I have a query related to National Savings Certificates (NSC). As far as I know, an investor does not need to pay tax on the NSC interest on a yearly basis since it is deemed to be reinvested. But at the time of maturity, the tax is payable. In which case will PPF not be a better investment to take deduction under sec. 80C as the interest on PPF is completely tax-free?

? Soimya

NSC being a cumulative interest paying instrument, the interest thereon for the first five years is deemed to be reinvested and hence the deduction under Sec. 80C is available thereon. Only the last year?s interest becomes fully taxable. However, for reinvestment you have to receive it first (as accrual). In the last year, tax is payable only on the sixth year’s interest. Sometimes, it so happens that for the investor, his sec. 80C limit of Rs 1 lakh has already been reached before the NSC interest. In that case the NSC interest will be taxable per year.

The bank has returned the deposit balance in my HUF account. Is it a right thing? Further now, can I convert my HUF assets with my individual assets and stop filing IT returns for the HUF.

? Vinod Sarakar

It is not clear if what you are referring to is a PPF or post office account or normal savings bank account. In any case, transferring HUF assets without tax consequences is only possible if you dissolve the HUF fully.

I put Rs. 10,000 rupees in my PF account every month which compounds at 8%. My friends tell me that Banks and Post Offices pay more than a PF account. I am attracted to PF because of the power of compounding, over the long term. In your opinion, am I doing the right thing?

?Shyamlal

Your friends are wrong. Banks and post offices do pay more, but the interest is taxable whereas in PF or PPF, the interest is tax free. So on a post tax basis, PF or PPF is a very good fixed income investment. Yes, you are doing the right thing.

Please answer the following queries ? If one earns capital gains from sale of house, can one save taxes by investing the same in a plot of land?

If one builds a house on that plot after two years can one save capital gain tax? Even if the house is rented out? If the house is sold?

Will capital gains from sale of a plot be treated as capital gains from sale of a house?

A house sold in the current year was renovated (improvement) 10 years earlier as per plans submitted to the municipality. However there is not evidence of the expenses incurred. Can the owner consider the advantage of the renovation. (addl. Expenses) to calculate the capital gains?

? Tambe

1. No. Sec. 54 requires the capital gains to be invested only in a residential property.

2. The assessee can claim exemption u/s 54 by investing the Long Term Capital Gains (not the entire sale proceeds) to purchase a residential house within a year before or two years after the date of sale of the old house. Alternatively, a residential house may be constructed within three years after the date.

3. Capital gains from sale of a plot is not the same as capital gains from sale of a residential house for purpose of saving taxes.

4. We presume that you have got the permission given by the municipality on your record. and you have got proof of the fact that you have renovated the property and the extent to which you have renovated is there in the blueprint. In that case, you can obtain an official chartered valuer to assess your value addition and use this figure for computing the capital gains.

I created my HUF three years ago and I am filling return of my HUF regularly.

My query is can my father gift a running firm along with premises and some capital to my said HUF. If yes please specify the procedure/formalities to the extent as possible. Also whether this will create any tax liability.

? Amit

1. Yes, your father can give a gift to your HUF.

2. He will have to prepare a gift deed with associated stamp duty to effect a transfer.

3. Yes, the entire value of the property will be construed as income of your HUF under the new law. Only gifts given by relatives, or on the occasion of marriage, under a will or in contemplation of death are exempted. Since the amount received by the HUF doesn?t fall into any one of these categories, it would be chargeable to tax in the hands of the HUF.

My sister was working in India and has left for US for her further studies in January. Will she be an NRI after 182 days?

?Suniti

Your sister will be an NRI from the FEMA point of view. Consequently, she would be eligible to open an NRE or NRO account etc.

From the Income Tax point of view, she will continue to be a Resident unless she has spent less than 60 days in India during the year of departure and 365 days or less in India during the past four years. This rule will have to be applied for each year.

For example, next year if she is in India for a period of 60 days or less, she will be an NRI and so on.

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