-- Trushita, Frankfurt

I presume that after your return to India, you will be earning income liable to tax as a salaried employee or starting some business. In that case, the repayment of loans and the interest paid carry certain tax concessions. These are not available if you employ your own funds.

Therefore, it is always advantageous to take a loan when you purchase a house and to invest your own funds elsewhere gainfully. I would like to point out that it is possible for you to earn around 12.5 per cent tax-free (or after-tax) income from your investible funds. I am not sure that your house would give as good a return as this.

I have some old equity shares. I don't have any records of purchase. All I know is the appropriate price and date. When I sell them, how do I claim capital gains or loss? What do I do?

-Geetha Baliga, baligageetha@hotmail.com

If the shares were purchased before April 1, 1981, you may reckon the market value of the shares as on April 1, 1981. If they were purchased after April 1, 1981, you may use the approximate price and date as per your records and claim capital gains or loss. The ITO may accept it.

However, if you need a residential house and do not already own more than one as on the date of the sale of shares, the proof of the purchase price and/or date does not arise. The best action for you is to invest the entire net sale proceeds in an avenue u/s 54EC. Normally, you would have invested only the capital gains computed after subtracting the indexed cost. I am suggesting that you take the cost of acquisition of your old shares as nil! All said and done, you will have to have some proof with you to prove that the holding period was over one year.

I would like to know if UTI's income plan offers any tax relief. Some registrars say that the income from these plans are exempt from income tax u/s 10(33), while others prefer not to reply. My enquiries at the UTI office, the income-tax office at Mayur Bhawan (Delhi) and the local offices of some UTI registrars such as M N Dastur & Co. Ltd and Mafatlal Consultancy, have yielded conflicting replies and left me even more confused.

I should like to know from you whether income from Monthly Income Plan Nos. 96II, 97, 97II, 97-IV, 97-V, 98, 98III, 98IV and 99II is actually free from income tax u/s 10(33).

-Rajinder Singh Singla, DELHI

The dividends paid by all the MFs and UTI are tax-free in the hands of the investor. However, the fund has to pay a 22 per cent dividend tax before it distributes the dividend to investors. This surrogate tax has not got the same colour and character as that of TDS and therefore, cannot be set off against the tax liability on other income. Even if the investor's income is below the taxable threshold of Rs 50,000, he cannot ask for a refund.

Understandably, it comes out of the pockets of all the investors, big or small. Investors should avoid going into the monthly income plans.

Unfortunately, a large section of investors get attracted by the words `tax-free' and `monthly income' and make a beeline for such schemes, without realising that the authorities are taking undue advantage of their ignorance of the concept of dividend tax. One can and should avoid this dividend tax by opting for the pure-growth, open-ended, debt-based schemes of UTI/MFs. Being pure growth, there is no dividend, and therefore, no dividend tax! You can write your own dividend cheque. In other words, you can give standing instructions to the fund to pay you the same amount as you would have earned in the MIP! The added advantage is that the funds do not get locked for five (or seven, or whatever) years.

Yes, tax (short-term or long-term) is payable on these withdrawals and therefore, the ignorant investor refuses to look at these excellent schemes.

If he takes the trouble of finding out his tax liability on partial withdrawals, he will find that it is so small that he can well afford to pay it and take home much more than what he could with MIP.

(The author may be contacted at anshanbhag@yahoo.com)