•We have opened a PPF account in January 1993, so it completed 15 years on 31.03.08. We gave a letter for extension on 10.02.09. The letter was accepted by the officer and the bank has made a remark on the passbook that the account has been extended for a further 5-year-period. We have made contributions to this account on 15.10.08 i.e. before the extension letter was given.

Kindly advice since the contribution was made prior to the extension letter:-

(i) Whether we will be able to claim a tax deduction [during the current financial year]

(ii) Also, will be able to earn interest on this contribution made prior to the letter given?

(iii) Can we claim tax exemption for future contributions and earn interest for all future contributions?

? Anat Gunvantlal

Though it is logical to give the application for continuation before or on the date of making your first contribution, you need not worry much since the pass book has the extension stamp. Moreover, going strictly by the letter of the law, the note under Sec 9(3) of PPF Scheme, 1968 states, “A subscriber may at his option (to be exercised before the expiry of the first year of every extended block period) avail of this facility for a further block of 5 years on expiry of 20 years or on expiry of 25 years and so on, from the end of the year in which the initial subscription was made.” Therefore, it is okay even if you give the application for extension even after the first contribution for the extended period, but before the end of the relevant financial year.EPF (Employee Provident Funds) contribution by an employer, which is less than 12%, is not to be included in the employee’s earnings for calculation of income tax.

My query is with respect to the NPS (New Pension System). In the case of NPS, whether the 10% contribution of the employer’s share would be taxable as the employee’s income?

?Madan Lal Singla

Under Sec 80CCD, contributions by the employee as well as the employer up to 10% of the salary of the employee (basic + DA) is deductible from his gross total income (which includes the employer’s contribution) within the overall limit of Rs 1 lakh in respect of contributions to schemes covered by Sec 80C, 80CCC and 80CCD.

•I want to known about STT. If I have paid Rs 5,000 as STT and my short-term capital gain excluding STT is Rs 2,50,000, what should be my tax liability, assuming that I have another business income of Rs 1 lakh and no investment in tax saver funds. Please also tell me if there are changes in short term capital gain and treatment of ST from that of last year.

?Dinkar

STT is payable on transactions in equities traded on a recognised stock exchange in India. There are the following three tax concessions on such transactions:

1. Dividend is tax-free in the hands of the investor in all the cases, equities as well as all the schemes of MFs.

2. The long-term capital gain (LTCG) for shares sold on recognised stock exchanges and equity-based units of MF sold to the MF is exempt and therefore, it cannot be setoff against any other losses, including the carried forward losses of yesteryears. Consequently, long-term capital loss (LTCL) is also exempt and is not available for any setoff

3. The short-term capital gain (STCG) enjoys a concessional flat rate of tax @15.45%.

Sec 36 is amended to allow deduction of STT against income from such transactions only when the income from such transactions is included under the head ‘profits and gains of business or profession’.

•I am a government employee and also an investor in the capital market. Which ITR form should I have to use: ITR1 or ITR2?

?Bhatia

ITR-1 is meant for those who have income from salary and interest. ITR-2 is for those who do not have income from a business or profession. Since investment in the capital market is not your business, you should use ITR-2.

•My father, who is retired, is a member of a society which is building a residential flat in Mohali. Since he is retired, we together took a housing loan of Rs 10 lakh, in which I am the main applicant and he is the co-applicant. The flat is still under construction and possession is expected by the end of the next year. The flat is in my father’s name. I have an annual gross income of Rs 9 lakh and am paying the installments for the same. I have two questions to ask

1. If after possession I am added as a joint owner, can I claim deduction for repayment of principal and payment of interest for the complete period before possession?

2. Can pre EMI also be considered for the purpose of tax deduction?

? Matta

Tax concessions are only available to the owner of the property. However, as you mention, the property is in the name of your father, so even if you were to pay the EMI, the tax deduction will not be applicable to you. Adding your name as a joint owner isn’t easy as it will have stamp duty implications. Property should always be purchased in joint names and the loan should be equally paid by both applicants. This way, the deductions can be optimised.

2. The deduction u/s 80C and the interest u/s 24 are allowed only when the income from house property becomes chargeable to tax. In other words, the construction should be complete, the flat should be ready for occupation and the municipal annual value is known.

The interest for the years prior to the year in which the property was completed shall be deducted in equal installments for the year during which it was completed and each of the four immediately succeeding years. Unfortunately, there is no corresponding provision u/s 80C for the capital repayment. If the construction or acquisition is completed anytime in a FY, the interest paid during the entire FY is deemed to be the normal interest though a part of the FY is pre-construction period.

The authors may be contacted at wonderlandconsultants@yahoo.com