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| HOME | MONEY | TAX | Q & A | |||
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April 4, 2000
Banking |
"Can I withdraw PF money and deposit it in PPF?"The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts. I live in Hyderabad and work for a foreign bank. I have a flat on my name which earns me a monthly rent of Rs 1,650. This is declared in my tax return. — Jagannath Section 24 (1) (vi) of the Income Tax Act 1961 allows a deduction for the interest on borrowed capital where such amount is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. The amount that is allowed as deduction under this section is Rs 30,000. Is earned leave surrendered and encashed during service taxable or not? Leave encashment during continuity of employment is chargeable to tax. The employee can however, claim relief under section 89(1) of the Income Tax Act 1961 read along with rule 21A of the same act. Can a partnership firm engage in agricultural activities? How would the profits be taxed under Income Tax Act? How would the share of profits of the partners be assessed in their individual capacity? — Jay Patel A partnership firm can engage itself in agricultural activities. Section 10(1) of the Income Tax Act 1961 exempts agricultural income from tax. The reason of exemption of agricultural income from central taxation is that the constitution gives exclusive power to make laws with respect to taxes on agricultural income to the state legislature. However, in some cases agricultural income is taken into consideration to determine tax on non-agricultural income.
I recently offered 1,000 units of UTI's MEP-92 for repurchase. While making the payment to me, UTI has deducted Rs 2,200 as TDS. — V Ramani Under section 194F of the Income Tax Act, 1961, UTI is liable to deduct tax at source on repurchase of units issued by them if the amount is the one referred to in sub-section (2) of section 80CCB of the Act.
The face value of the investment made by you would be deemed to be the income of the previous year in which you receive the same and taxed accordingly. The difference between the face value of the units and the repurchase price will be treated as the capital gains. The amount of capital gains on this would be calculated as the lower of the following:
My mother is a pensioner. At the time of retirement, she owned a flat at Bombay. That was purchased with the help of her savings, inheritance and a loan from LIC. — Ravichandran C R A house being a capital asset, will attract Capital Gains Tax on the Sale, if the Sale Consideration is more than the Cost of Acquisition (in case of a Short Term Capital Asset) or the Indexed cost of acquisition (in case of a Long Term Capital Asset.) There are no exemptions from Capital Gain tax by investing money in the bank. However there are certain other exemption granted by Act. From the Assessement Year 2001-2000, under Section 54EC, the capital gains, upto an amount (out of Sale consideration received on the sale of Long term Capital Asset) invested in the bonds issued by the NABARD or National Highway Authority of India will be exempt for Capital Gains Tax. Such Investments carry a lock-in period of five years. I am 60 years old and retired from service. My monthly pension is Rs 6,400 and LIC deducts Rs 99 towards TDS. Am I supposed to pay income tax on the entire pension amount? — Unnikrishnan Under Section 16(i) of the Income Tax Act, 1961 Standard Deduction is granted also in respect of Pension. If your income is Rs 1,00,000 or less, the amount of standard deduction is a third of your gross salary or Rs 25,000, whichever is less. If your income is more than Rs 1,00,000 but less than Rs 5,00,000, then the amount of standard deduction is Rs 20,000. What is the taxability of interest of section 88 bonds? Is interest earned on these bonds exempt under section 80L? — Amar Arun Harolikar Interest on bonds issued by notified institutions (including a public sector company) are entitled to deductions under section 80L. Hence interest on infrastructural bonds of ICICI would generally be eligible for deduction under section 80L. I am paying around Rs 10,000 -12,000 per annum as income tax and I have not opted for any saving schemes like LIC or NSC. Please suggest a way to plan my tax saving. I am not interested in mutual funds or investments in private companies. — Ravi Marigoudar It is inferred, that your income falls under the head "Salaries" for the purpose of income tax. The reference of investments made by you to avoid tax also seems to hint that the investments referred to are investments covered by Section 88 of the Income Tax Act, 1961. The investments which qualify for this section include life insurance premia paid for the assessee & family, contribution to statutory and/or recognised provident funds, contribution to Public Provident Fund, contribution towards approved superannuation funds, any sum deposited under the Post Office Savings Bank (CTD) Rules, 1951, subscription to National Savings Scheme, any sum paid to subscription to National Savings Certificates (NSC) (VI & VII issues), contribution in Unit Linked Insurance Plan (ULIP) of UTI or LIC Mutual Fund, contribution to notified Equity Linked Savings Scheme (ELSS) of a mutual fund or UTI and payment made towards installment for repayment of principal amount of loan taken for purchase/construction of a new residential house property. The maximum aggregate amount of investment permitted is Rs 60,000. An additional sum of Rs.10,000 can qualify as investment under this section if used to purchase debentures or equity shares of a public company engaged in infrastructure or units of mutual funds referred to in S.10 (23D). The various modes of investments mentioned above involve locking up of the principal amount for periods ranging from 3 to 15 years yielding periodical or cumulative returns. If the assessee disposes the investments before the minimum lock-in period, then the sum thus received will attract tax in the year of receipt. Hence, if liquidity is most important, then you may choose that mode of investment wherein the lock-in period of the principal is the least e.g. contribution to ELSS of a mutual fund or UTI with a minimum lock-in period of three years. Investment in PPF and NSC are the more popular investments for the purpose of claiming Rebate under Section 88.
