Tax on NSC interest is paid on accrual basis

Updated: May 27 2007, 06:25am hrs
Went through your Article on FDs & FMPs.(good informative article) I wanted to know if there is any kind of FMPs which give you 80 cc benefit. For example we have FDs for a lock in period of 5 years & we get 80 cc benefit. Are there any such FMPs, and if yes, then I would like to know about it. One more query is that, I am looking towards investing in ELSS Fund for tax purpose. I want to know the tax treatment on the gains or profits made out of it. Also the tax treatment on FDs which are invested for over 5 years that is 80 C.

Deepak

FMPs do not offer 80 cc benefit. The same is offered only by ELSS funds. About taxation of ELSS funds, there is a three year lock-in. So whenever you sell, the gain will be necessarily long-term in nature. As the tax policy stands now, long-term gains are tax-free.

If I take a loan for the repair and renovation of my father's house, will I be able to get the tax benefits from the loan

Prashant

U/s 24 up to Rs 1.5 lakh of the interest paid on a loan for buying, constructing or repairing a self-occupied residential house can be deducted from an individual's taxable income in a year. Similarly, u/s 80C, within the overall limit of Rs 1 lakh repayment of capital of housing loan taken from specified sources is eligible for deduction. However, both these deductions are available only to the registered owner of the property. Since you are not the owner, you will not be eligible to claim the benefit. Moreover, most importantly, you may not be entitled to a loan.

I invested Rs 50,000 in National Savings Certificate (NSCs) in 2001. It matured in February 2007. How much tax do I have to pay on the interest gained The total maturity value is Rs 95,060.

Kamdar

The tax on NSC interest is required to be paid on accrual basis. Only then you can claim the benefit of the Sec 88 up to FY04-05 and Sec 80C thereafter. Similarly, the benefit of deduction u/s 80L could be claimed up to FY04-05. This section was also discontinued thereafter.

It appears that you have neither paid tax on the interest income nor claimed the tax benefits. The only course open to you now, is to pay tax on Rs 45,060, which is the cumulative interest. The tax concessions u/s 88, 80C and 80L are lost to you.

I have recently resigned from the services of a public limited company after service of 3 years 6 months.

1. I would like to transfer my PF balance to my new employer. In such circumstances, how much time it would take for transfer of the same to my PF account with new employer

2. Alternatively, if I withdraw the whole amount, should I pay tax on the same Whether I should pay any tax on the withdrawal amount If I withdraw after a period of 18 months from now, shall I enjoy freedom from income tax since withdrawal after 5 years is tax-free.

3. Can I transfer the PF balance to my PPF Account

N Sukumar

If an employee leaves the service before completion of 5 years, Rule 10 of Part A of Schedule IV, requires the trustees of a recognised PF to deduct tax when the accumulated balance due to an employee is paid. This payment is to be treated as income chargeable under the head 'salaries'.

Rule 9 puts a different responsibility on the assessing officer. He shall calculate the total of the various sums of tax which would have been payable by the employee in the respect of the total income for each of the related years to arrive at the amount by which such total exceeds the total of taxes paid by the employee for such years.

This excess amount is payable by the employee in addition to tax on the income during the year in which the accumulated balance of PF becomes payable.

1. Yes, you can transfer the account to your new employer if he has a PF Trust. If he does not have one and is registered with the PF commissioner, you can get it transferred to the PF commissioner's office. The time required to effect the transfer is minimal and is immaterial since the amount will continue to earn interest.

2. Yes, the amount is taxable if you close the PF account with the ex-employer. Holding the amount for 18 months will not help.

3. The PF amount cannot be transferred to the PPF account.

My house with appurtenant land was compulsorily acquired by the government for construction of a high way, but I did not receive money.

The court ordered for immediate payment of compensation with interest for the last five years. I am now wondering whether I should revoke and revise my returns filed for the last 5 years, add the interest to my income for each of these years, compute the extra tax payable during those years and add it to my current year's tax.

If I am required to treat all this interest as the income of this year, I shall end up paying a huge amount, since it will take me to the 34% tax zone.

Sanchit

We do not have good news for you. Such a relief is available only to the salaries received in arrears or in advance. We hope the authorities will take a note of this lacuna and take corrective action in the near future.

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