I have been a regular reader of this column. I know you always recommend to get a term plan as far as insurance is concerned but the new tax code, it seems, will be little problematic for those who think that the maturity amount for their policies will be tax free. Now as and when the new tax code comes into being that will no longer be the case and thus my question is that if you buy any policy before that new code comes into existence, will it be a good buy? Will the maturity amount be tax free simply because it was purchased before 31.03.2011?

?Gandhi

In a term plan, there is no maturity amount. So the question of it being tax-free or not does not arise.

Any amount payable upon the death of the insured is tax-free. This position continues in the new tax code too. In fact, in the new tax code, subject to certain conditions, the maturity amount (if the policy is held till maturity) continues to remain tax-free. It is only premature withdrawals/redemptions that are taxed.

Kindly clarify doubts on ? cash gift ?.

1) What is the maximum amount of gift ( by way of cash ) one can give to his / her close relatives ( say father , mother , son , daughter ) during the financial year ? Is any gift tax is applicable?

2. How many times can one give the cash gift to close relatives during a life time?

3) Is it necessary to prepare a gift deed while giving the gift?

?DG Athale

There is no limit on the amount of cash gift (through normal banking channels) that one can give one?s close relatives. Of course, the gifted amount must be legal and if required the donor has to prove the source of funds. In such cases of gifts to close relatives, the entire amount is tax-free both for the donor as well as for the recipient. Also, there is no limit as such on the number of times such gifts can be given. While preparing a gift deed is not necessary, having an affidavit that puts down the gift transaction in writing will be helpful.

I have just entered into a property sale transaction. I intend to buy another property to save the capital gain tax. I understand that one has two years to buy the property and in the meanwhile the money can be deposited in the capital gain account scheme (CGAS) deposit. My question is whether the entire sale proceeds should be deposited into the CGAS or only the capital gain (profit) portion?

?Devji Shamji

In the case of the sale of a residential property, it is only the capital gains that is required to be reinvested in the new property – hence it is only the capital gains amount that needs to be deposited in the CGAS.

Now, in the case of any other asset other than a residential ;property, to save long-term capital gains, it is the net sale proceeds that need to be reinvested in the new property, hence it is the net sale proceeds that have to be deposited in the CGAS.

I am getting HRA from my college in my salary. I am living in rented accommodation in Delhi. Will my HRA exemption be from the Sec. 80C Rs. 1 lakh limit which we can save after the basic exemption of Rs. 1.60 lakh? Please resolve my query and if possible give me some document or link so that I can show it to account section in my college.

?Shashank Dalela

The least of the following is exempt from tax u/s 10(13A) :

a)40% of salary (50% for Mumbai, Kolkata, Delhi and Chennai).

b)HRA for the period the house is occupied by the employee.

c)The excess of rent paid over 10% of salary.

An employee living in his own house or where he does not pay any rent is not eligible for this exemption.

Note that this exemption has its own limits as laid down u/s 10(13A) and is independent of the ceiling of Rs. 1 lakh on Sec. 80C. This is as per the Income Tax Act, 1961. You may refer the relevant sections therein.

The authors may be contacted at wonderlandconsultants@yahoo.com