After serving for six years, two years ago I changed my job and joined different company. Still, my PF money is with my previous company's trust. In my new I do have a PF account belonging to government. Can I withdraw PF money deposited with my previous employer and deposit it in my PPF account (certainly I would not claim tax benefit since this income doesn't belong to my earning)? — Sandeep Agrawal The accumulated balance due and becoming payable to an employee participating in a recognised provident fund will be excluded from his total income and would not be taxable if he has rendered continuous service with his employer for a period of five years or more. I would like to take money from my brother-in-law and invest it in mutual funds and shares in my name. All the returns will be his. Will be I able to say that the money involved is not mine and thus not to be taxed in my account? M P Ramanathan Under section 60 of the Income Tax Act, 1961, if a person transfers income without transferring the ownership of asset, such income will be taxable in the hands of the transferor. If a person has sold two scrips, on one he has long-term gains of Rs 50,000, and on the other a long-term loss of Rs 20,000. The net consideration in the first scrip is Rs 1,00,000. How much should he invest to claim exemption under section 54EA and 54EB? B Chandra Mohan The answer is given assuming that no Long Term Capital Loss is to be carried forward and the investments in Section 54EA & 54EB is to be made only to claim exemption of Rs. 30,000 and hence the make the Tax Payable NIL.
If the amount invested in the specified asset is equal to or more than the net consideration received, then the entire capital gains is exempt. If, however, amount invested in the specified asset is less than the net consideration, then the amount of exemption is equal to the following: Amount invested in specified assets X Capital gains/ Net sale consideration Thus the amount to be invested to claim an exemption of Rs. 30,000 will be Rs 60,000.
If the amount invested in the specified asset is equal to or more than the capital gain, the whole of capital gains will be exempt from tax. If, however, amount invested in the specified asset is less than the capital gains, then the amount of exemption will be equal to the amount invested in the specified asset. Thus the amount to be invested to claim an exemption from Long Term Capital Gains of Rs. 30,000 will be Rs. 30,000.
It has to be noted that the minimum lock in period of the investments in 54 EA & 54 EB differ and are three and seven years respectively. I plan to subscribe to the Tax Saving bonds issued by ICICI to claim the tax benefit under section 88 by investing the additional Rs 10,000. If I opt for the Deep Discount option and hold it till maturity, will the difference between the issue price (Rs 5,000) and the face value (Rs 7,025) be treated as Capital Gains or Income. If Capital Gains will I be able to claim indexation benefits. Sreejib Sinha As per notification issued by the Central Board of Direct Taxes (CBDT), where deep discount bonds are concerned, if the investment is held till maturity, then the difference is treated as interest income.
I understand that there are three clauses for HRA exemption. I would like a clarification on the clause that deals with 10 per cent of the basic. Does the HRA include: Atul Aggarwal Firstly HRA means house rent allowance, which is the allowance the employer gives to the employee, it may or may not have any relation with the actual rent paid for the house.
Rent Paid: Rent paid for the purposes of computation of exemption u/s 10(13A) includes only the net rent paid and does not include any other expenses such as electricity and water bills. Exemption is denied if rent paid does not exceed 10 per cent of salary. The following example should help. Assume an individual earning a monthly salary of Rs 28,000 in Mumbai. His basic is Rs 8,000; DA is Rs 6,000; HRA is Rs 6,000 and the balance is other perquisites. The actual rent that he pays is Rs 5,000.
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