choice.

Is SIP The Best Option?

I am 23-year-old and I have a job with a sala?y of Rs 22,000 p.m. My current portfolio is given below. Please help me in building a portfolio for my child and myself
Jam contributing Rc 7,300 p.m in PE
I have SBI ULIP Plan of Rs 25,000 p.a. for 3 years
• Ihave LIC plan of Rc 51,000 pa. for 15 years My SIP investments are as follows..
• SIP of Rc 1,000 p.m in Reliance Regular Saving - Growth - started in October, 2009
• SIP of Rs 1,000 p.m in HDFC Top 200- started in October, 2009 Now I can invest about 3, 000 p. m. more. Please tell me finvesting through SIP is the best option for me? Ifyes, then please recommend the SIP scheme in which I should invest.

Sunil, recently as I was traveling back from :LI’1r Hyderabad, a youngster working in an American tech company engaged me in conversation. As he came to know my profession, he started questioning me on which were the best investments.

It is difficult to hold back when I am confronted with such a sweeping question! By the time I was through, he declared that I had mostly likely changed his way of thinking and spending. What were these simple truths that I had disclosed to him?

Savings without direction is like a ship without a sail, (to use a cliché). You need to have a target; the target must have a time scale, a clearly identified need and must be quantified.

I sense a desire to provide for your child — but for what use, when and how much? These questions have not been asked by you. Unless these are clear, a plan cannot be repared. For instance, there could be a desire to provide for your child’s professional education. This becomes your direction. It would be required when your child reaches the age of 17 years — this becomes your time scale. In this instance, assuming tuition fees for a professional education as Rs 10 lakh, the same could cost around Rs 32 lakh after 15 years due to inflation. And this future cost becomes the quantification. Now we are in a position to make a plan to save towards it. Assuming that a balanced portfolio can provide compounded returns of around 12 per cent p. a., one must save Rs 6,900 p.m. through an SIP If one desires to be more aggressive since time is at one’s disposal and go for a 80 per cent equity and 20 per cent debt portfolio then your assumed return can be higher at 13.4 per cent p.a. — in which case your SIP can be bought down to Rs 5,500 p.m.

Another simple tip that I had discussed with my fellow traveller was regarding insurance. Though he had sufficient health insurance for his entire family, he was ignorant of the type of insurance ideal for his life cover. Insurance must be talked about in terms of ‘how much cover’ and not just ‘how much premium’. Premium follows the cover; meaning the first determination should be ‘how much cover’ do I need? The answer is that you need as much as your family would require to survive without you as a bread earner. A simple rule is ten times your annual income and costs of fulfilling any goals you have for your family members, less your accumulated savings. Please add liabilities, if any.

You can continue your SIP in equity funds. But for the debt portion, you may choose Birla Sun Life Dynamic Bond Fund.