I have a query regarding PPF. I started depositing in the PPF Scheme 30 year ago on 18.03.1980 and have requested for continuation of my account to date. Now my account matures on 31.03.2010. In view of the new Tax Laws from 2011 being formulated and discussed by GOI, I wonder how adversely it would affect me, by way of increase in the tax burden. To date, I have successfully overcome the tax burden by investing in shares, MF, PPF and Senior Citizen Schemes of the Post Office, some of which are maturing in 2010. My biggest worry is the PPF which matures on 31.03.2010 and I am in a quandary whether to continue my subscription or terminate and withdraw the full amount and distribute amongst my wife in Bombay and my daughter, son in law and grandson (minor) who are in Dubai as NRI.

This decision I need to make prior to February 2010 and inform the bank (PPF) whether to continue for a further period of five years or terminate the same, and for this I seek your advise. In case of continuation, what will be the IT burden on me?

Kindly enlighten me on the issue as I seek to avoid the IT burden on my hard earned saving and oblige. With great expectation I await an early reply.

Jal Hansotia

As per the code, any payment from PPF of accumulated balance, as on 31.3.2011 in the account of the person is not taxable when any part or whole there from is withdrawn. This means the contributions made thereafter and the entire interest earned on the old balances as well as the fresh contributions are chargeable to tax! Life insurance premia also suffer similar, though not the same fate. Fortunately, the amount of accumulated balance, as on the 31.3.2011, in the account of an employee participating in an approved provident fund and any accretion thereto is not exigible to tax.

Perhaps the code would get suitably amended to rectify these situations. Since your account matures on 31.3.2010, you have time up to 31.3.2011 to opt for post maturity continuation with contribution. By that time you will come to know the final position. If the authorities do not make any change, you may opt for withdrawal immediately after the Budget for 2011-12 is presented to the parliament in February 2011.

A friend of mine sold an ancestral property for a crore and twenty lakh and after paying the taxes invested the crore in HDFC Equity fund this February. Now he withdraws a lakh rupees a month for his expenses through systematic withdrawal plan… but since the corpus now has become Rs. 130 lakh n spite of the withdrawals he is richer by Rs. 30 lakh.

How will he be taxed on this lakh which he withdraws?

Syed Atif Hussain

The withdrawals would subject to short-term capital gains tax. Though a fixed amount is withdrawn, each month the NAV would be different, so number of units sold will differ. The redemption price minus the cost price per unit multiplied by the number of units will be the short term capital gains. The same will be subject to 15% tax.

My question is regarding saving long-term capital gains tax by investing in bonds u/s 54EC. I am aware that the limit is Rs. 50 lakh per financial year. However, I have read that since the investment has to be made within six months of sale, if such six months span over two financial years, one can actually invest Rs. 1 crore.

For example, consider a sale effected in January 2010 that generates long term gain of Rs. 80 lakh and the investments are made of Rs. 50 lakh in February 2010 in REC Bonds and Rs. 30 lakh in April 2010 in NHAI bonds. In this situation –

1) Could you please explain how to file the ITR for 2009-10? I assume the Rs. 50 lakh would be shown under Sec54EC. What about the Rs. 30 lakh amount as it is invested in FY2010-11. Do we still show them in returns for financial year 2009-10?

2)Does Rs. 30 lakh need to be kept in special “Long Term Capital Gains” account after 1 April, 2010 or it is only needed to be kept if it is going to be utilised for purchasing residential property?

B M Chitre

The returns for financial year 2009-10 are filed on or before July 31. You can take credit for investment made for the exemption u/s 54EC, even if it is made up any time between April 1 and July 31, even if this period belongs to the next financial year. The real problem arises when you intend to invest after July 31, but within six months of the date of sale. In practice, you are allowed to make the claim in your returns for the financial year during which the sale has taken place as long as you do make the investment later. There is no need for you to deposit the funds in the Capital Gains Accounts Scheme available with Head Post Offices and some scheduled banks.

If a resident individual has investments in mutual funds abroad ( which is allowed), then as per the new DTC will he have the shelter of tax slabs for any capital gains (short term or long term) arising out of said funds? Or will he be treated as an NRI without said shelter?

You have mentioned the rules under the DTC for residential property where presumptive rent is fixed at 6%. Is the same ruling applicable for Commercial property as well?

KJ Govadia.

A resident cannot become an NRI in respect of his investments in a foreign country. These capital gains earned abroad do receive the same treatment as the capital gains earned on investments made in India. The Code has not changed this position.

2. The income from any house property shall be computed under the head, Income from House property, notwithstanding that the letting, if any, of the property is in the nature of trade, commerce or business.

The income from commercial property will be the actual rent received or 6% of the ratable value of the premises, whichever is higher.

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