Under the new Direct Tax Code, I am not yet clear about the tax treatment applicable to interest credited in subsequent years on the balance amount of PPF as on 31/03/211.

The addition of the amount of Rs. 52,000 to the PPF account, being the contribution and the interest earned on it, during FY 2011-12, would certainly be subjected to EET method. However, I am not clear as to what will be the correct amount of the balance in PPF account as on March 31, 2012, that would get the benefit of EEE? Whether:

a) Rs. 5,00,000 , being the balance in PPF account as on March 31, 2011, or,

b) Rs. 5,40,000 being the total of the (1) balance as on March 31, 2011, and (2) the interest on it, in FY 2011-12.

In other words ? Whether only the contributions in the PPF account after April 31, 2011, and the interest earned on these contributions, will be subjected to EET method on withdrawals; and the balance in the PPF account as on March 31, 2011, along with the cumulative interest earned on it in subsequent years, will continue to have the benefit of EEE benefit on withdrawals even after March 31, 2011? Hope to receive your guidance.

Hatekar

As stipulated in the Code, ? the withdrawal of any amount of accumulated balance as on the 31.3.11 in the account of the individual in the Government Provident Fund (GPF), Public Provident Fund (PPF), the recognised provident funds (RPFs) and the Employees Provident Fund (EPF) under the Employees Provident Fund and Miscellaneous Act will not be subject to tax. In other words, only new contributions on or after the commencement of this Code will be subject to the EET method of taxation.?

The accumulated balance as on March 31, 2011, as per your example is Rs. 5,40,000 and any withdrawal from this amount will be tax-free.

Since the Code has not included the interest earned, either on this balance as on March 31, 2011or on the interest on fresh contributions, the entire interest will be under the EET regime.

I have a query regarding capital gains. Under Sec 54 – a residential property sold (with capital gains ) necessitates only investment of the capital gains amount and not the whole amount in a residential property. What if the investment is in land or commercial property? I am told that not Sec. 54 but Sec. 54F will be applicable. What is the difference? Also, under Sec. 54F, a clear exclusion has been given in respect of person owning more than one residential property apart from the new property to this clause. Have I understood this correctly?

Raman

Sec. 54 offers exemption from capital gains tax on sale of residential property if the capital gain amount is invested in another residential property. Sec. 54F offers exemption from capital gains tax on sale of assets other than residential property if the net sale proceeds (and not only the capital gain amount) is invested in another residential property. It is true that for claiming Sec. 54F exemption, the taxpayer should not have more than one residential property other than the new property.

My husband is a salaried employee. We want to invest our money in such saving scheme where we can get tax rebate as well as good returns (period 5-10 years). We were planning to invest in PPF but we have come to know that after the implementation of Direct Tax Code the money withdrawn from PPF will be taxable. So what should we do?

Also I want to know that if we open the PPF account before the implementation of Direct Tax Code can we evade the tax at the time of withdrawal?

Sweta Ojha

As per the provisions of the Direct Tax Code, the balance to your credit as on March 31, 2011will be exempt from tax. However, interest earned thereon and the fresh contributions made after the date along with interest thereon will be eligible to tax. In the case of NNS87, the any withdrawal made by the investor himself is also taxable in his hands but it is not taxable if it is withdrawn by his legatee after his demise. That is not the case related with PPF.

In view of this, it may be advisable to avoid PPF unless the rules are modified.

In the case of futures and options, STT will be calculated on the premium amount and not on the value of the premium multiplied by strike price. What does this mean?

Bawa

Your query is related with option contracts where the purchaser of an options contract has an option either to buy or sell a predetermined quantity of a share (or index) at an agreed price within a prefixed future date. For this the holder pays a one-time, non-refundable fee (option premium. When the holder of an option exercises the option, he either pays the agreed-upon price if it is a call option or receives payment in the case of a put option. If the holder decides to waive his option, which he can, he only loses the option premium.

In contrast, the writer of the option is obligated to make or receive delivery, depending upon whether he wrote a call or a put option. In either case, the writer of the option has no authority or right to determine whether or at what point, will the option be exercised. The right rests only with the purchaser of the option.

The potential loss to an option writer is unlimited. In contrast, if the holder chooses not to exercise his right and lets the option expire, his loss is limited to the premium paid.

Understandably, the STT is charged on the premium and not on the price of the share or commodity.

?The authors may be contacted at wonderlandconsultants@yahoo.com