Can a PPF account be extended after maturity?

My son has been an NRI for the past three years. He has a PPF account which matured on 1 April 2008. Can he extend it by five years?

—Rajan Nair

Your son can continue to hold his PPF account only till its maturity. After that it cannot be extended further. An NRI can invest in government securities (G-secs) and treasury bills (Tbills) on repatriation and non-repatriation basis. But he cannot invest in Public Provident Fund (PPF), RBI bonds, Senior Citizens’ Savings Scheme and Post Office Monthly Income Scheme. If he is already holding an NSS or PPF at the time of change in residential status, he can continue it. However, it cannot be extended after maturity.

I invested in a mutual fund that generated an annual return of 7.28% for a three-year period.A bank FD would have earned me more. Which option is more beneficial from income tax view?

—Manish Kumar

Fixed deposits (FDs) are a safer investment option compared to mutual funds. FDs give a fixed rate of return while returns from mutual funds are market linked. The gains from these two options are treated very differently for tax purposes. The interest earned on an FD is added to your income every year irrespective of the term of the FD.

Further, there is no distinction between short- or long-term capital gains tax in FDs. This reduces the overall returns, especially if the investor falls in the 30% tax bracket. Profits from mutual fund investments are treated as capital gains and taxed at a lower rate. Short-term gains are when you redeem the fund within 12 months of purchase. If the holding period exceeds a year, the gains are long-term capital gains. If it is an equity-oriented mutual fund— where at least 65% of the corpus is in equities—the short-term capital gain is taxed at 10% (plus 3% cess) while long-term gains are tax free. If it is a debt or a hybrid fund where the equity component is less than 65%, short-term gains are added to the income and long-term gains are taxed at 10% flat or 20% after indexation.

My grandmother sold her agricultural land in Delhi.After receiving the payment by cheque, she divided the amount equally among her sons. Does my grandmother or her sons have to pay any tax?

—Suresh Kumar

If the land sold by your grandmother was being used for agricultural purposes and was situated more than 8 km away from the municipal limits, then the capital gains on sale will be exempt from income tax. However, if either of the above conditions is not true, then your grandmother is liable to pay capital gains tax.

In case your grandmother owned the land for more than three years, the gain on sale will be termed as long-term capital gain. For arriving at this gain amount, the cost of the land will be indexed as per the rates prevailing for the year of sale and purchase (given in Income Tax Act). The net gain will be subject to a flat rate of 20%. On her gifting this amount among her children, there will be no taxation involved, neither in the hands of your grandmother nor in the hands of her sons.

I have National Savings Certificates (NSCs) which are maturing this year. I have been claiming tax deduction under Section 80C for the interest earned on the NSCs every year. Does the interest qualify for deduction this year also?

—Rajan Ahuja

No, the interest earned on NSCs does not qualify for deduction in the year of maturity. The interest earned on NSCs qualifies for tax deduction under Section 80C because it is deemed to be reinvested every year. However, in the sixth and final year, the interest does not get reinvested but is paid out to the investor. Therefore, the interest earned does not qualify for tax deduction under Section 80C.

Can I offset short- or long-term losses from the sale of shares of an unlisted company against gains from selling shares listed on a recognised stock exchange? Will the reverse also be possible?

—S Bhardwaj

Yes, loss from the sale of unlisted shares can be set off against profit made from selling listed shares and vice-versa. Short-term loss can be set off against both longand short-term gain but longterm loss can be set off only against long-term gain. Also, capital loss cannot be set off from income under any other head. So in case a capital loss is not fully set off in the same financial year it can be carried forward to be set off against future gains. The loss can be carried forward for a maximum of eight assessment years, immediately succeeding the assessment year for which the loss was first computed.

My friend’s father expired on 17 May 2007.After his death, my friend received interest of about Rs 40,000 from investments made by his father. Will this income be taxable along with my friend’s other income or is he required to file a separate return for these incomes for the year 2007-8? What will be the tax implications when he receives the principal amount invested by his father?

—Sarita A Sahu

For the period April to May 2007, that is till the date of death, the income belonged to your friend’s father. Your friend should file his father’s return as his executor. The amount of money received in will by a person is tax free. But the income generated from the bestowed money is taxable in the hands of the recipient. Therefore, the interest income earned from the investments after his father’s death will be added to your friend’s income and taxed in his hands. There is no need to file a separate return for this income. The amount will simply be added to your friend’s total income.

Is the interest earned on five-year tax saving fixed deposit taxable?

—Milind Joshi

The interest earned on five-year tax saving fixed deposit is taxable. Only the initial amount of investment is eligible for deduction under Section 80C. It is mandatory for an individual to keep this investment for the fixed tenure. In case the fixed deposit is withdrawn prematurely the amount of deduction claimed will be taxable in the year of withdrawal.

After my husband’s death I receive a family pension. Under which head will this family pension be taxed? I am a Central Government employee.

—S Jayalakshmi

Family pension received by a person’s family after his death is taxable under the head “Income from other sources”. Family pension is eligible for a standard deduction of one-third of such pension or Rs 15,000 whichever is lower. The balance would be taxable in your hands at the applicable rate. Your salary income shall continue to be taxed under the head “Salaries”.