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Money Watch
AN Shanbhag
When infrastructure bonds score over PPF
For the last two years, I have been saving Rs 2,500 out of my salary every month in National Savings Certificate (NSC) primarily to get a tax benefit. The other day, I read one of your articles where you suggested that making an investment prudently in pure-growth, open-ended debt-based UTI/MF schemes (PODs) can be rewarding in the long run. I intend to do so for the next 18 years, up to the time of my retirement. Please advise me on the points I must keep in mind before investing in mutual fund. What are the taxes that I will have to pay on that income. Am I on the right course?
--H I George, ccmccgwr@ren.nic.inNow, you are confusing me. I have been a proponent of PODs ever since the share market had become listless (note the past tense). But this is applicable to investible funds in your hands after you have taken full advantage of tax rebate offered by Sec. 88. NSC happens to be under the umbrella of Sec. 88 and you are on the righttrack. Do not change it. However, I do not like NSCs. PPF is better than NSCs. The infrastructure- related bonds of ICICI/IDBI are many times better than PPF. The Gift Tax Act (GTA) has been abolished but any amount gifted will be treated as income of the transferee. U/s 64 of the ITA, any gift/transfer without adequate consideration will be clubbed up into the income of the transferor. If an unmarried daughter gifts out of taxable income, say Rs 30,000 each to: HUF of the family which has income less than Rs 30,000
Her mother who has income less than Rs 20,000
The gifts are repeated every year till the incomes of the HUF and her mother become taxable. Will there be any clubbing u/s 64?
--S K Gupta, NEW DELHII'm afraid, you have not understood clearly the implications of the abolition of the GTA. Prior to this abolition, one could give a gift up to Rs 30,000 without attracting any gift tax. Now, one is free to give any amount at one go. Female members have noright to blend their property with their HUF but they are not debarred from giving gifts. However, the income arising therefrom will be clubbed in their hands. Gift to her mother will not attract clubbing. Nevertheless, since it is now possible to earn the same tax-free (or after-tax) returns as the donee can earn on investible corpus, I strongly feel that giving a gift with the only intention of allowing the donee to earn tax-free returns has now become meaningless. The relief u/s 89(1) (with rule 21A) will be admissible in respect of encashment of leave salary by an employee, while in service. What does this mean?If I get Rs 10,000 as encashment of leave salary while in service, will my income be exempted from IT or will it be deducted from the salary income? Due to revision of pay-scales, suppose I get an arrear of Rs 50,000 this financial year, pertaining to the two previous years, am I also allowed to distribute the savings part (PF) year-wise, in order to obtain relief u/s 89(1) (rule21A)?Is the DDO, while deducting income tax from salary, authorised to distribute yearwise income/ savings yearwise in respect of salary paid in arrears?
--A H Prabhu, MUMBAI Government servants or employees in companies, co-operative societies, local authorities, universities, institutions, associations or bodies are a little lucky. Such employees may furnish the particulars in Form 10-E and get the relief directly from the employer. Leave encashment, while in service, is fully taxable and at the time of retirement is eligible for exemption up to some specified limits, the maximum being Rs 2,40,000. The relief on salary received in arrears or in advance is computed in the manner laid down in Rules 21A and 21AA. Accordingly a) Calculate the tax payable on the total income, including the additional salary, of the relevant previous year in which the same is received.
b) Calculate the tax payable on the total income, excluding the additional salary, of the relevant previous year inwhich the additional salary is received.
c) Take the difference between the tax at `a' and `b'.
d) Compute the tax on the total income after including the additional salary in the previous year to which such salary relates.
e) Compute tax on the total income after excluding the additional salary in the previous year to which such salary relates.
f) Take the difference between tax at `d' and `e'. The excess, if any, of tax computed at `c' over that at `f' is the relief admissible u/s 89(1). No relief is admissible if tax computed at `c' is less than that at `f'. In such a case, it is pointless to apply for relief. Your data is not complete. I have also not understood the meaning of `cash part' and `provident fund'. Otherwise, I would have computed the relief in your case. Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.
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