It is the intention of the government to move to an EET-based system of taxation: FM

I am a senior citizen and a retired employee, receiving a pension plus the family pension of my wife. Please advice if standard deduction is still allowed on family pension

?M Mandidabwali

Standard deduction on employee salary has been deleted by the Finance Act 2005 but family pension, which attracts a deduction similar to standard deduction has not fortunately been touched. Where any family member of a deceased employee gets a pension after the demise of an employee, Sec 57(iia) grants a deduction of 331/3% with a ceiling of Rs 15,000. This means that your own pension is not eligible for any deductions, whereas the family pension is eligible.

What tax benefits can I claim on interest and principal payments for the two loans I have taken to buy two houses? One of them I had bought 5 years back and the other one I have bought a few months back?

?Nilu

On one house the interest deduction will be limited to Rs 150,000, whereas on the second, the entire interest without any limit will be deductible. The principal payments will be deductible u/s 80C up to a limit of Rs 1 lakh. Also, note that any one house will be exempted and the second house will be taxable (even if not given out on rent) on a notional rent basis. Interest deduction will be capped at Rs 1.50 lakh in respect of the house that is chosen as exempted, whereas the full amount of interest will be deductible on the second house.

Is the interest received from NSC added to the taxable salary every year? For example, if I put Rs 1,00,000 in NSC, do I need to add Rs 8,000 the next year to my taxable salary?

?Vikas Kadam

Yes, you need to do that. However, interest from NSC is deemed to be reinvested. Hence you will add Rs 8,000 to your income and reduce the same Rs 8,000 as a Sec 80C investment. So for that year (next year), your Sec 80C fresh investment can only be Rs 92,000. This treatment will be valid for the first five years of the NSC. Interest for the sixth year will be fully taxable and will not be eligible for the Sec 80C deduction.

Shares purchased in the last financial year and sold in the current financial year will be taxed @ 10% or 15% so far as short-term capital gains tax is concerned?

?Ranjan

If 12 months haven’t passed since the date of purchase, then the capital gain will be taxed at the rate of 15%. You have to consider the position of law at the time of sale and not at the time of purchase. This is because the capital gain is earned upon sale and not upon purchase.

?Goutami

Yes, the interest from the fixed deposit will be clubbed in your hands for tax purposes. A better alternative is investing in PPF. Though there is clubbing there too, since the interest is tax-free, the clubbing loses its teeth. Also, investing in the growth option of a MF scheme can also prove to be useful. By choosing the growth option, the money invested will grow without the need of paying tax. Tax will only be payable at the time of sale.

My PPF A/C completed its term of 15 years and now I have got it extended for another block period of 5 years. Kindly advice 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.

Please clarify if the employee has received Rs 2000 per month as conveyance allowance in his salary, what will be employer’s liabilities amd what are the employee’s liabilities.

?Vinayak A Pawaskar

Conveyance allowance is exempt up to Rs 800 pm u/s 10(14). Therefore, employee’s liability on the same would be to the tune of Rs 1,200 pm. The employer’s liability will come in the picture only if the conveyance allowance is taken under the ambit of fringe benefit tax (FBT). It is our considered opinion that the FBT law does not envisage taxing such allowances. Hence employers would not have any tax liability on the same.

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