FINANCIAL COCKTAIL SAMOSAS BITESIZED MONEY MORSELS FOR YOU, 14/09/2022

“Families Are the Compass That Guides Us, Inspires us, and Comfort us When We Falter”. There are certain ways in which the family framework can be legally used to lower tax liability. We will give three of them below:

1. Paying Rent to Parents: Salaried individuals can save tax by paying rent to their parents while claiming HRA (House Rent Allowance). However, the property in which you are staying should be owned by one or both of the parents, and you should have no partial ownership interest in it. The rent one pays becomes taxable in the parent’s hands and will be visible in their Annual Information System (AIS). The overall arrangement is advantageous, in addition to claiming a 30% standard deduction for annual rent; the best benefit comes if your parents are retired and have no income or are in a lower tax bracket than you.

2. Investing in spouse’s name: In case of a non-earning spouse or a spouse falling into a lower tax bracket, the amount can be gifted to her/him who can invest it in tax-free instruments like tax-free bonds or PPF. Since the income is tax-free in such instruments, the clubbing of income provisions does not apply. And if the generated income/gain component is reinvested further, it is treated as the wife’s income and not clubbed with the husband’s income.

3. Taking Joint home or education loan: It is advisable to go for a joint home loan with your spouse in order to claim separate benefits for deduction for a principal amount under Section 80C and for claiming deduction of interest U/S 24(b) of Income Tax Act, 1961. In the same way, a joint education loan with your child can help you claim unlimited interest benefits under Section 80E, effectively reducing the effective rate of interest.

There are many such legal tax hacks available. However, choose them carefully, keeping the long term in view.

(Contributed by Kritika Saini, Relationship Manager, Team Arjun, Hum Fauji Initiatives)

When to Exit from Your Mutual Fund Investments?

• Change in fund’s fundamentals: If the fund manager or the risk level of the fund has changed, or SEBI has introduced regulations adversely affecting a fund, a review of the fund’s relationship to your entire portfolio is called for immediately. Exit the fund if required.
• Inconsistent Performance of the Fund: If your fund has been underperforming compared to its peers and the benchmark for more than 2 years, it may be time to switch out of that fund and reinvest in another one.
• Your financial Goal is near: When one or more of your goals are coming up, reduce the risk in the fund(s) from which you intend to withdraw funds. Preserve your capital amount required for that goal by switching to debt instruments like shorter-term debt funds or maybe even bank FDs.
• You have a monthly Requirement of money: A Systematic Withdrawal Plan (SWP) is the most tax-efficient way to get your monthly requirement and the most flexible too. Set up a long-term SWP calendar to get the required amount regularly to meet this month’s requirement.

• Economic Crisis: When equity or interest rate markets trend down, most retail investors only think of the worst and assume doom for all times to come. But the fact is that such crises give golden future opportunities and should be utilized to put in even more investments in the market. See the market trend just a short time after the 2008 economic crisis and the 2020 COVID crisis and you will understand what we mean.
• Market Timing: Selling at market highs and buying at lows is the best strategy, but nobody has really ever been able to do it. We suggest you not try this – nobody can ever guess when the markets are now at their highest or at their lowest. Remain invested – it is the time in the market that matters and not timing them. It is important to manage your emotions and maintain the asset allocation of your overall portfolio – it will help you to achieve your goals and desires on time flawlessly.