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"Can I gift shares to my daughter on her wedding without any tax liability?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

I am an engineer working in a private company. I plan to invest upto Rs 60,000 in public provident fund (PPF), unit linked insurance policy (ULIP) etc. I also have an LIC policy and Mediclaim. Can I claim income tax rebate on the premium paid for these policies even when I have made a complete investment of Rs 60,000 in above mentioned schemes?

— Sitendra Soni

The rebate under section 88 of the Income Tax Act, 1961, is 20 per cent of the amount invested subject to a maximum investment of Rs 70,000 (including Rs 10,000 which has to be invested in shares, debentures, or units of infrastructure sector companies). Hence the rebate on the above investment would be a maximum of Rs 14,000 (including Rs 2,000 additional rebate for investment in shares, debentures of, or units of infrastructure sector).
Though the premium paid on LIC policy qualifies as an eligible investment for the purpose of claiming rebate, you cannot claim income tax rebate for the same, if you make a investment of Rs 60,000 in other eligible schemes. The premium paid on the Mediclaim policy can be claimed as deduction under section 80D subject to a maximum of Rs 15,000 from the Assessment Year 2000-2001.

I have filed my Income Tax returns during 1998 June for Assessment year 1998-99. At that time, I did not have a permanent account number and I filed my returns without it. But I have to receive a refund in respect of conveyance Allowance benefit extended from August 1, 1997. So far I have not yet received the refund. I have also misplaced my acknowledgment slip. How can I follow up? Is there any time limit after which the refund lapses? If the residential address is changed, is the department bound to send the order to the employer's address?

— C V Prahlad Rao

The Income Tax department maintains a register wherein all the returns filed on a particular day are entered along with the serial number of the acknowledgment, name of the assessee etc. Since your IT acknowledgment has been misplaced, you can go to the concerned ward office where your return has been filed and based on the date of filing your returns, you can identify the serial number of your acknowledgment from the register. You can follow up your refund queries with the concerned authority by quoting the serial number of your return.
According to the IT Act 1961 there is no time limit prescribed for lapsing of the refund, if it is assessed as due to you.
Also, the IT dept is not bound by any rule or regulation to send the refund order to the employer's address in case the address of your residence has been changed. It is your duty to inform the concerned IT authority about the change of address by written communication.

I would like to know how indexation works, how the Cost Inflation Index is calculated and how indexation benefit reduces Capital Gains Tax?

— S Panchamukhi

The benefit of indexation is that it takes into account the inflation that has taken place between the date of acquisition of the asset and the date on which the said asset is sold. As a result while calculating the capital gain, the indexed cost reduces the net gain which is chargeable to capital gain tax. The cost inflation index is published every year by the government considering 75 per cent increase of average rise in the consumer price index for urban non-manual employees for that year.

My father aged 74 sold one land in our village for Rs 10 lakh which he had bought for Rs 5000. If he gifts it to me then can I form a Hindu Undivided Family (HUF)?

— Mahesh Wadhwa

An HUF cannot be formed by gifting a sum to it. This would attract the clubbing provisions contained in section 64 (2) of the Income Tax Act, 1961 and the income arising from it would be taxed in the hands of the individual.
However, in an existing HUF, a Co-parcener can throw his individual property into the common stock of the HUF.

I am in the highest income bracket and am already availing of the following benefits for tax deductions. I am 44 years old.
1) Maximum benefit of Rs 12,000 under section 88 (total savings of Rs 60,000)
2) Benefit of accrued interest towards interest for repayment of housing loan to the extent of Rs 30,000 (loan availed and construction completed before 1999)
3) Deductions for professional tax and travelling allowance.
I would like to know if there are any schemes to claim rebate for tax (other than mutual funds). I understand that there is an LIC scheme called Jeevan Suraksha, under which an investment up to Rs 10,000 is deductible from the taxable income itself. What are the advantages of this scheme and what returns can one expect?

— S Ramani

Your understanding of the Jeevan Suraksha scheme is absolutely correct. In addition to the Rs 60,000 claimed by you under section 88, you are eligible for an additional rebate of 20 per cent on the amount invested by you in approved infrastructure bonds. This additional investment is however limited to Rs 10,000. However, the question regarding advantage and returns are not related to personal taxation and cannot be answered.

