Nalin Hegde, Mumbai

U/s 80RR, where an individual resident in India, being an author, playwright, artist, musician, actor, or sportsman earns any income from the exercise of his profession from the government of a foreign state or an NRI, 75 per cent of such income, as is brought into India in convertible foreign exchange within six months from the end of the previous year is deductible.

Circular number 675 dated 3.1.94 treats photographers, TV cameramen and directors of films as artists and script writers of films asplaywright. However, a producer of a film would not be entitled to deduction u/s 80RR. RBI discontinued blanket permits to exporters of goods and services and allowed them and other recipients of inward remittances in any convertible currency to retain 25 per cent out of the remittances in an account designated as `Exchange Earner's Foreign Currency Account' (EEFC) with banks in India. Such accounts can be maintained in any form -- current, savings, recurring or term deposits. EEFC can be opened by individual residents only. Companies and firms are not allowed savings accounts but they can have all the other types. Why not savings? That's not clear. Neither cheque facility is permitted nor any credit is granted against the security of funds in EEFC accounts. However, those who are allowed by RBI to open accounts abroad cannot avail of the EEFC facility.

EEFC can be utilised for various permitted purposes, such as travel, miscellaneous expenses towards exports, meeting the expenses of studies abroad ofstudents sponsored by the account holder, etc. The scope of EEFC has been extended to open offices abroad to meet expenses and to make investment from the balance in the account in overseas joint venture up to the limit of $15 million without any reference to RBI.

Many a times you have asserted that an assessee cannot have two PPF accounts in his own name. You have also observed that if someone does not contribute even the minimum contribution of Rs 100 in any particular year, the account gets discontinued and loses the facilities of loans, premature withdrawals, etc. Such a person can regularise the account by paying Rs 100 by way of contribution and Rs 10 by way of penalty per year of default and regularise the account. On the other hand, a person who has a discontinued account can open another PPF account. So far you are right. You have missed one significant point. After the term of 16 years, an account can be continued with contributions for a block period of five years. In that case, theaccount holder can withdraw 60 per cent of the balance to the credit, in one or more installments, but only one per year. The account holder can also opt for not contributing anything, even the minimum Rs 100, and in that case he can withdraw 100 per cent of the balance, again in one or more installments, but only one per year.

You should have pointed out that such a person who opts for post-maturity continuation without subscription can open yet another new account.

I request you to bring this possibility to the attention of your readers and introduce this concept in your next edition of the book.

A N Joshi, Pune

There is a possibility that you are right but you may be wrong in the interpretations of the provisions of PPF Scheme, 1968. After receiving your letter, I read this scheme thoroughly and got more confused. I therefore decided to request A N Dureja, an expert on small savings schemes, to give his opinion in public interest.

He feels that the issue is contentious and hehimself has sought clarifications from NSO as well as the Under Secretary (budget), Ministry of Finance (DEA), NS-II Branch, New Delhi. The following is the synopsis of the query:

``Clarification below Rule 4 of the PPF Scheme states that if a PPF account is discontinued and not revived by the subscriber, he can open another PPF account. On this analogy, can I open a new PPF account if I have continued my old account after its maturity, without subscription?'' The query is dated 18.6.97 and has not yet received any reaction whatsoever. Perhaps the Under Secretary is also confused as much as we are.

It is very unlikely that the authorities will issue any clarification since they are extremely busy otherwise and cannot afford the time to address themselves to all the queries, even those which are of crucial importance for investment planning. Until the issue gets resolved, it is safe not to assume that a post-matured account, continued without contributions, can be treated as a discontinuedaccount. I thank you for bringing to light this anomaly in the PPF Scheme.

I have my investment in India for a number of years due to its attractive interest in pound sterling and was really proud of my decisions. I have a 100,000 NRE account taken in August 1996 for a term of five years. The interest rate is 16 per cent. The then existing exchange rate was Rs 55 per pound and now I find that it has depreciated precariously to as low as Rs 66.27 per pound (as on 22.5.98). I am getting worried. Will it be worthwhile to pay a little penalty, ask for premature encashment and take the money abroad and invest it at 7.5 per cent per annum? Because of the uncertainty of the political situation in India, is there any chance of the rupee getting devalued further, and if so, by how much?

B Saha, London

Your decision taken in August 1996 to invest in NRE account in India was a wise one. While taking the decision of premature withdrawal, you have to have a good look at what is termed as`opportunity cost' in financial parlance. By opting for earning 7.5 per cent in place of 16 per cent, you would be sacrificing a known opportunity of earning 8.5 per cent extra interest for protecting yourself against the unknown exchange risk. Let me be more specific.

You have an NRE deposit of Rs 55 lakh.

If you withdraw it now, you will get about 83,000 (less the penalty, which I shall ignore). This is a loss of 17,000. You have received 8.5 per cent higher returns during the past two years, which is about Rs 9,35,000 (ignoring the compounding effect) and this is exactly equal to 17,000 (ignoring the depreciation of the rupee).``Bygones are bygones''. You can do nothing about the past. It is the future that matters. We shall have a look at it now. Your deposit will be locked up for about three more years. If you withdraw and get 7.5 per cent, the compound growth of 83,000 would be 1,03,110. If you do not withdraw, the compound growth of Rs 55 lakh would be Rs 85,84,928. Now, Rs 1,03,110 =Rs 85,84,928 if the exchange rate is Rs 83.26. This essentially means that the break-even point is an exchange rate of Rs 83.26 per pound. You would be a loser if the rupee slips beyond this level at the end of three years.