The Hindu Business Line : Planning to fulfil your dreams

I am currently earning $96,000 an annum (Rs 40 lakh an annum). Post tax and other expenses, I send Rs 20 lakh to my family in India. My wife, who is 35 years old, is 7 years younger to me.

She is currently employed and earns Rs 12,000 a month. My elder daughter is studying in VI standard and my younger daughter is in class IV. My wife is finding it difficult to plan appropriate investments.

Currently, she has deposits worth Rs 15 lakh in Kissan Vikas Patra, with three years to go for maturity. NRE deposits worth Rs 18 lakh is in my name.

She has been contributing Rs 5,800 a month in PPF for the last eight years. She has invested Rs 5 lakh in RBI tax-free bonds at 6.5 per cent.

In 2004, I took an insurance policy for Rs 25 lakh in India with an annual premium of Rs 1.44 lakh.

We have invested Rs 5 lakh in diversified equity and sector funds.

As my wife has a power of attorney on my behalf and she has taken a loan for Rs 35 lakh with 20 years tenure in 2005.

The interest rate then was 7.25 per cent.

We have constructed a house in the plot that we had purchased few years ago and we are now paying an EMI of Rs 27,685. The current outstanding is Rs 32 lakh. My wife wants to know if it is better to close the loan or increase the EMI.

Goals

I would like to provide sufficient funds for my elder daughter’s education in the UK, which is expected to cost around Rs 65 lakh.

The total cost for both graduation and masters for my younger daughter is likely to be around Rs 15 lakh at today’s value. she is currently studying in a residential school for which the annual expenses is around Rs 1.2 lakh.

I intend to invest in some scheme for the next 7 years which would take care of her schooling. I also want to know the tax liability for the sum of Rs 25 lakh that I lent to my brother for his business. The same would give me an annual return of 20 per cent.

I am planning simple marriage for both my daughters and want to gift them Rs 25 lakh each at current value. I am also planning to retire and settle down in India in another 10 years.

The monthly expenses at today’s value excluding medical insurance will be Rs 15,000. How much do I need to save? — Mani

Investment solutions

Education:

Assuming an average inflation of three per cent in the UK, the approximate cost of education in another six years will be Rs 77.5 lakh, subject to exchange rate fluctuations. You have six more years to go to meet this expense.

You can hence opt for a 70 per cent investment in debt and rest in equity to achieve 10 per cent returns.

You need to save Rs 79,000 monthly to achieve this corpus at the start of a four-year education.

If you earmark a sum of Rs 15 lakh and deposit the same at an interest rate of 8 per cent, your younger daughter’s schooling expense can be met. For her higher education, if you inflate Rs 15 lakh at 6 per cent for the next 8 years, you will require a sum of Rs 23 lakh from 2016. To achieve this target, you have to save Rs 5,500 for the next 96 months at 10 per cent return to reach Rs 8 lakh. For both your daughters’ education, plan investments in such a way that the debt portion matures when they turn 18.

This way, the accrued interest income need not be clubbed with your own income. For the intervening period, avail a loan on the deposit if need be, to save tax outgo.

Tax treatment for income earned in India

Any income arising in India is taxable at the same slab applicable to a resident individual. The home loan repayment of principal and interest can be adjusted against this income.

Under Section 80C of the Income Tax Act, a sum of Rs1 lakh can be availed as deduction for investing in schemes such as tax saving bank deposits and equity linked saving scheme. Please bear in mind that NRIs are not allowed to invest in small saving schemes.

Home loan and Kissan Vikas Patra

Since the interest rates have gone up steeply, it is advisable to step up your EMI.

This will help you reduce your taxable income up to Rs 1.5 lakh. Kissan Vikas Patra gives you compounded annualised return of 8.25 per cent.

You are allowed to close your KVP anytime after the completion of 2.5 years. Based on the current interest rate scenario, it is advisable to close this account and move to fixed-maturity plans or fixed deposits with banks as they offer higher interest rates.

Retirement needs

Since you prefer to have a simple life post retirement, you can leave an estate for your children based on your current earnings.

Your post-retirement requirement of Rs 1.8 lakh a year at today’s value inflated at 6 per cent till 2025 works out to Rs 4.9 lakh every year till your life expectancy.

To hold this money from 2025, you should have Rs 2.1 crore earning an inflation-adjusted return of 2 per cent.

In order to accumulate this money over the next 10 years, you have to save a sum of Rs 1 lakh every month, earning an interest rate of 10 per cent.

It is advisable to invest through some pension scheme to save tax outgo on the return.

Your current savings can be used to gift your daughters on the occasion of their marriage. For NRIs, real estate may be a superior tax-saving investment.

Queries can be sent to financialplanning @thehindu.co.in

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