How do I gift shares to my wife and/or major daughters with no or minimum tax liability on me? Is there any other alternative to transfer my share capital to either my wife or major daughters without any tax liability on me? One of my daughters is getting married soon. Can I use this opportunity to transfer capital?

— Anil Lilwa

Under the clubbing provisions of Section 64 of the Income Tax Act, 1961, transfer of assets to spouse for inadequate consideration or otherwise than for an agreement to live apart would attract the clubbing provisions.
Under Section 61, all income arising to any person by virtue of transfer of assets other than an irrevocable transfer to any person is deemed to be the income of the transferor. Hence, gifting of shares to daughter would attract the clubbing provision of the Income Tax Act unless it meets the above requirements of the section and as such will not reduce the tax liability.
You may gift shares to your daughter on the occasion of her marriage without attracting any tax liability, provided it is done vide an irrevocable deed of transfer.

Can interest on National Savings Certificate (NSC) be included as interest on government securities to claim additional exemption of Rs 3,000?

— Amirali Charania

No. It cannot be claimed as an additional deduction under section 80L of the Income Tax Act, 1961.

Between April 1999 and now, I have made the following capital transactions:
i) Short term gain on property of Rs 10,000 (sale at Rs 210,000, purchase at Rs 200,000).
ii) Long Term gain of Rs 10,000 on sale of shares after indexation (indexed purchase cost Rs 330,000, sold For Rs 360,000)
iii) Long Term loss of Rs 7,000 on sale of Unit 64 after indexation (indexed purchase cost of Rs 37,000, sold For Rs 30,000)
My questions are:
1) Can I club the above to result in a net capital gain of Rs 20,000 minus Rs 7,000, that is, Rs 13,000? I have a brought forward capital loss of Rs 33,000 from financial year 1998-1999.
2) How much should I invest in a scheme with 54EA option only to avoid capital gains tax?
3) Alternatively, how much should I invest in a scheme with 54EB option to avoid capital gains tax?

— Shaunak Kashyap

There is a mistake in your question. You have written that the long term gain on sale of shares is Rs 10,000 with an indexed purchase cost of Rs 330,000 and sale at Rs 360,000. The capital gain should be Rs 30,000 or the indexed purchase cost should be Rs 350,000 or sale price should be Rs 340,000.
We are assuming that the gain is Rs 10,000. The long term capital loss of Rs 7000 will first be set off against long term capital gain of Rs 10,000. The balance of Rs 3,000 will be taxed as long term capital gains at 22 per cent. The short term capital gains will be taxed at the marginal rate of tax applicable to you. However, since you have brought forward a loss of Rs 33,000, you can set off this profit during the year with the carried forward loss of the earlier year and balance capital loss of Rs 27,000 (33,000-7,000) can be carried forward for another eight years. Hence, you are not liable to any capital gains tax.
However, for your information we are providing you with the details of sections 54EA & 54EB.
The basic condition to be satisfied for exemption under section 54EA & 54EB is that the capital asset sold should be a long-term capital asset. The exemption that you can avail under section 54 EA and 54 EB are as follows:
Section 54 EA - You would be required to invest the whole or any part of the net consideration (full value of consideration minus expenses on transfer) in specified bonds or debentures or shares of public company or units of a mutual fund as may be notified from time to time.
If the amount invested in the specified asset is equal to or more than the net consideration received, then the entire capital gains is exempt. If, however, amount invested in the specified asset is less than the net consideration, then the amount of exemption is equal to the following:
(Amount invested in specified assets * Capital gains)/Net sale consideration
Section 54 EB - You would be required to invest the whole or any part of capital gain in long term specified assets as may be notified from time to time.
If the amount invested in the specified asset is equal to or more than the capital gain, the whole of capital gains will be exempt from tax. If, however, amount invested in the specified asset is less than the capital gains, then the amount of exemption will be equal to the amount invested in the specified asset.
The minimum lock in period of the investments in 54 EA & 54 EB differ and are three and seven years respectively.

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Is PAN a must even if I am not paying income tax?

What are the possible ways of planning my tax payments using the Hindu Undivided Family status?

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