A Financial To-Do List for Couples

Abhay Sharma (33 years), a salaried person and Aayushi (31 years), a freelance interior decorator lives in Pune along with their 5-year-old son Manav. Their inflows, outflows and net worth details are as follows:

Financial goals

1. Retirement planning
2. Manav’s education and marriage expenses after around 15 to 20 years
3. Buying another house by 2020
4. Buying an SUV by 2017
5. Planning a pilgrimage for parents
6. Contingency reserve for medial cost for the entire family
7. Abhay wants to start his own business in the next five years

Facts: Apart from surrendering his policy and selling his mutual funds and property; the amount of FD as stands in the name of Manav has come from his grandfather as a gift. Aayushi has also decided to leave her freelancing work after two years to take care of Manav’s education.

To-Do List for Abhay:

• Tax implications on sale of mutual funds: It would be tax exempt because Abhay has held these MFs for more than 12 months period and it qualifies as long-term capital gains and there is no need to pay tax on it.
• Tax implication on the sale of house:Abhay has sold the house at Rs.46.65 lakhs and after considering the indexation benefit, his capital gains amount is Rs.37.55 lakhs which can be saved by purchasing another residential house within a period of two years or by constructing a house within three years from the date of sale. Otherwise, he should invest the same amount in a capital gains account scheme. Else, he can also invest in capital gains tax saving bonds to claim the tax exemption under section 54 EC.
• Interest on Manav’s FD would be clubbed in Abhay’s total income.
• If the surrendered insurance policy is a pension plan, then the same needs to be taken in to account for tax calculation as maturity of pension plans are not tax-free.
• Abhay’s contributions to PF and his home loan principal repayment and Manav’s tuition fees are eligible for Section 80C benefit and the total amount is more than Rs.1 lakh i.e. the maximum limit under this section. Hence, he doesn’t need to invest anything further to avail benefit under this category.
• He can also claim a deduction of up to Rs.1.5 lakh u/s 24b for the interest paid on home loan.
• He needs to pay advance tax as well since his current employer has not deducted his tax fully and he has interest income to be clubbed as well.

To-Do List for  Ayushi:

• Ayushi has earned a total income of Rs.6.60 lakh in the current financial year, but has not made any investments for saving her taxes. She can invest in PPF, NSCs, tax saving bank FDs, post office time deposit, mutual funds ELSS or a combination of any of these schemes for claiming deductions under the I-T Act.
• Since she is a self-employed woman and cannot avail the benefit of PF, she is advised to further increase her investment in PPF from Rs.1,0000 to Rs.50,000 per annum.
• She has not invested anything in equities hence she is advised to invest in tax-saving MFs i.e. ELSS for an amount of Rs.40,000 as it would also deliver higher returns and can help her amass wealth in the long term.
• Since she is also a bread winner, she needs to buy a term insurance plan (for a cover of around Rs.75 lakhs) for a premium of Rs.10,000 which also completes her total Rs.1 lakh investment u/s 80C including the amount of MFs ELSS and PPF.
• Her total income is less than Rs.12 lakhs and hence she is also eligible for Rajeev Gandhi Equity Savings Schemes, she can invest Rs.50,000 additionally to get the benefit under income tax act.

The above mentioned recommendations are based on the facts of a case study. 

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