PPF investment benefits unavailable to HUF

Updated: Aug 20 2006, 05:30am hrs
I want to know what is the tax payable on the capital gains made on mutual fund weekly reinvestment- dividend growth fund. How do I calculate the tax on investment of systematic transfer plans (STPs) from debt fund to an equity fund

Sanjeevani

On debt funds, short-term tax is payable at the slab rates applicable to the investor. Long-term tax is payable at 10% without indexation or 20% with indexation, whichever is lower. An STP implies selling the debt fund units and investing the proceeds into the equity fund. Therefore, an STP would entail payment of short-term or long-term capital gains tax, as the case may be.

My questions are pertaining to PPF. My father expired on May 4, 2006. He had a PPF account wherein he had nominated me and my brother. My brother lives abroad and till such time he does not come we cannot complete the formalities to claim the amount in the PPF account. I would like to know whether interest will be paid on the amount in PPF till the time we are able to complete the formalities and if so, what would be the tax liabilities on the interest paid after the date of death of my father.

I am karta of an HUF account and have a PPF account. As per government policy I will not be able to extend the PPF account for another period of five years. Can I open a PPF account in my wife's name and deposit Rs 70,000 and claim tax benefit u/s 80C for our HUF. My wife does not have any income of her own.

Charanjeev Singh

1. In the case of joint nominees, PPF rules allow allocating percentage of benefits against each nominee. But the form does not provide a specific place to indicate the same and therefore, many fail to indicate the percentages. In that case, the nominees are treated as joint holders and are expected to apply together for the closure. Each nominee is required to identify himself to the satisfaction of the concerned officer. This, by itself, is a big hassle. After completing all the formalities, a single cheque is issued in favour of all of them together. This cannot be encashed, unless all the nominees have a joint account. The tax-free interest on PPF funds will be paid till the month prior to the date of settlement.

2. The idea is to deny the benefit of PPF investment to HUF. It cannot be bypassed by opening an account in your wife's name and paying from HUF funds. However, it is a good idea to contribute Rs 30,000 of your own funds to her account if you are contributing Rs 70,000 to your own account. In that case, you can claim full deduction u/s 80C of Rs 1,00,000. You can go a step ahead and contribute Rs 70,000 to her account. The extra Rs 40,000 will not earn any deduction but will be eligible to earn tax-free interest of 8%.

After the recent death of my husband at the age of 81, I have received some income which, in the normal course would have gone to his account and taxed in his hands. Now that I have become the owner of all his assets by way of inheritance, I am under the impression that I have to pay tax on this income. My accountant tells me that this would be treated as a gift 'under a will or by way of inheritance' and as per the recently introduced Sec 56(v), it would be tax-free in my hands. Your views please.

Ansuya

This is the income of your husband and it is he who has to pay tax thereon. The balance money coming to you was and is not exigible to tax since this is a capital receipt. Sec 56(v) makes it abundantly clear that this gift will not be treated as taxable income.

You can adopt a nice strategy if you like it. Treat the income earned after the date of death of your husband as income earned by the estate of your husband. This would be a tax entity different from your husband. In other words, if this income is under Rs 1 lakh (not Rs 1.85 lakh) it will escape the tax net. Though the law is not clear on whether you can use the same PAN as that of your husband, you may file tax returns using this PAN.

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