• I have about Rs 3 lakh in NSS-87 account since the last 8 years or so. After the withdrawal of tax concessions, I have stopped depositing in it. I am told that now if I close the account, the entire proceeds will be taxable or treated as income. I do not know what rate of interest they are paying now. The post office service is not up to the mark. Can you guide me on how to get out of NSS with minimum damage?
— Premji Bhanushali, email@example.com
Up to last year, the interest rate was 11 per cent and was not changed even when the rates on other post office schemes were being steadily brought down. This was equity and justice since the investors were trapped in the scheme. Unfortunately, FA03 has dropped the rate on NSS-87 from 11 per cent to as low as 7.5 per cent.
Any withdrawals during the lifetime of the investor are taxable during the year of withdrawal. Exiting attracts full tax on the capital as well as the interest. It is tax-free in the hands of the nominee or legatee. TDS is applied on withdrawal if the withdrawn amount is over Rs 2,400. Now, the only option is to leave it as an estate behind you and thankfully, it is not taxable in the hands of the legatee.
If your income is below the taxable limit or can be brought down to nil level by contributing less than Rs 1 lakh to Sec 88, then there is a possibility of withdrawal from NSS87. You can withdraw that much partial amount from NSS, contribute it to PPF or infrastructure-related bonds of ICICI, and still remain out of the tax net. Repeat the exercise every year until the corpus gets completely withdrawn.
• I shifted from working in Organisation A for 7 years to Organisation B where I am now for 3 years. Organisation A agreed to transfer my PF dues to a bank account I opened for the purpose as I did not want to shift / attach to Organisation B’s PF account. My PF dues were then directly transferred from the PF Commissioner’s office to this new bank account late last year.
Following the same, I have used most of the amount for my expenditure and to help a friend who needed cash urgently and it has been returned to me as well. While filing my current year taxes in June, I had asked my CA to disclose the receipt of this income in my tax returns.
However, he advised me that since my current tax returns were based on the TDS certificate from Organisation B and linked to my salary account which is separate from the account where I received my PF dues from organisation A, I should not bother with disclosing it as it is not taxable. To the best of my understanding, PF dues are already taxed income and I have no other income apart from Salary.
Therefore my returns were thus filed minus disclosure of PF dues received this year. 1) Are my IT returns thus in order? 2) Since a friend of mine had borrowed a part of the same from me and also returned the same within six months , will I have any problems if he has tax issues with the IT department and they trace a receipt of a sum from me, the treatment of which in his books of accounts I have no clue of? 3) The second question is more relevant since I have not revealed receipt of this income as such in my IT returns even though it is my legal dues given by the PF department.
— Renu Kakkar, Kolkata, firstname.lastname@example.org
The accumulated balance due and becoming payable to an employee participating in a recognised provident fund will be excluded from the computation of his total income if, 1) he has rendered continuous service with his employer for 5 years or more or 2) on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer.
You pass the first test above and therefore, the amount is not taxable. Your accountant may be feeling that since you have encashed the fund and not transferred the account to the new employer, you are caught by the second condition and therefore, the amount is fully taxable. It is necessary for you to fulfill condition ‘1’ or ‘2’ and not both. You will be unnecessarily converting your white money into black.
• I am an employee, who has availed of an VSS offer. I have been relieved as on 30.9.03. I request you to kindly guide me as to how to invest my VSS money. I am a 39 year-old lady having a 13 year-old son. My husband is not with me.
At present I am planning to do a multimedia course and hence not scouting for a job immediately. I will be getting around Rs 16-17 lakh as full amount including ex-gratia, PF, gratuity etc. I am planning to invest a major chunk of the amount in POMIS and RBI bonds. My main query:
1) Under POMIS, it is mentioned that Rs 3 lakh is the limit for a single a/c and Rs 6 lakh in case of a joint a/c. What I would like to know, is can I have a single a/c with my son’s name and myself as the guardian for Rs 3 lakh and also a joint a/c with my mother for another Rs 6 lakhs ie. totally can I invest Rs 9 lakh in POMIS. 2) Regarding RBI bonds, there are two types of bonds ie. 6.5 per cent and 8 per cent. Which should I invest in?
I also have a PPF account; can I invest some amount in that also? I am given to understand that for this financial year as my total income will exceed Rs 8.5 lakh, I will not be able to claim any tax rebate or interest exemption under 80L. Then can I invest in POMIS and RBI Bonds now itself or should I wait for the next financial year. I will be really grateful, if you could reply as early as possible.
1) MIS can be opened by a minor who has attained the age of 10 years directly; a guardian is required on behalf of a minor or a person of unsound mind. The maximum limit of deposit in joint account is Rs 6 lakh wef. 1.2.00. The account of the minor will not affect the prescribed ceiling in the joint account or single account of an adult. I personally feel that you are making a mistake in planning for MIS and RBI savings bonds if you are likely to get a job in future.
(The author may be contacted at email@example.com)