A N Shanbhag & Sandeep Shanbhag

My son has completed his 10+2 ( Med) and is now aspiring to join MBBS course in Nepal for pursuing his career as a doctor. I have applied for an education loan from a bank but the same is being delayed by the bank on one pretext to the other. May I now if any restriction is imposed by the Reserve Bank of India for extending an education loan to an Indian student studying in Nepal?

?I. J. Agnihotri

There is no problem as far as income tax provisions are concerned in respect of exemption u/s 80E related with interest on loans taken for ?higher studies? of self or relative, undertaken either in India or anywhere else in the world. We are not aware of any restrictions imposed by the RBI on this matter.

In a previous Q&A, it was stated that payment of accumulated balance in Recognized Provident Fund (RPF) is taxable under Rule 9(1) of Schedule IV (A) to the ITA unless the employee renders continuous service with his employer for five years or the discontinuance is due to causes beyond control of employee. For example, say a person joins the RPF & contributes to the PF (with employer contributing same amount) between FY 2000 – 2009 i.e. 11 years. Let?s say he withdraws the accumulated balance in the financial year ended 31-03-2010. Now, as he has rendered continuous service for 11 years, the accumulated balance including contributions of both the employee & the employer till FY 2009 is exempted. This is irrespective of the fact that the employee has claimed deduction u/s 80C for his (employee?s) yearly contributions.

My main queries are whether there no minimum holding period for annual contributions of self. Secondly, no such rule seems to exist with respect to statutory PF. Do the above not apply to statutory PF?

?Shiraj Dej

For provident funds it is not practicable to impose a minimum holding period for each contribution. If there were such a restriction, the employee will not be able to collect the entire balance amount in his PF account at his retirement. Same is the case for LIC policies, ULIPs, PPF, NSCs etc., where the investor will not be able to collect the entire redemption proceeds.

As a matter of fact, in the case of PPF, the last contribution can be made any time during the 16th financial year, even on the last day! Then the whole account matures the very next day and though the last contribution does not earn any interest, it is eligible for the rebate.

Recently I have read that the best way to investing in gold is through Exchange Traded Fund (ETF). But, ETFs do attract brokerage & STT for both buy & sell transactions (approx 0.7% each side), leading to an additional expense of nearly 1.4%. In contrast, since there is no entry load on MFs and one can also do away with the exit load if we hold the units for a longer period of time. Hence, if one purchases the corresponding MF units directly, the extra cost can be saved. In addition, in both the transaction types (ETF or direct MF units), I think the tax treatment on capital gains should be the same.

Can you please share your thoughts on this & enlighten me if I have not considered any other aspect while comparing the two options of buying gold in electronic format?

?Dharmesh Gangani

The main idea is to invest in gold and not in any other asset class. There are no gold based MFs that are not ETFs. In other words, all MFs that are available in the traditional sense are either equity or debt based. There are a couple of MFs that invest in gold mining companies, but at the end of the day, once again these are MFs that invest in equity shares of such gold mining companies ? so you are in effect buying equity and not gold. Regarding the STT issue, please note that there is no STT applicable on gold ETFs since they are not equity based mutual funds. All in all, therefore, the only way one can invest (through the MF route) in gold is through ETFs.

I am having one query about PPF contribution rule. I have PPF accounts in my and my wife?s name. We contribute Rs. 70,000/- in each accounts in each year and claim tax benefits. Now we want to open PPF account for my minor daughter (age is three months), which will be operated by my wife. I am confused with rule about the ceiling of contributions. Can my wife contribute Rs. 70,000 in each account (self and minor) each year? We do not want to claim the deductions for the amount deposited in minor account.

I request you to clarify the confusion and help me out.

? Vinod Bharati

The combined limit for investment in PPF in your own and minor child?s name is Rs. 70,000. This is so even if you do not intend to claim the tax deduction for the amount deposited in the minor?s account.

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