An NRI, by law, is not allowed to have resident SB accounts

Can husband and wife both claim HRA deductions if they are paying monthly rent for rented accommodation or it is by law, not allowed?

?Rutuja

The HRA deduction is available only upon payment of rent by the taxpayer. If husband and wife are both paying the rent individually from their account, the HRA deduction would be available to the extent of the rent paid. However, if one pays the entire amount of rent, then the other one cannot avail of the deduction.

My query is regarding the tax rules applicable on gains from PMS (Portfolio Management Schemes).

Is the amount of tax decided when we redeem the PMS?

Or do we pay STCG/LTCG tax based on the churning of portfolio by the PMS manager?

Is the tax rate as applicable to equity-oriented mutual funds?

?Ravindra

In the case of a portfolio management scheme, the company that manages the portfolios (referred to hereinafter as the portfolio manager) undertakes transactions on behalf of its clients. The clients’ monies are pooled in the pool account of the portfolio manager and transactions are undertaken there from on behalf of the clients. In this regard, the portfolio manager merely acts in a fiduciary capacity with regard to the client’s funds and all rights, liabilities, and obligations relating to securities transactions are essentially that of the client. For this service, the portfolio manager charges an agreed fee to the clients for rendering portfolio management services.

The portfolio manager ordinarily purchases or sells securities separately for each client. However, in the event of aggregation of purchases or sales for economy of scale, interest allocation is done on a pro-rata basis. In other words, the portfolio manager may hold the securities belonging to the portfolio account in its own name on behalf of its clients (if the contract so provides) and in such an event the records of the portfolio manager and its report to the client indicate that the securities are held by it on behalf of the portfolio account. This is in conformation with the guidelines issued by Sebi vide Securities And Exchange Board Of India (Portfolio Managers) Regulations, 1993 as amended from time to time.

The rates of tax depend upon the view taken by the authorities as to whether this is a business or investment activity of the investor. We strongly feel that this should be construed to be investment activity, since the person does not spend any time on the decision-taking process.

My PPF A/C completed its term of 15 years and now I have extended it for another block period of 5 years Kindly advise the tax status of my investments/earnings/withdrawals during the extended period of 5 years after the proposed EET regime is implemented.

?K Sharma

As far as PPF maturity goes, the FM clearly stated that it is the intention of the government to move to an EET-based system of taxation. This means, investments like those under Sec 80C, which enjoy a deduction from income, would be taxed upon maturity. As of now, there is no proposal to tax such investments. However, the FM has stated that he has appointed a committee, which will devise the structure and form of an EET system and present it to the Parliament. Only when it is passed, there will be a semblance of clarity, hopefully. This includes ELSS (Sec 10(38)), LIC proceeds (Sec 10(10D)), etc.

1. If my taxable income drops to near zero, can I start withdrawing from the NSS 1987 in amounts of Rs 2.25 lakh per year, which is the tax free limit for senior citizens for FY 08-09? I have a total of Rs 8 lakh accumulated in NSS 87.What remains after I pass away can be collected by my nominee or legatee.

?C Subbarao

Yes, it would be an excellent policy to unlock the funds in NSS-87. As a matter of fact, if you contribute Rs 70,000 to PPF, mainly to earn the 8% tax-free interest rather than earn the deduction u/s 80C, you can withdraw as much as Rs 2,95,000 (2,25,000 + 70,000) without coming in the tax net. You can withdraw Rs 30,000 more by depositing this amount in other avenues u/s 80C. For instance, NSC pays 8% (tax-free in your case) whereas you are earning only 7.5% in NSS.

My son had invested in shares, LIC, PPF, MFs, etc, before he changed his status to NRI. The shares are in physical form in joint names with me and his father. Now that some of them are compulsorily traded in demat form we wish to open a demat a/c with a separate linked SB a/c and online trading a/c. We wish to know if

1. It is possible to have such an a/c jointly with an Indian resident.

2. My son does not wish to repatriate the earnings from these investments but wishes to utilise them for payment of LIC premium, contribution to PPF, and for new investments in pension plans if permissible by Fema rules.

3. He maintains a NRE account and his old SB a/c is still active. Does he have to close his old SB a/c?

?Sudheer Moghe

Your son will have to open an NRO (Non PINS) demat account for the shares that he had purchased before becoming an NRI. This account can be jointly held with a resident Indian. Earnings from the shares may be utilised for the purposes specified by you. Once a person becomes an NRI, by law he is not allowed to have resident SB accounts. All such accounts can be either redesignated as NRO or closed.

The authors may be contacted at wonderlandconsultants@yahoo.com