-R R Mohanty, MAURITIUSGifts by NRIs in foreign exchange was always tax-free. Now that the Gift TaxAct has been abolished, all gifts, made by anyone, NRIs or otherwise,through foreign exchange or Indian assets, are free from gift tax. All thatis required is an offer by you and acceptance thereof by your father inblack and white. To safeguard against any hassles, your father shouldrequest you for a gift and then you should remit the amount to him. Onlythen would it be considered as a gift in India. Similarly, it is alsonecessary for your father to accept the gift in writing (maybe through athank you note). It is better to prepare a gift deed and get it registered(with stamp duty), but such a precaution is normally needed in the case ofhigh-value gifts like real estate. However, you may take note of the factthat the department has a right to enquire into the genuineness of the giftto ensure that it is not a payment made for any hawala or smugglingtransaction.

I hold 1,200 shares of Bajaj Auto as follows:

1. 10 shares (face value of Rs 100) purchased on August 22, 1984 @ Rs 900per share. These were subdivided into 100 shares (face value of Rs 10) onDecember 10, 1987.

2. The balance 1,100 shares are all bonus shares as follows:

June 6, 1988: 100 shares (bonus) November 25, 1991: 200 shares (bonus)August 26, 1994: 400 shares (bonus)October 20, 1997: 400 shares (bonus)Total: 1,100 shares (bonus)

Since I wish to dispose of the entire lot of 1,200 shares under the buy-backannouncement, I would like to know how much I would have to pay as long-termcapital gains tax.

Roughly speaking (even considering the entire lot of 1,200 shares as bonusshares), the long-term capital gains would be 1,200 shares x Rs 400/share =Rs 4.80 lakh. (Of course, there is always the possibility that the companywould not buy back all the shares, but only a part).

To reduce the long-term capital gains tax, I would like to use Sec 54EC andput Rs 4 lakh in NABARD or NHAI bonds for three years.

If I retain the remaining Rs 80,000 (if necessary, Rs 50,000) for mydomestic requirements:

1. How much capital gain tax would I have to pay?

2. Will there be any additional income tax to be paid, bearing in mind thata) I am a senior citizen; b) my estimated total income would beapproximately Rs 70,000 during FY 2000-2001; c) I have a long-term loss ofRs 15,862 carried forward.

-S R Khambata, jamina@bom3.vsnl.net.inSince the cost of acquisition of bonus shares is required to be taken asnil, you will find that the actual capital gains on the sale of 100 originalshares is Rs 8,500. After a set-off of long-term capital gains, the carriedforward loss is Rs 7,362. The long-term capital gain of 1,100 bonus sharesis Rs 4.40 lakh, which works out to Rs 4,32,638 after setting off the loss.

Tax on this amount @ 10 per cent works out to Rs 43,264. You may be able toreduce the tax liability on your regular income by contributing anappropriate amount to avenues u/s 88 such as ICICI/IDBI Tax-Saving Bonds orPPF. This would allow you to claim the full senior citizen's rebate of Rs15,000, thereby reducing your tax liability to Rs 28,264.

Even this tax can be saved by your contributing Rs 2,82,640 to 54EC bondswithin a period of six months after the date of buy back. At present, thereare no such bonds notified by the authorities. I am not very sure about theefficacy of the 54EC Bonds. In any case, we have quite some time on hand todecide whether it is advantageous to pay tax of Rs 28,264 or invest in Rs2,82,640 in the 54EC bonds.

(The author may be contacted at anshanbhag@yahoo.com)