Speculative biz loss can be set off only against income from the same

I have a PPF a/c in the name of my HUF opened on 25-3-1994. This PPF a/c has completed 15 years on 31-3-2009 and I am being informed by my friends that HUF PPF a/c once having completed 15 years cannot be renewed and has to be closed. In other words, HUFs are not allowed to open new PPF accounts although the HUF may be taxable. I have not received proper guidance even from the bank where I have a HUF PPF a/c. At present, the contribution made to the HUF PPF a/c is claimed for tax deduction in HUF return.Is the above true that HUF cannot continue PPF a/c beyond 15 years or can I continue my HUF PPF a/c for the next five years by submitting the necessary letter to the bank?

— S Kapadia

1. Notification GSR 291(E) dt 13.5.05 has discontinued opening of accounts on behalf of HUF, AOP or BOI.

Such accounts opened by mistake after the respective date of notification shall be treated as void ab initio. As and when (and if) the error comes to light, the account shall be closed and the amount refunded to the depositor without any interest. The existing accounts can continue up to their maturity without the privilege of post-maturity continuation.

Since your HUF account has already matured, you will have to close the account.

If you desire to continue to enjoy the benefit of PPF for your HUF, you can legally play a trick. You may open a fresh PPF account in the name of any member of your HUF (including yourself) and make the payment through the HUF account. It may be noted that Sec 80C(4) continues to allow the deduction for LIC premiums, PPF, ULIP of UTI and Dhanaraksha of LICMF in respect of subscriptions made by any member of HUF.

Take care to ensure that such a person in whose name the fresh PPF account is to be opened does not have an existing account in his own name for claiming the deduction against his individual income. Again note that the ladies belonging to the HUF are members of HUF.

1) The bank authorities have deducted 10% tax + education cess on interest from FDs etc exceeding Rs 10,000 in a financial year. 2) The postal authorities on withdrawing the amount from NSS-87 have deducted 20% tax + education cess. Kindly clarify whether it is correct on the part of the postal authorities. I was under the impression that only 10% tax + education cess is generally deducted by the paying authorities.

— Madhusudan Lal Aggarwal

Sec 194EE requires TDS to be applied on NSS withdrawals @20%, unless the amount withdrawn is less than Rs 2,500. Sec 194A requires TDS to be applied on payment interest by a branch of a banking company at the applicable rate, if the interest exceeds Rs 10,000. The applicable rate is given by Schedule-I, Part-II and is 10%.

We agree that specifying different rates for different streams of income is not only tedious but confusing for the taxpayer. A standard rate would smoothen and simplify the process.

I had read somewhere that the beauty of PPF is that one can give a cheque on the 5th of the month and the money will be credited to the PPF account on the same day – and not on the day the cheque is cleared. Hence, one can earn interest for that month too.Is this true and if yes, where can I find a reference to it in the PPF rule book (if there is one?)

— Chandrashekhar,

Yes, it’s true. As per MoF (DEA) letter No F.3(9)-PD/72 dtd 4.9.1972, “When the deposit is made by means of a local cheque or draft by the subscriber, the date of tender of cheque or draft at the account office will be treated as the date of deposit provided that the related cheque is honoured on presentation for encashment.

I have an enquiry for NSC in account of HUF. I had purchased NSC on 30.3.06 in my HUF a/c. The maturity date of the same is on 30.3.2012. Please let me know whether I can get interest on the amount. If I am not entitled for interest then should I ask the post office to refund the amount with immediate effect?

— Vivek Garg

SO 289(E) dt 13.5.05 debars trusts, HUFs ad AOPs from investing in NSC-VIII. Your investment is on 30.3.06. If and when the error comes to notice, the money will be returned without any interest. Unfortunately, the post offices notice the error only at the time of making payment at maturity.

You will do well to withdraw the funds immediately.

1. I want to know about how to calculate income tax on share trading as there is a lot of confusion about it. Is it true that if a person does transactions more than Rs 40 lakh, then his profit will be taxed at the rate of 30% and not 15% as is claimed by the government for short-term capital gain in share trading. 2. Secondly, if I incur a loss in intraday trades, I will be able to carry that loss for the next 7 years. Is it possible according to our current tax laws that all the losses incurred in share trading be carried forward?

— Ram Kumar

Intra-day trading activity in shares is speculative in nature and attracts tax of 30.9%.

Even in normal cases, there has been a long-standing difference of opinion between the investors in shares and the tax department on whether the income arising from the sale of shares can be classified as capital gains or as business income, especially where the number of trades are large or the size of the trades were high. Trading without delivery of the shares will be treated as speculative unless it is business of the assessee. A CBDT circular has directed the ITOs to take a view according to the facts and circumstances of the case. But while doing so, he is bound to give reasons for his actions. Such discretionary powers given to the assessing officers attract rent seeking.

2. U/s 73 loss from speculative business can be set off only against income from speculative business. In these cases, the net loss can be carried forward for setoff against the profits and gains only from the respective business and the carry forward is allowed for only 4 years and not 8 years.

The authors may be contacted at wonderlandconsultants@yahoo.com