I had a doubt regarding tax return filing. Say if I have no other income except for short term capital gains (say Rs. 4 lakh) and I have saved Rs. 1 lakh in instruments that are eligible for?tax exemption u/s. 80C. What will be my total taxable income? All Rs. 4 lakh taxed under special interest of 15%? Or Rs. 1.5 lakh (Rs. 4 lakh minus Rs. 1.5 lakh (no tax) minus Sec. 80C redemption 1 lakh) to be taxed at 10%?

?Shuba

The answer to your query would depend upon the type of asset from which the capital gains flow.

1. In the case of capital gains arising out of securities (including shares) and equity-based units of MFs sold on a Recognised Stock Exchange in India or equity-based units repurchased from MFs STCG is taxed @15% flat, u/s 111A and 115AD.

2. In the case i) listed securities, or units or zero coupon bonds not sold on a Recognised Stock Exchange in India or repurchased from the MF and consequently have not suffered STT and ii) units of debt-based MFs ? STCG is treated as normal income of the assessee and charged to tax at the rate applicable to his slab of income. Where STCG is taxed at concessional rates, the assessee will not get any deduction u/s 80C, 80D etc., against these gains which will be treated as a separate block.

3. For all other assets like real estate, jewellery, etc., STCG is treated as normal income of the assessee and charged to tax at the rate applicable to his slab of income. For a resident individual or an HUF, where the total income which is charged to tax, falls below the tax threshold applicable to the assessee, the gains can be reduced by this gap between the total income and the threshold. The balance of the gains would be taxed at the rates applicable.

The current tax threshold is Rs. 1.60 lakh for non-senior males, 1.90 for non-senior females and Rs. 2.40 lakh for senior citizens, males or females.

I read in a newspaper that the interest on Public Provident Fund is calculated quarterly. I asked the editor to confirm. Despite reminders I did not get reply. Will you tell me this is true? If yes when it became in force?

?Dinesh R? Mistry

To the best of our knowledge, PPF interest is calculated yearly only. We are not aware of any change introduced therein.

Which is the better option as far as investing in mutual funds is concerned – dividend reinvestment or growth?

?Madhur

The dividend option gives the investor a chance to either invest the dividend received into the same scheme, thereby converting it into growth option or use the dividend for any other more useful purpose. There was a time when the growth option was more tax efficient than the regular dividend option, but after FA04 made dividends and also the long-term capital gains tax-free on equity-based MF schemes, the two options are equivalent from taxation point of view. Yes, if the investor does not want to be bothered with investing the dividend every time, he should go for growth. The dividend reinvestment option on the other hand suffers from a very innocuous shortcoming in as much as, if and when the entire investment is redeemed, the last dividend reinvested may attract tax on short-term gains. If there is a loss, provisions of dividend stripping may apply. In the case of debt-based schemes, there is the dividend distribution tax on dividends. Therefore, the growth option is more beneficial.

I retired just a couple of months ago and am trying to gather information from wherever possible to enable me to make a sound investment of partial funds (not very big sum) received by me. I was considering post office MIS which gives retired persons like me an assured income each month. Do you think this is a good scheme in which to invest a part of one?s retirement funds? I have already invested part of the funds into senior citizen scheme giving 9% interest.

?Sadhana

Post office MIS is a good investment in terms of low risk and high safety. However, we feel that the 9% payable quarterly by senior citizen saving scheme is better than 8% payable monthly (plus 5% bonus at the end of its term) by MIS. Both the schemes are equally safe.

I wish to know the exact date of the issue of the recent circular regarding taxing of perquisites. Also, as per the circular is conveyance allowance and medical reimbursement taxable?

?B H Patel

The date of the issue of the said notification (and not circular) is 18.12.2009. However, note that perquisites given to employees will be taxable with effect from 1.4.2009. Conveyance allowance up to Rs. 800 per month and medical reimbursement up to Rs. 15,000 per annum is not taxable.

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