Q. My post-retirement corpus of about ₹30 lakh is at my disposal for investing to get monthly income. I will be getting a nominal pension but nothing substantial. So, I will have to explore other avenues to supplement my monthly pension. I am interested in investing in mutual funds and using the monthly / quarterly systematic withdrawal plan (SWP). I would like to get a reasonable return (8-10%) and at the same time ensure protection of the principal amount. Kindly advise me on SWP and also suitable mutual funds that offer such options.
Vidya Bala replies:
Systematic withdrawal plans require you to keep the withdrawal rate lower than the return rate of the fund, to preserve corpus. Else, you will deplete the corpus soon. It is one thing to grow the money for 5-10 years at least in equity and then shift to debt and do an SWP post, as opposed to starting SWP right away. If you have to start one right away, you can only do so in low-risk debt funds. They cannot return 8-10% percent in most scenarios, barring peak rate periods. Hence, your requirement at this stage is not tenable with funds.
You can instead do a combination of Senior Citizens’ Savings Scheme, LIC’s Pradhan Mantri Vaya Vandana Yojana and RBI’s Floating Rate Bonds. All of these are government schemes and will fetch you better returns than bank fixed deposits. Once rates move up a bit you can allocate 10-15% in ultra-short and money market debt funds and do an SWP then.
Q. I am one of the sufferers of NCD scheme of DHFL, where I lost more than 50% of the original deposit. Can you please suggest any mode of investment where I can venture without fear of debacles (except bank deposits which offer horribly low rates)?
G. Harinath Rao
A. You could look at RBI’s Floating Rate bonds. The interest is taxable, but rates are better than bank FDs. They are also guaranteed by the government. You will get them in large banks. Once yields go up a bit, you can also open an account with RBI’s Retail Direct Scheme https://www.rbiretaildirect.org.in/ and buy the primary gilt issuances. They are safe (sovereign) and you need not worry about volatility, provided you hold them till maturity.
(Vidya Bala is co-founder, Primeinvestor.in)
Q. I retired from a government-owned bank in 2018. While in service, I availed of a housing loan from the employer and purchased property in 2003. The entire outstanding in the loan was paid before superannuation. Meanwhile, another property was available for sale in the same location and SBI was prepared to grant a loan with repayment extending up to 70 years of age. I availed of the loan in 2015 and purchased the property.We moved into the second property and started getting the income tax benefits on interest and repayment of the housing loan. The rental income of the first property was offered for tax purposes.In March 2020, we shifted to the first property, but could not let out the second property till the end of October 2020 on account of lockdowns:
1. Can notional rental income be offered for tax from April to October 2020 and thereafter actual rent received?
2. In the last Budget or so, was there an announcement that no tax would be levied on rental income when a person holds two properties in the same town/city and one is self-occupied and another is rented out?
N. Sree Kanth replies:
On point 1, as per Section 23 of the Income Tax Act, 1961, where the property or any part of the property is let out and was vacant during the whole or part of the year and owing to such vacancy the actual rent received by you is less than the rent which the property might be reasonably be expected to fetch, then the amount so received by you for the remaining part of the year during which period the house property was let out will be taxed in your hands. In other words, the rent received by you for the period the house property was occupied by your tenant will be the Gross Annual Value and will be taxed accordingly.
On point 2, with effect from April 1, 2020, an assessee may claim two house properties as self-occupied and need not disclose notional income on either one (as was the case prior to the amendment) provided the conditions of self-occupied house property is satisfied as per Section 23 of the I-T Act, 1961. In order for a house property to be self-occupied, it is to be occupied by the owner for his own residence or if it cannot be occupied by him owing to employment or business at another place, and he resides at that another place in a rented house or a house not belonging to him. Both the residential properties within the same city/town is to be self-occupied by the owner in order to claim the GAV as zero for both the house properties. If any one is rented out, the same cannot be claimed as self-occupied house property.
Q. I am a pensioner aged 86 regularly filing income tax returns every year with nil tax payment. I have exhausted the ₹1.5 lakh deduction under 80C by way of PPF, etc. I want to know whether there is any other scheme for senior citizens to become eligible for deduction from taxable income over and above the ₹1.5 lakh under the section.
A. As you have stated that you are a senior citizen and that you have exhausted the limits of ₹1.5 lakh as prescribed in Section 80CCE of the I-Tax Act, 1961 by investing in PPF, there are no other investment schemes that can be utilised to claim deduction over and above ₹1.5 lakh.
(N. Sree Kanth is partner, GSS Associates, Chartered Accountants, Chennai)