My late husband had invested Rs 1 lakh in a tax saving bank deposit under Sec 80C. He passed away this year and I am in the process of streamlining and closing his accounts and getting his investments, etc. transferred in the names of the nominees concerned, including myself. When I approached the bank for terminating the abovementioned tax saving deposit, they told me that the since the lock-in period for the deposit is five years, the same cannot be prematurely encashed. I find it strange that the law requires a deposit to be continued in the name of a deceased person .Is the bank correct in its stand?

?MS Raje

You are right in observing that any investment cannot be continued in the name of a deceased person. The deposit should be terminated and the amount should be transferred in the nominee’s name. You can refer Bank Term Deposit Scheme, 2006 Notification No. 203/2006, dated 28-7-2006 to the bank officials concerned. Point number 13 and 14 (reproduced below) specify the procedure to be followed in the case of the death of the depositor.

“13. Right of nominees

1) In the event of the death of the holder of a term deposit in respect of which a nomination is in force, the nominee or nominees shall be entitled at any time before or after the maturity of the term deposit to encash the term deposit.

2) For the purpose of sub-paragraph (1), the surviving nominee or nominees shall make an application to the branch manager of the bank, supported by proof of death of the holder and of deceased nominee or nominees, if any.

3) If there are more nominees than one, all the nominees shall give a joint discharge of the receipt at the time of receiving the payment.

14. Payment to legal heirs

If a holder of a term deposit dies and there is no nomination in force at the time of his death, manager of the branch of bank from where the term deposit was issued, shall pay the sum due to the deceased, to his legal heirs.”

Can I claim deduction on prepayment penalty in case of home loan takeover from one bank to another? Will this be u/s 80C or u/s 10?

? Jagroop Singh

The Income Tax Law does not offer any tax benefit on the prepayment penalty on housing loans. The deduction u/s 80C is only for the principal portion of the EMI payable and the deduction u/s 24 is for the interest portion. Unfortunately the prepayment penalty on loan transfer is not included under any of the aforementioned sections, including Sec 10.

I have received my arrears of salary in FY 2008-09 due to implementation of the 6th Pay Commission. Since my basic pay has increased from 1/1/2006, my PF contribution also has been increased from 1/1/2006 and deducted from my arrears.

In the FY 2006-07, my total savings u/s 80C was only Rs 70,000, whereas I could have saved Rs,. 1,00,000. Now, since the PF contribution for the year 06-07 has been increased, the total amount deducted towards additional PF contribution is approximately Rs 29,000.

Can I file revised returns for FY 2006-07 and get refund for the PF contribution of Rs 29,000 or is there any other option to get refund for the savings u/s 80C for the FY 2006-07.

?Umesh Kumar Arora

Though you cannot claim the benefit of Sec 80C on your PF contributions made for previous years during the current year, you can definitely claim the benefit of Sec 89 for salary paid in arrears.

One residential flat in joint names of two sisters-in-law, is sold after 20 years. Sale proceeds are divided equally between the two. Each one buys one flat each from the sale proceeds of the old flat (their respective names as first owner of their respective new flats) with a joint-owner’s name added for safety purposes. Is this valid from the income tax view-point or can there be any income tax problems?

?Savita

As long as the two sisters-in-law had individually paid for the flat they owned separately and one name wasn’t added for safety, the rest of the transaction in terms of sale and buying one flat each is fine. By selling the flat they owned jointly, each one must have earned their share of capital gains. Tax on such capital gains can be saved by investing the capital gain amount in a new house property. Both persons have complied with the above condition and hence there will be no capital gain tax payable by either one of them.

I have attained the age of sixty on June 1, 2009 but my employer has extended my services for another year i.e till June 2010.

Will I get EPF benefits like contribution from my side and my employer’s side?

Is it mandatory to withdraw my PF balance after my retirement? Since PF is paying 8.5% tax free interest, can I continue to keep the balance with EPFO and if so for how long can I do so?

?Murli Mamtani

You can contribute to your PF as long as you are in service. Your age has nothing to do with your right for contribution.

Does the interest continue to remain tax-free after the employee retires and does not claim his Provident Fund for say 2 to 3 years? If one goes strictly according to the drafted provisions, it appears that this interest is tax free since the amount becomes payable only when the ex-employee asks for it.

However, in the case of ONGC Ltd 2005 4 SOT 333, 98 TTJ 1111, it was held that the company was liable to deduct tax at source under Sec 194A in respect of credits that it had made to the provident fund accounts of members who had ceased to be employees of ONGC.

The authors may be contacted at wonderlandconsultants@yahoo.com