My query is that as per SBI, they have floated SBI SDS 90 DAYS mutual Fund in debt series under dividend and growth options. As per SBIMF, if one invests for 90 days in SBI SDS debt series mutual fund under the dividend option, the dividend will be totally tax free. Does this mean it will be like GOI tax-free bonds and no tax will have to be paid on the dividend amount credited to my account?

Also, the capital will be returned to me at the end of 90 days (in dividend option) and will not attract short term capital gains tax. Am I correct?

?M D master

Your capital in the fund that will be returned to you at the end of 90 days is a capital receipt and the same is not taxable. The dividend too is technically not taxable in your hands. However, it is not tax-free in the nature of GOI tax-free bonds are. The reason is that though the dividend per se, is tax-free in your hands, the fund pays a dividend distribution tax of 14.1625% to the government before distributing the dividend. In other words, on account of this tax (which is paid by the MF directly) you receive that much lesser dividend. So in effect, it is the investor who bears the tax though paid by the mutual fund.

Q: Though I file my tax return every year, I face a difficulty. My total income after claiming the benefit of the deductions under Chapter-VIA (Sec 80C to Sec 80U) is under the tax threshold of Rs 1,50,000. Therefore, I can file Form-15G with all those who pay some income to me and apply TDS thereon, requesting them not to apply TDS. I am told that I have this right to file this Form if and only I fulfill yet another condition. Please elaborate on this other condition to enable me to file the form if I am eligible to do so.

?Mundra

Sec 197A read with Rule 29C provides to residents furnishing declarations by the payees in Form-15G (Form-15H for senior citizens) in order to enable the payer make the payment without deduction of tax at source if the tax payable on his estimated total income is nil.

The declaration under Form-15G can be filed only if both the following conditions are satisfied ?

1. The tax on estimated total income of the applicant (after claiming deductions under Chapter VI-A related with Sec 80C to Sec 80U) is nil.

2. The second condition is quite complicated. It states that the aggregate of income from (i) dividend other than dividends from domestic companies, (ii) interest on securities (iii) interest other than interest on securities, and (iv) repayment of deposits under the National Saving Scheme, does not exceed the maximum amount, which is not chargeable to tax. If you examine these conditions carefully, you will find that all the four avenues enumerated above have a threshold beyond which TDS is applicable. All the rest of the conditions have no thresholds. Yes, quite complicated indeed!

To mitigate the pressure on senior citizens arising out of these complications, the 2nd condition is not applicable to them (tax threshold Rs 2.25 lakh).

We strongly feel that if this is complicated, it is complicated both for senior and non-senior citizens. This declaration should be made before the very first payment during the year becomes due. If the ITO discovers a defect in the declaration, it is his duty to allow the defect to be rectified if the assessee submits a petition to rectify the defect – Vijay Hemant Finance & Estate Ltd v ITO (1999) 105Taxman519, 238ITR282 (Mad).

This facility of using either of the Forms is not available to NRIs.

For the last many years I used to file tax returns under my HUF account in which major income was property rentals, bank interests and agricultural income. I disposed off the property, the source of rental incomes, in the financial year 2006-07. During the FY 07-08 the income of the HUF was bank interest of about one lakh and agricultural income was two lakh. Kindly advice in these circumstances if it is necessary for the HUF to file tax returns for FY 2007-08.

?Sandhu

1. Agricultural income is tax-free but is aggregated with other income only for rate, if it exceeds Rs 5,000. Since the total income of exigible to tax is below the tax threshold, the tax payable even with rate purpose happens to be nil.

2. U/s 139(1), returns must be filed if the income chargeable to tax is over the tax threshold, even if it comes below the threshold after claiming deductions on or before 31st July of the next financial year. This is so even if the TDS covers the tax payable liability.

Therefore, in theory, you need not file the tax returns for the HUF.

3. Interest paid by a bank, including a co-operative bank, or a post office in respect of notified schemes suffers TDS @10% if the interest, received after 1.6.07 exceeds Rs 10,000; The limit is Rs 5,000 for interest received before this date. This limit is applicable per branch of the bank.

4. If the HUF has suffered TDS and the tax liability is nil, you are entitled to a refund but the only practical way to get the refund is to file the tax returns.

5. Finally, even if you are within your rights not to file any tax returns, it is advisable to file it to maintain continuity. You may later write to the ITO stating that since the income of the HUF has been below the tax threshold, the HUF shall not file the income-tax return hereafter.

6. We presume you have accounted for the long term capital gains earned by selling the property during FY 06-07.

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