About 15 years ago, I had given a gift of Rs 50,000 to my wife and ever since, have been clubbing the income therefrom with mine. I am feeling increasingly uncomfortable with thisclubbing provision since I have now come into the highest tax bracket and have also become a wealth tax assessee.

My wife earns interest at 14 per cent and I pay 4.2 per cent tax thereon. The take-home, thus, is a mere 9.8 per cent. Even the RBI's Relief Bonds pay 10 per cent and are tax-free. My agony does not end here. My wife has also become an income tax assessee. The greatest advantage of a gift arises out of the interest on interest being taxed in the hands of the donee. Much of this advantage has now become diluted since she has to pay tax on this amount, though at a lower rate. Of course, she saves this tax by contributing about Rs 10,000 to her PPF account.

What I propose to do is to request my wife to purchase RBs for Rs 50,000 with the original amount gifted by me and gift these bonds to me. Since I had given her a gift of Rs 50,000, she will now give me a gift of Rs 50,000. This will cancel out the clubbing provision. Moreover, the take-home will increase marginally. Yourcomments please.

A Taxpayer, Allahabad

The tax rules do not recognise the simple arithmetic of plus 50,000 and minus 50,000 equalling zero. In other words, if you implement your suggestion, you will have two headaches instead of one. The income earned on the amount gifted by you to your wife will be clubbed in your hands, whereas the income earned on her gift to you will be clubbed in her hands separately! Again, thanks to FA98, RBs have lost their edge of freedom from gift tax over other avenues.

I have a suggestion. PPF allows any individual to contribute up to Rs 60,000 every year. Your wife has been contributing Rs 10,000 to her PPF to save tax on her own income. She can invest your gifted amount of Rs 50,000 in her PPF. Since this is neither out of her nor your income chargeable to tax, no tax rebate is available. All the same, she will earn a tax-free interest of Rs 6,000, whereas RBs would earn her only Rs 5,000. Before concluding, may I ask you a question? Have you given a thought topurchasing RBs for your own benefit? If you are contemplating any action, permit me to examine your tax returns. I may be able to suggest something better.

I have gone through your answer to a query on PPF. On the partition of an HUF, the ownership of the HUF PPF account was transferred to the Karta in his individual name. Since he has a PPF account in his individual name already, the bank has asked him to close the HUF account. It has treated this as irregular and offered interest at the rate of 5.5 per cent, instead of the normal 12 per cent.

This is not an irregular account as the bank has no authority to close the account prematurely without the permission of the MoF (DEA), the rule-making authority. In this condition, I offer another solution. The Karta may write to the under-secretary (budget), MoF (DEA), New Delhi. He can explain the bank's stand and request them either to merge the two accounts into one in his individual name or allow premature closure of the second account with thenormal rate of interest till the date of closure.

I think the MoF will help him solve the problem. A reference to the National Savings Organisation, Calcutta, will not help as the NSO is not a rule-making authority and not competent to issue any clarification on any matter. That is the job of the MoF (DEA).

In future, if any clarification is required, the same should be obtained from the MoF (DEA) only.

A N Dureja, New Delhi

If wishes were horses, beggars would ride. Though there is a rare possibility of a beggar getting a chance to ride, I am afraid there is no chance of eliciting a clarification for such minor matters from the authorities. I know you have written a letter to the MoF asking for a clarification on some other matter and I have written as many as four.

I have not even received an acknowledgement. I hope our correspondence reaches someone who has national values close to his bosom, someone who will decide to clarify matters in the interest of investors atlarge.