I am 58 and recently retired from government service. My wife (47) is a homemaker. My son (23) and daughter (21) are working and are unmarried. My monthly pension is Rs 20,000 with variable DA. I get a rent of Rs 50,000 from my bungalow. My domestic monthly expenditure is approximately Rs 20,000, insurance premium is Rs 20,000, and my EMI towards loans are approximately Rs 10,000. I have no medical insurance, but I have medical reimbursement from the government up to Rs 3 lakh.

Assets: I have a house worth Rs 50 lakh, with an outstanding loan of Rs 12 lakh. I have a land worth Rs 30 lakh, and I am planning to use this for my daughter's marriage. I recently purchased a car worth Rs 6 lakh, for which I availed a loan of Rs 2 lakh.

From my retirement benefits of Rs 25 lakh, I have invested Rs 10 lakh in fixed deposits, and have lent Rs 5 lakh to my relative (interest-free). With the balance, I am want to repay some loans, and also purchase jewellery for my daughter's marriage. I have invested in mutual funds and insurance plans to the tune of Rs 18 lakh.

My concerns are: Both my children need to get married. For my daughter's marriage, the expected expenditure is approximately Rs 25 lakh and for my son it is Rs 10 lakh.

We expect to live for 20 years. Suggest a plan for a retired life. To meet our regular income, do you suggest selling the plot? We have to gift some assets for my son.

I need your opinion on selling the property, as sometimes it falls vacant, and we cannot live there, it being a big bungalow in a posh location. It may fetch Rs 2.5 crore to Rs 3 crore. The proceeds of the sale will be given to my son, my daughter and used by us for a comfortable life. In case we sell the property, what are the avenues of investment and tax issues?

Regarding investment, should I remain invested in mutual funds and insurance schemes, or redeem them after the lock-in periods?

— K. S. Prasad, Hyderabad

Selling the bungalow at the rates indicated by you can take care of your lifetime's needs and you can happily leave estates for your legal heirs too. The best tax planning you can do is that when you sell your house, pay the proceeds to your legal heirs. By doing so, your wife will also be eligible for a share and her investment will take care of her needs, even if you aren't around.

As she is younger to you by 10 years, and as in general women outlive men, she can park this money in safer avenues to lead an independent life.

If you sell the property, the capital gains tax would be on the selling price (say Rs 3 crore) minus purchase cost. Tax allows you to “index” this capital gain, by adjusting it for the cost inflation index of the financial year in which you purchased the asset.

The net effective tax outgo will be 20.6 per cent of the indexed value minus sale price.

If you invest capital gains alone in another property within two years from the sale of the house, you needn't pay capital gains tax. If you aren't going to buy another property within two years, invest the proceeds in nationalised bank's capital gain account scheme 1998. If the amount deposited isn't fully utilised for purchase or construction of the new asset within the stipulated period, the remaining part would be treated as capital gain of the year, in which the period of three years from the date of sale of the original house expires.

Section 54F offers exemption from capital gain tax if the purchase is made within two years, or construction of a house is done within three years. The advantage with such deposits is that the interest payable is equal to any normal fixed deposit. If you wish to gift your son, buy a house within the stipulated period, and this will be the best tax-planning strategy.

If you aren't planning to buy a house, do invest in capital gains tax-savings bonds issued by NHAI and REC. If the entire long-term capital gains is invested in these bonds, they are fully exempted.

This will have a lock-in period of three years, after which you can withdraw the money and use it for some other purpose. But there is a ceiling of Rs 50 lakh on investment in such bonds.

In the event of your selling the house, don't sell the plot for your daughter's marriage, give it as a gift to your daughter, and by that you can avoid capital gain tax on the sale. For her marriage, she can use her share from the sale.

Investments: It is generally advised that closer to retirement one should reduce equity investment. But in your case, you have invested close to Rs 3.1 lakh per annum in ULIPs, two years prior to your retirement.

But the major advantage in your case was that you have invested the amount in 2008-09, when the markets were down; thereby your current investments are in the green. What we suggest is that you stop all the fresh investment once the lock-in periods are done.

Health insurance: Since your medical expenses are reimbursed, it is better to take a health insurance top-up plan for Rs 5 lakh (under this plan, insurance companies pay the benefits after you meet the first few lakhs from your own source).

Do keep paying premiums for ICICI Pru Health Saver plan.

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