I had a question related to tax. If I am a person who does not have any other source of income other than the Short Term Capital Gains (STCG) from either MFs or Shares, and if this amount doesn?t exceed Rs 1,10,000 in the case of a male and if it doesn?t exceed Rs. 1,45,000 in the case of a female, does this mean that I do not have to pay any income tax at all? Alternatively if the gain exceeds the above-mentioned amount even by a Rupee, then my understanding is that he/she would have to pay tax at the rate of 10% flat. Let me know if my understanding is correct in this regard.

?Charudatta

For a resident, the entire basic exemption is available for setting off the short-term gain. In other words, in the case of a non-senior lady, say the STCG is Rs 1,60,000, she will have to pay tax at the rate of 10% on Rs 15,000 only. However, regardless of the amount of STCG (lower or higher than the basic exemption), this facility is not available to NRIs.

Could you please let me know the meaning of ?upfront charges? that are generally associated with ULIPs.

?Mirajdar

Upfront charges constitute mainly agent commission, policy administration charges, mortality premiums, etc. For a typical ULIP these range from 15% to as high as 75%.

This means that from your net premium invested or paid, only 85% to 25% ends up getting invested! Needless to add, a major chunk of the charges (also known as premium allocation charges) end up as commission in the agents? pocket. Though these charges taper off as the years pass, as a chunk is taken away upfront, the break even period for ULIPs; as compared to MFs, is in the region of 5 to 7 years if not more. It is only after that period that you really start earning money. This too depends upon market conditions. Lastly, if the performance of the ULIP is not up to the mark, again on account of the high upfront, you are trapped, as a sale would involve a loss.

Therefore the key question to ask, is how much of my premium gets invested in each of the first three years, and then insist on documentary proof of the same. Inquire and ascertain similarly how much is the agents? commission, as it directly goes out of your pocket. In fact the best thing to do is to buy term insurance (the cheapest form of insurance) separately and invest the remaining proceeds in a diversified equity MF.

How would you compare ULIPs with FMPs. Which do you think scores better for a long-term investment, considering the tax benefits as well?

?Madhav

ULIPs and FMPs are essentially two different asset classes. FMPs offer a fixed rate of return, whereas the return on ULIPs is not fixed, it varies with the market. Generally as a rule, I would suggest not to opt for an ULIP, as the upfront charges of any ULIP are typically high (range of 15% to as much as 75%). For tax benefits, choose a combination of PPF and ELSS mutual fund.

And lastly remember, beyond a point, tax saving is simply not possible. Instead try and maximise or optimise your post tax income.

My son left his previous job with a multinational company. He had a service bond of 5 lakh to serve them up to a particular date. Due to some personal reasons he had to leave the company a few months earlier and accordingly had to pay the Rs 5 lakh penalty. Can this sum be deducted from the salaries received from them for income tax purposes? If yes, how? If no then why not?

?Kedar

There is no provision in the Income-Tax law for deduction of payment made to the previous employer on account of the violation of a service bond. Hence, this amount cannot be deducted from the salary received from a new employer.

I am an NRI based in the UK and have a PIS account. I understand the capital gains tax is automatically deducted when I sell the shares. Do I still need to file an IT return if I don?t have any other income apart from the gains in the PIS account.

?Anil Dey

A: TDS and tax returns are two separate issues. If your Indian income including taxable capital gains is greater than Rs 1.10 lakh for FY 07-08, then irrespective of the TDS you have to file a tax return.

Also, say your income is lesser than Rs. 1.10 lakh, however, there is some TDS deducted, then the only way to get the refund is to file a tax return. So the latter filing is voluntary but the former is obligatory.

?The authors may be contacted at wonderlandconsultants@yahoo.com