--G S Karnani, MUMBAI

Are you under the impression that the bonus given by LIC is free like a Christmas gift? At the age of entry of 20 years, the premium rate for a without-profit endowment insurance is Rs 21.60 (old rate = 21.89), whereas it is Rs 39.65 (no change) for a with-profit policy. The difference is Rs 18.05 per thousand. The extra premium payable on Rs 25,000 is Rs 451.25.The maturity value of an annuity of Rs 451.25 for a term of 25 years, with an interest rate of 12 per cent, works out at Rs 67,387. The bonus as correctly calculated by you is Rs 46,250. The loss is Rs 21,137 on a policyof Rs 25,000. And this is post-tax. The corresponding before tax loss would be Rs 31,548 for an assessee belonging to the 33 per cent tax bracket. The loss would be Rs 27,099 in the 22 per cent zone and Rs 23,486 for those in the 10 per cent zone. Of course, it would be Rs 21,137 for those who do not pay any tax.

This analysis does not take into account the superb benefits of the 16th contribution to PPF and the withdrawal facility. I am thankful to you for giving me a chance to point out that the word `bonus' is misleading.After reading your book, I have opened a PPF account in the financial year, 1989-90. After the commencement of the withdrawal facility, I have been withdrawing the maximum possible amount every year. You have observed that it is beneficial to close the account at maturity and open a new account. I intend to follow this good advice.

However, there is a problem. I shall not be able to avail of the withdrawal facilities in respect of the new account for the initial period of six years.I have thought of an excellent possibility to bypass this inconvenience. I intend to open a PPF account in the name of my wife this year-FY 1999-2000-and contribute Rs 59,900 to it. I shall keep my account alive by contributing only Rs 100 every year, but withdraw from it whatever is possible. When my own account matures on April 1, 2005, I will close it as per your suggestion and open another account in my name and start contributing Rs 59,900 to it. By then, I shall be able to withdraw from my wife's account. Is this not a good idea? If you think so, too, I request you to relay this message to your readers for their benefit.

--A N Joshi, PUNE

Excellent. I would like to thank you on behalf of my readers. This strategy becomes more potent especially in view of the fact that FA94 has conceded to allow the rebate in respect of contributions made to the accounts standing in the name of spouse and children, major or minor, married or unmarried (the children, not the spouse). Before abolition of gift tax,this strategy had limited use; not any more.

In regard to your opinion that employer's contribution in excess of 12 per cent is eligible for rebate u/s 88 in the hands of employees, I have the following three doubts on the same issue:

1. Section 88(2) specifically states that the investment should made by the assessee only.

If a third person, like an employer contributes to PF, how can it be eligible for rebate in the hands of the employee?

2. The two conditions laid down in Section 88 are:

a) The assessee should invest in specified investments.

b) The investment should be out of income chargeable to tax.

Do you think that the above conditions are satisfied in the above case?

3. The employer's 12.5 per cent contribution is allowed as business expenditure. If rebate is also allowed to the employee, then don't you think that it leads to double deduction on the same expenditure?

--Chandrashekhar Shetty, BANGALORE

I continue to hold on to my views for the following reasons:

1. Any interestover 12 per cent paid by the employer is taxed in the hands of the employee.

2. The contribution to PF is made out of this income, which is chargeable to tax beyond a shadow of doubt.

Therefore, in my opinion, the employee is eligible for the rebate. Nothing else matters. The fact that the employer has directly contributed to PF is inconsequential. I do not see any double deduction in this transaction. Take the normal case. Employee gets salary. Employer claims it as business expenditure. Out of this money, the employee contributes to life insurance. Employee gets the rebate. Is this double deduction? Positively not.

1. My sister and brother-in-law are NRIs having an NRI account as well as their old Indian Citizen Bank account, which was acquired before they left India. Can they invest Rs 10,000 per company FD and around Rs 30,000 in banks? Is it in order for foreigners/Indians to invest in India under such trying conditions? Investment can be made from NRI account or Indian account or both, ifnecessary. How much maximum amount can be invested? Will there be any income tax payable on interest earned from companies and banks. Is TDS applicable if each company pays separate interest of less than Rs 2,500?

2. Times have changed and senior citizens of 65 years do not have to pay any income tax if annual income is under Rs 1,20,000. Could you briefly explain the new tax structure w.e.f April 1, 1999, to March 31, 2000, for Indians and NRIs, so that investments can be made up to a maximum limit of interest being received annually?

--Ruzbe Kapadia, PUNE

1. It appears that the status of the account in Citizen Bank continues to be resident. It was necessary to change it to NRO. Better late than never. Investment in some avenues like Co-FDs requires RBI permission, unless the company has taken general permission. But some other avenues like agriculture is totally prohibited. Other than this, there is no restriction. There is no restriction on the maximum amount in any avenue other than equities ofIndian companies. The TDS rate for NRIs is different for different avenues, but normally, it is 30 per cent, without any floor. In other words, there is no `less than' stipulation.

2. From FY 1997-98, the rebate for resident senior citizens is up to Rs 10,000, irrespective of the size of their income. NRIs are not entitled to the rebate.