I had invested Rs 3 lakh in the Post Office Monthly Income Scheme (POMIS) at 9% Interest pa. The interest was received regularly every quarter and this was shown as income in my income tax return and was taxed as per the tax laws.

The maturity amount has now been received after 5 years with a 10% bonus. I would like to know whether this bonus amount of Rs 30,000 can be treated as long-term capital gain, as the same has been received after 5 years, and if indexation cost is applicable for arriving at the tax liability. Also, how should the maturity amount of the Post Office recurring deposit scheme be treated for income tax purposes?

I am sure that this information can be of use to many depositors like me.

?Raj Talreja

D G Posts letter No. 97-7/89-SB dt 20.11.1990 states that the CBDT have clarified that the bonus payable under POMIS shall be treated as interest and will be taxable. Therefore, the same cannot be treated as capital gains. In the case of recurring deposit, the capital amount out of the maturity proceeds would be tax-free, whereas the accretion to capital will be treated as interest and taxed accordingly.

Though the last date of filing tax returns has expired, taxpayers still have time till March 31 2009 to file the return without having to pay penalty. In this regard, I have two queries about long-term capital gain. In form ITR-2 schedule CG B2 it is written that other assets where proviso to section 112(1) is not applicable i.e. after indexation and in row 3 other assets where proviso to section 112(1) is applicable i.e. before indexation.

My question is what are the assets for which proviso to section 112(1) is not applicable? And what are the assets for which proviso to section 112(1) is applicable?

Or is it that if you take advantage of indexation, fill up B2 and without advantage of indexation fill up Row 3.

Or is it that for a certain category of assets only B2 is to be filled and for assets only row 3 is too filled. It is little bit confusing.

?M B Deshpande

Proviso to Sec. 112 (1) basically provides the taxpayer with an option of paying LTCG @10% without indexation of cost, if the same works out lower than LTCG @20% after indexation of cost. This rule is applicable only to listed securities and units. So for real estate, gold and non- listed securities (shares in a pvt ltd co), the 10% option does not apply. Therefore, the taxpayer is expected to know from his total LTCG, which one should be taken for the 10% taxation and which one for the 20% one and fill the space accordingly.

I understand that buying and selling of shares by a mutual fund for one of its equity-oriented funds does not attract any taxes on capital gains. So this would mean that if I were to invest two sums of money — one, I put in an equity oriented mutual fund and another I just copy all the buying and selling that this mutual fund does; my pre tax returns remain the same (assume expenses are equal), my post tax returns will be more in the equity fund because it does not have to pay short-term capital gains tax (STCG) while I would need to on the buying and selling (assuming there is positive STCG). Is that correct?

?Krishnaraj Venkataraman

Yes, you are correct. Mutual funds do not pay tax on their transactions, either short-term or long-term on account of the specific exemption conferred by Sec 10(23)(D) of the Income Tax Act. But as an individual, you do not have similar exemptions. Therefore, on account of tax incidence, post tax returns would be more for the fund, other things remaining equal.

One of my friends (filing the return for the first time) has a very small professional income, from films as an actor, say Rs 40,000, on which TDS has been deducted u/s 194J. Besides, he has his salary income on which the TDS has already been deducted by his employer. Due to his professional income plus salary income, he has to file ITR-4, which demands the details regarding balance sheet, income, expenditure account, etc. But my friend doesn’t maintain a books of accounts. Can this information be kept blank?

?Hetal Solanki

Even with a small amount of professional income, ITR-4 has to be used. However, it is not necessary to maintain books of account. In the P&L, on the revenue side Rs 40,000 may be mentioned. If there are any expenses that your friend incurred to earn the income (say conveyance etc to a reasonable limit) may be deducted. The balance has to be brought to tax. Of course, the TDS that is like advance tax paid has to be reduced to arrive at the final tax liability. So, in effect, large parts of the form will be blank. However, it is ITR 4 that will have to be filled.

In the case of an individual assessee whose total personal income is below the threshold limit of exemption and such income includes short-term capital gains arising on sale of listed equity shares on which STT has been paid, then will this short-term capital gain attract tax. The assessee does not claim any rebate for deduction under Chapter VI- A of the IT Act.

?Haridas Sambhat

Short-term capital gains can be adjusted against the balance available amount of threshold. For example, say a taxpayer has no other income but short-term capital gains of say Rs 2,20,000. Out of this Rs 2.20 lakh, he can adjust Rs 1.10 lakh against the basic exemption (Rs 1.50 lakh for FY 08-09) and pay tax on the balance.

Erstwhile UTI had launched a scheme – Senior Citizens Unit Plan (SCUP) mainly to provide hospitalisation cover on retirement. Depending upon the age of entry, a one-time premium was collected. The scheme was abruptly wound up during the last financial year. My question is as under.

I joined the scheme on 01/01/95 with a one-time premium of Rs 2,600. On 28/03/08, I received the redemption proceeds of Rs, 11,963.79. What should be the tax treatment for the difference in the redemption and paid up price? Would the difference be LTCG or to be added to my income?

?Varadraj

This is a debt-based scheme and no STT is paid by UTI at its redemption. Consequently, LT gains arising out of a sale of debt-based units will continue to be taxed @10% without indexation or 20% with indexation, whichever is lower.

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