VB Prabhu Verlekar
Q. My two children who are in USA persuaded me to remarry after demise of my wife for companionship since I was staying alone and was not interested to stay with them. They found a suitable match for me belonging to our community through matrimony site, Shadi.com. We are on same wave length and enjoy our life. Our children are happy too. I wish to provide for her to have a financially secured comfortable life after me. What are various options available? Please guide.
Ganesh Ranganath Shenoy,
Dona Paula.
My hearty congratulations to you and your children for taking such bold step to live life on your own terms unmindfully of societal norms and encouraging others to follow this path. I give below practical options for ensuring your wife lives comfortably and independently after your lifetime.
1. Nominate her for all financial assets- Nominee ensures she receives money smoothly without waiting for legal heirs’ approval.
2. Make her a joint holder wherever possible- After your death, accounts continue in her name without freezing.
3. Private Family Trust: A revocable or irrevocable private family trust ensures that:
• Your wife receives monthly income, accommodation, or lump sum amount.
• Your children ultimately inherit the remaining assets after her lifetime.
• Prevents disputes after your death.
• Avoids misuse of funds.
4. Prepare a registered will (very important): Even if assets have nominees, a will legally clarifies distribution.
5. Grant her “Life Interest” in home property: If you want your children to own the house ultimately but want her to live there peacefully, Give her life interest in the property. She can live there till her death but cannot sell and hence ownership passes to your children automatically.
6. Purchase an annuity plan for Her – If you buy an immediate annuity from LIC or a private insurer: She will get guaranteed lifelong monthly income after your death. There will be no dependency on children and cannot be misused.
By thoughtfully putting these measures in place, you not only safeguard your wife’s dignity and independence but also ensure harmony and security for your children, leaving behind a legacy of foresight, care, and responsibility.
Q. I am a senior citizen pensioner of Goa government. With increased age my medical and other expenses have increased. What additional pension does a Goa government pensioner receive on crossing certain age milestones? How is this extra pension taxed? Are there any other benefits that pensioners enjoy?
Ramchandra S Bhangui, Rivona.
In Goa government pensioners receive additional pension on reaching specific age slabs: 20% extra at 80 years, 30% at 85, 40% at 90, 50% at 95, and 100% at 100 years and above. This additional amount is treated as normal pension and is fully taxable under “Income from Salaries” after allowing standard deduction of Rs 50000.
According to a recent Seniors Happiness Survey Report, families encourage pensioners to stay with them. They take extra care of pensioners to keep them healthy to live long, since pension is a “second source” of income for the household. This does not normally happen with non-pensioners. However, from January 1 2004, old pension scheme is discontinued and replaced with National Pension Scheme as the number of retirees grew and life expectancy increased, pension liability ballooned becoming fiscally unsustainable.
Q. Our housing society has given our property for redevelopment to a builder with consent of all memebers. In return each member will get increased flat area by 20% plus Rs 10 lakh compensation for hardships. How will this be taxed in the hands of members?
Govind Gavandalkar, secretary of CHS
When a building goes in for redevelopment, each member gives up the old flat and receives a new one-often with 20% or more extra area. The extra area is not treated as income, since you’re not selling anything. You are simply getting back your own property in a new form. Courts have repeatedly held that this is just a rearrangement of property rights, not a taxable gain. Two major rulings confirming this are: Bombay High Court– CIT v. Smt. Minal Rameshchandra and Mumbai ITAT– Jethalal D Mehta v. DCIT. Both support the view that no tax is payable on the additional area allotted to members during redevelopment.
The Rs 10 lakh hardship compensation is also not taxable. Builders often pay a lump sum amount to cover temporary shifting and rent, inconvenience during construction, travel and other hardships. This payment is treated as a capital receipt, meaning it is not treated as income and therefore not taxable. Several court rulings have confirmed this, including Bombay High Court– CIT v. Smt. Sharda Suresh Vaidya & ITAT Mumbai– Rahul B. Pandit v. ITO, ITAT Mumbai– Sushma S Sakharam. These judgments clearly hold that compensation for redevelopment hardship is not chargeable to tax.
Q. After working in Dubai as an Electronic Engineer in a multinational company and building substantial savings I have started my own business in Goa, from my premises which is now generating good profits. I am unsure whether I am actually doing well. Please guide about evaluating my business performance. Anil J. Nevrekar, Panaji.
To understand the true performance of your business, you should calculate your economic or “real” profit by considering the following:
1.Interest on your capital- Charge a reasonable interest on the funds you invested in the business, say 15% per annum, as 12% return you could have earned elsewhere without any effort plus 3% for the risk.
2. Your own salary- Given your qualifications and the time you spend managing the business, assign yourself a salary of at least Rs 1 lakh per month (or more depending on your experience and responsibility).
3. Rent for your own premises- Even though you own the property, consider the fair market rent that the business would have paid if it were operating from a rented place.
After deducting these three charges from your business’s accounting profit, the amount left is called super profit. Please note that the above charges are only notional for evaluating performance and are hence not tax deductible.
This super profit represents the true economic gain from running your own business. If this figure is positive and healthy, it means you are genuinely doing well as an entrepreneur.
In addition , consider following: Return on capital employed (ROCE) to see if your returns exceed what a safe investment would give, growth trend in your revenues, customers, and margins and lastly stress-free liquidity (cash flow adequacy). If these indicators are strong along with super profits, your business is performing well not just on paper but also economically.
The writer is well established, senior practicing chartered accountant with wide experience in taxation and finance. He is also a strategist in turn round management of institutions.
