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: I have a query related to National Savings Certificates (NSC). As far as I know, an investor does not need to pay tax on the NSC interest on a yearly basis since it is deemed to be reinvested. But at the time of maturity, the tax is payable. In which case will PPF not be a better investment to take deduction under sec. 80C as the interest on PPF is completely tax-free?
— Soimya
NSC being a cumulative interest paying instrument, the interest thereon for the first five years is deemed to be reinvested and hence the deduction under Sec. 80C is available thereon. Only the last year’s interest becomes fully taxable. However, for reinvestment you have to receive it first (as accrual). In the last year, tax is payable only on the sixth year's interest. Sometimes, it so happens that for the investor, his sec. 80C limit of Rs 1 lakh has already been reached before the NSC interest. In that case the NSC interest will be taxable per year.
The bank has returned the deposit balance in my HUF account. Is it a right thing? Further now, can I convert my HUF assets with my individual assets and stop filing IT returns for the HUF.
— Vinod Sarakar
It is not clear if what you are referring to is a PPF or post office account or normal savings bank account. In any case, transferring HUF assets without tax consequences is only possible if you dissolve the HUF fully.
I put Rs. 10,000 rupees in my PF account every month which compounds at 8%. My friends tell me that Banks and Post Offices pay more than a PF account. I am attracted to PF because of the power of compounding, over the long term. In your opinion, am I doing the right thing?
—Shyamlal
Your friends are wrong. Banks and post offices do pay more, but the interest is taxable whereas in PF or PPF, the interest is tax free. So on a post tax basis, PF or PPF is a very good fixed income investment. Yes, you are doing the right thing.
Please answer the following queries — If one earns capital gains from sale of house, can one save taxes by investing the same in a plot of land?
If one builds a house on that plot after two years can one save capital gain tax? Even if the house is rented out? If the...
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