Moreover, I will have to pay tax, again at the rate of 20 per cent on the difference between the sale price and the face value, without the benefit of indexation. My father also had NSS and I got the entire amount, including interest, without any TDS. Are the rules for NSS different? I do not have to pay any tax even on the interest of the NSS. Both NSS and MEP gave 100 per cent income rebate to my father. How come NSS is not taxable at its withdrawal, but MEP is? --A Taxpayer

Both Section 80CCA (NSS) as well as Section 80CCB (MEP) were discontinued by FA92. These gave 100 per cent income rebate during the year of deposit.

However, there is a heavy tax liability in the year of withdrawal. Tax isrequired to be deducted at source at the rate of 20 per cent, in the case of NSS on the entire amount of withdrawal, and in the case of MEP, on the original amount on which the rebate was claimed. In the case of NSS, for small investors, an escape route to avoid TDS has been provided by way of Form 15-I, which allows one to declare that the tax payable for the year on total income, including that from NSS withdrawals, works out to be nil and, therefore, no tax need be deducted at source.

Moreover, NSS withdrawals are totally tax-free, if the withdrawal is effected by the legatee or the nominee after the demise of the account-holder. Both these provisions are absent in the case of Section 80CCB. This is essentially a capital receipt in your hands. The Act does recognise this aspect in most other cases. NSS is only one instance. Another instance is CGAS. The amounts deposited in these accounts protect an assessee against tax on long-term capital gains provided the amounts are used for specific purposes withinstipulated time-frames. After the end of the stipulated period, an amount lying unutilised or underutilised will be charged to tax as the income of the year in which the period expires. However, if the assessee passes away before completing the formalities, the amount in CGAS can be freely withdrawn by the legatee, without any tax liability. The same tenet is not extended to schemes under Section 80CCB.

Moreover, the benefit of indexation is also not available in the case of MEP or Section 80CCB instruments.

While introducing the radical changes in the structure of tax on long-term gains, the authors of FA92 appear to have forgotten to make a corresponding change in Section 45(6) which states, ``...the difference between the repurchase price of the units and the capital value of such units shall be deemed to be the capital gains arising to the assessee...''. I thought that this was a pure and simple error and it cannot be the intention of the legislation to single out this particular financial asset anddeny the privilege of indexation. Now, the FA97 has made some similar provisions in respect of company bonds.

In 1986-87, my son purchased a flat for Rs 75,000 and consequently sold it for Rs 15 lakh in March this year. He intends to purchase a bigger flat for Rs 20 lakh, but has no money left with him since he has repaid the loan and squandered the rest of the money in a round-the-world trip with his family. Now he does not have any money for paying even the capital gains tax. He could have saved this tax if he had purchased the bigger flat as per his original plans. Can I give him a loan to enable him settle down in the new flat? Will he be able to claim exemption from capital gains in case he purchases the flat out of the money supplied by me? I know that there will be no gift tax liability, but what about the exemption on long-term capital gains? -- Kamal Dastur, Mumbai

Section 54 protects capital gains arising out of sale (or transfer) of a residential house whether self-occupied ornot, provided the assessee has purchased another residential house within one year before or two years after the date of transfer or sale of the original asset or has constructed within three years after that date. Section 54F has a similar stipulation for long-term capital gains arising out of capital assets other than a residential house. The assessee should not be an owner of any other residential premises on the date of transfer. Again, Section 54F requires reinvestment of the net consideration (sale value less expenses), whereas Section 54 is content with reinvestment of only the amount of capital gains.

Since the assessee is allowed to acquire a house even before the financial asset is sold, it would be illogical to expect the assessee to apply the funds from the proceeds of the asset sold. It is Section 88 that requires the contributions to the avenues under its umbrella, to come out of the income chargeable to tax. Similarly, the new Sections 54EA and EB offer exemption from payment of tax onlong-term capital gains where the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of the net consideration (capital gains in the case of 54EB) in any of the avenues covered by these sections. From the language of these sections, it is clear that the investment should come out of the sale proceeds of the financial asset that gave rise to the capital gains.