How and where should I apply for PAN? Do I continue to file the returns thereafter?
--Preeti Mehra, MUMBAI

Yes, the sale of the inherited shares would entail the payment of long-term capital gains tax. It is not clear why you want to wait for one year. If you are under the impression that in order to get the benefits of the concessional tax treatment of long-term gains, you have to wait for one year, let me correct the impression. As per the provisions of Section 49(1) of the ITA, when any asset is acquired by the assessee by way of succession, inheritance or devolution, the cost to the previous owner is deemed to be the cost to the assessee. The same appliesto the date of acquisition. Hence, the price paid by your father to acquire these shares would be deemed to be your cost of acquisition for computing your capital gains.As per the provisions of Section 55(2), had he acquired these shares before April 1, 1981, you have an option of choosing either the actual cost or the market price of the shares as on April 1, 1981, as your cost of acquisition.Again, if you are under the impression that you apply for PAN today and get it allotted tomorrow, let me tell you that it's not so. There are persons who have applied for PAN as long as three years ago and are still waiting. I suggest you apply for PAN immediately. One does not have to be an income taxpayer for holding PAN.

My friend has no source of income. Her father expired six years ago and his investments (bank FDs, etc.) were transferred to the HUF. After her mother expired last year, the HUF was dissolved and she and her brother got Rs 4,50,000 each. Would my friend be liable to pay income-tax onthis amount? If so, how can she save the tax? Also would she have to file returns each year?
--XYZ, MUMBAI

By virtue of Section 10(2) and the corresponding provisions of the WTA, the income and wealth of an HUF is subjected to tax in its hands, and no part thereof is taxed in the hands of any member of the family. No member of an HUF is taxable in respect of his/her share of the income or wealth of the family. Taking this logic further, any distribution of the capital assets of an HUF to its members on its total partition is not regarded as transfer of asset for the purpose of capital gains tax. Also, as this is in the nature of a capital receipt, there is no tax incidence on the individual receiving member.

Hence, in your friend's case, Rs 4,50,000 is not taxable. However, any income that this money earns by way of interest or otherwise would be brought to tax. It is clear that your friend ceased to be a member of the HUF immediately after her marriage. Nonetheless, any familyarrangement made by the karta of the HUF is distribution of capital and not eligible to tax.

Abroad, I had purchased India Development Bonds (in both 1990 and 1992), in the sole names of my minor daughters. Since then, these bonds have already been redeemed and the monies credited into the minors' accounts, and with the proceeds, I acquired term deposits in my daughters' names.

Since IDBs were totally immune from IT, this money still belongs to the minors. Am I liable to pay tax on the income incurred from minors' assets? If so, what will be the best way to save this tax?
--A taxpayer, NEW DELHI

Section 64 of the ITA deals with clubbing provisions. As per the provisions of Section 64(1A), all income that arises or accrues to the minor(s) shall be clubbed with the income of his parent. The said income would be clubbed with the income of that parent whose total income is greater. Per child, there is an exemption of Rs 1,500 on the income earned by each child. You have already bought termdeposits for your children and are still asking for a strategy to lessen the tax burden. Strange.

Choose open-ended pure-growth schemes of UTI/MFs or `Deep Discount Bonds' of IDBI/ICICI with a term of over 20 years, which treats the income as long-term capital gains. The incidence of tax on such gains is much lower than the normal. It does not hurt much even when the gains get clubbed. If the child happens to be a major when such schemes mature, there is no clubbing. At that stage, thanks to the initial threshold of Rs 50,000, the entire tax liability of the child may work out to be nil.

I opened a PPF account on March 13, 1992. Every year, I have been contributing to my account and by now have built up a substantial sum therein. Is it a good idea to withdraw from the PPF account? If so, how much can I withdraw? Also, where can I invest such withdrawals so that I can earn more than the 12 per cent tax-free assured return that I otherwise would have earned from the PPF account?
--ABhattacharya, NEW DELHI

Beginning from the seventh year of opening the account and every year thereafter, an account holder is entitled to withdraw 50 per cent of the balance to his credit four years ago or one year ago, whichever is lower.The rule is simple. Add 5 to the financial year end. In your case, 92 + 5 = 97. The first withdrawal can be made on or after April 1, 1997; to arrive at the maturity date, add 15. In your case, 1992 + 15 = 2007. The account can be closed on April 1, 2007. The amount that can be withdrawn on April 1, 1997, is 50 per cent of the balance as on March 31, 1997, or March 31, 1994, whichever is less.

This partial withdrawal facility is one of the best features of the PPF scheme. One should withdraw as soon as possible, as much as possible and then: