Q. I’m a newly-appointed Central government employee. On January 31, I got my first salary of ₹42,000 (including NPS) credited to my account. I want a small bungalow-type house by age 28-30 and a car by 25 years and want to make some regular foreign trips. I’ve no liabilities to take as for now. I’m interested in equities also as interest given by institutions is low. Please guide me in diversifying my portfolio.
Abhishek Prasad Shaw
A. Congratulations on your new job and earnings. It is good to have clear goals. And, it is equally good to have some savings before you make large-ticket purchases. Both car and home are big-ticket purchases. And, foreign trips will be big-ticket expenses annually. So, you will need to not only save sufficiently but also wait salary increases to ensure you are able to pay up car-loan EMI (if you take a loan), home upfront margin as well as home EMI. For now, focus on investing in simple equity funds such as Nifty 50 and Nifty 500 index funds and some short-duration debt funds.
Interest rates in debt cannot be high as their risk is lower than equity. Similarly, it will be imprudent to deploy 100 per cent in equity thinking elevated risk means getting high returns.
High risk means the risk of heavy losses as well. Start investing through SIPs and take stock of where you are when you reach 25. If over 20-30 per cent of your salary is going towards EMIs, then you will know it is not the best time to purchase either the car or the asset. You will have to delay it. SIPs of ₹1,000 or ₹2,000 will not take you far for the goals mentioned. Hence, start investing through SIPs and continue (do not stop) when markets fall. Do not venture into direct stocks or F&O if you do not know anything about the stock market. If you decide to learn, even then invest only that part of your income that you can afford to lose, for now, in direct stocks. (Vidya Bala)
Q. During this financial year, I sold two shares of which I bought one of them 10 years back and the other before one year. After selling them, I got a total of ₹1,60,000. I have two doubts:
1. Which ITR is applicable to me, whether ITR 1 or ITR 2.
2. Whether I have to pay income tax for the whole amount of ₹1,60,000 (my income during the financial year exceeds ₹7,50,000).
Sebastian Thomas
A. 1. It is presumed that you do not have any business income, in such case ITR-2 is applicable in your case.
2. It is presumed STT is paid both at the time of purchase and sale of the shares and as the shares are being held for more than one year, the same will be treated as long term capital assets. For the share which was purchased one year before, a positive difference between the sale consideration minus the cost of transfers and the cost of acquisition of the shares is known as Long Term Capital Gains (LTCG), in case the difference is negative then it is known as Long Term Capital Loss (LTCL). For the share purchased more than 10 years back, value as on January 31, 2018 or your cost whichever is higher would be the cost of the share. If the difference is positive, it is your LTCG and if the difference is negative, there is no capital gains for this transaction. Further, for Long Term Capital Gains, there is an exemption of up to ₹1 lakh and only the gain over above ₹1 lakh is taxable at a rate of 10 per cent.
If there is a LTCL is in the first transaction (which was purchased over a year back) this loss can be first set off with the other LTCG. If the loss is more than the gain, excess LTCL can be carried forward for eight years and be set off with any future LTCG. (N. Sree Kanth)
(Vidya Bala is Co-founder, PrimeInvestor.in. N. Sree Kanth is partner, GSS and Associates, Chartered Accountants, Chennai)