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Today, any kind of celebration is incomplete without a gift. Yet, a gift need not always mean an expense - it can also be a saving or investment. Why not use this Valentine's Day as an occasion to review your finances, to include your spouse and family?
"While investing in your spouse's name, keep in mind taxation and convenience. Especially if the husband is investing in the name of his wife who has no income of her own. While the intention here might be to encourage a savings habit, tax authorities can look at it from the point of tax evasion. This can have consequences in the long run,'' says Abhinav Gulechha, founder, Soham Financial Planners.
Due to this, Gulechha prefers keeping investments of husband and wife separate. If a joint investment or if the husband is investing in the wife's name, there must be a clear trail of investments to meet any tax scrutiny, he warns.
However, Mumbai-based certified financial planner Deepali Sen, partner, Srujan Financial Advisors, advises joint investment for all financial products more for the convenience. "Even for a salary account, I advise having your spouse as a joint holder. It is easy to operate the account in case one is travelling or falls ill. However, if both spouses have salary accounts, ensure the first holder is different in both accounts, to avoid confusion at the time of filing taxes as to whose liability it is,'' she says.
While it is advisable to have joint investments, one disadvantage of having the 'either or survivor' clause is that the account can be operated by any of the holders, without the knowledge of the other, points out Manish Shah, chief executive (CEO), BigDecisions.com, a personal finance website. "If the investments lack joint names, it is always a good practice to have nominations filled up to avoid future trouble for family members."
For tax-free returns
For tax-free returns, invest in Public Provident Fund (PPF) and equity mutual funds in your wife's name. One can open a PPF in any bank that offers it or the post office. The Know Your Customer (KYC) rules for PPF are also simple - the regular identity and address proof. An equity MF will give tax-free returns if held for more than a year. However, investing in your spouse's name is a bit tricky, as MFs don't allow third-party investment. So, you can either invest jointly, using the anyone/survivor option or transfer funds to your wife's savings bank account and she can invest in her name. In such a case, it is a good idea to prepare a simple gift deed to evidence the gift.
"You may have exhausted the benefit of tax-saving through your employee provident fund. But, PPF is still a good investment, since it offers long-term tax-free income and is a good tool for retirement savings,'' says Gulechha.
Gifting a Systematic Investment Plan (SIP) is a good way to encourage regular savings and you can start one this Valentine's Day, says Nitin Vyakaranam, CEO, Arthayantra.com, a robo advisory firm. "This way, you can contribute a little sum in a systematic way, so that in your absence, the returns come to your spouse,'' he says.
Health insurance
With rising medical expenses, health care affordability is a big question. Ensuring a healthy life for your loved ones is another gift you can consider. There is a benefit of tax savings, too, under Section 80D, notes Vyakaranam. "Even if you have company-sponsored health insurance, buying one is a good option. A cashless health policy guarantees you peace of mind and the promise of wellness to your dear ones,'' he adds.
You can get up to Rs 25,000 tax exemption on medical premia paid for self, spouse and children, by any other means of payment other than cash. You can also get Rs 30,000 off if you pay for your senior citizen parents.
Tax on investments
You can also gift-invest in a bank or company deposit in the name of your spouse. But, these will attract tax provisions on clubbing of income, points out Shah.
"Any kind of monetary gifts provided to the spouse on which interest is earned through investments attract these provisions. This means any interest earned will be taxable in the hands of the husband and not the wife, and vice versa,'' he says.
For instance, if you invest Rs 1 lakh as a fixed deposit in your spouse's name and it earns Rs 10,000 as interest, the interest will be taxed in your name. If your wife invests the interest and earns an income, that income is taxed in her name. Keep this in mind while filing your tax return.
A holiday fund
If you have been planning a foreign vacation for some time, this Valentine's Day start a holiday fund by investing in a debt mutual fund. You can choose from a liquid fund, liquid plus fund or income fund. These give better returns as compared to bank FDs.
Today, there are fixed/recurring deposits that allow to you to save for a holiday. These holiday savings accounts are offered jointly by banks and travel companies. In these schemes, the depositor pays for 12 instalments and the travel company pays for one. You earn interest on the deposit as well.
New couple
If you have not purchased a term life plan, this is the best gift for your spouse, as it offers both protection and tax benefits. If you had purchased one before marriage, with your parents as nominees, now make your spouse the nominee.
"Earlier, in insurance policies, the nominee was only the trustee. Now, the nominee is also the beneficiary and will get the proceeds from the policy in your absence," says Sen.
Married couple with children
For a couple with children, Valentine's Day is a good time to review the SIPs started in the initial period of married life. You can increase the SIP amounts as a gift to your family and yourself. "Starting a new investment in the name of your children acts as a mental block that you won't withdraw it halfway,'' says Sen.
Couple nearing retirement
More than looking at new investments, one must do a check of existing investments and accounts. "If it is a single investment, make it a joint one with your spouse or even include one of your children. Similarly, include your spouse and children's names in your bank locker. It helps if both husband and wife are old and unable to operate the account or locker,'' Sen says.
GIFTS THAT HELP SAVE MONEY
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Since only one PPF account is allowed per person, open a second one in your spouse's name to enjoy high returns and tax-free interest
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Start an equity MF SIP in your spouse's name, as these are tax-free after a year
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FDs are easy to invest, but keep in mind the clubbing of income on the interest earned
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Start a holiday fund by investing in debt MFs or in a holiday savings account
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Make your spouse the nominee in your term life plan
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Include your spouse, children's names in your bank accounts
