Recently, I read about tax saving fixed deposits of banks. My question is that in the case of a cumulative deposit, since the interest is reinvested, does it qualify for a tax deduction?

?Lokesh Khandelwal

Bank fixed deposits that offer a tax deduction under Sec 80C are very similar in structure to the National Savings Certificate (NSC VIII). In the case of NSC VIII, the interest accumulates and is not paid to the investor every year. The interest that accumulates is treated as invested in NSC VIII. Hence it qualifies for an exemption under Section 80C for the first five years. In the last year, the interest is handed over to the investor and does not qualify for a deduction and therefore is taxable. Tax experts are of the view that if the investor opts for a reinvestment of interest option in the case of fixed deposits, the accumulated interest, since it is deemed reinvested in Sec 80C, would also be eligible for a tax deduction under Section 80C, as it is in case of NSC VIII.

1) I had invested in a 5-year post office RD and it is maturing in this calendar year. I failed to show it in my IT return. Now how do I account for it?

2) If I have to file a revised return, will I have to revise it for the past 5 years?

3) If my father gifts me some money, am I liable to pay any tax on it? If yes, at what rate?

4) I have booked a flat under construction in 2006 and am expecting possession in this financial year. Can I claim a tax rebate on this house, though I don?t plan to shift to this house for another 2-3 years, nor do I plan to let it out.

5) Alternately, if I sell this house after possession, can I get any capital gains benefit?

?Bindu

You may submit the entire interest received over five years for tax in the return for this year. There is no requirement for filing a revised return. There would be no tax incidence either on you or on your father on the gift that he gives you. The tax rebate on housing finance is not connected with whether you occupy it or not. However, the interest is deductible only from the year in which you take possession. Interest paid for the past years is deductible in five equal installments beginning from the year in which you take possession. If you sell the house after three years of having taken possession, you will be liable for long-term capital gains tax. Else, the tax will be short-term in nature.

For saving my taxes can I invest in SIPs (Systematic Investment Plans)? What is the tax benefit associated with SIPs?

? Geetanjali

SIP is nothing but investing periodically, say monthly, bi-monthly or six monthly in an MF scheme. In other words, it is akin to what recurring deposit is with respect to investing in fixed deposits. Therefore, SIP per se, does not offer any tax benefit, as it is not a product but a strategy for investing. The tax benefit u/s 80C is offered by ELSS schemes of MFs. However, you can invest in ELSS using the strategy of SIPs.

1. I have a PPF account opened on behalf of HUF. I have extended the account for 5 years by submitting a request in FY 07-08.

I have been told that as per the new law, HUF cannot open a PPF account or invest in NSC for claiming deduction u/s 80C any more. Only an existing PPF account can be continued till maturity (at end of 15 years).

Since the PPF A/c of my HUF has already been extended and four extended years are balance, can I continue to contribute to the PPF account and claim benefit. If not, can I withdraw the PPF amount?

2. Which is the best avenue wherein HUF can invest to claim benefit u/s 80C?

?K. V. Pandit

You can keep on contributing to the PPF account of your HUF account and avail of the tax benefits but at the end of the extended period, you will have to close the account. It cannot be extended any further, neither can a fresh account be opened for HUF.

Avenues under Sec 80C that HUFs are still eligible for are ELSS and ULIP under Sec 80C.

If capital gain (taxable) is say Rs 1 lakh, can I invest this amount in REC/NABARD bonds? I have no other substantial income except some interest from bank deposits. If capital gains tax is to be paid, can I adjust it against the short fall in the basic exemption?

?V S Shetty

For a resident individual or an HUF, where the total income as reduced by short-term or long-term capital gains on which tax is payable falls below the minimum tax threshold, the gains would be reduced by the amount by which the total income so reduced falls short of the threshold and the balance of the gains would be taxed at the rates applicable. In short, where the tax liability arises only because of inclusion of such capital gains in the total income, tax is levied on the excess over the minimum taxable limit. In your case, if your total income, including the amount of capital gain, is less than Rs 1.50 lakh, you do not have to pay any capital gains tax, nor do you have to file a tax return.

The authors may be contacted at wonderlandconsultants@yahoo.com