The Hindu Business Line : Walk me on the tax land

AM I eligible for tax rebate under Section 88 on payment made for land on which I intend to construct a house in a couple of years. If yes, when? In the current year, or as soon as the construction is over? -- S. John, e-mail

Section 88 contemplates rebate for both purchase and construction. It also countenances instalment or part payment. In the light of these two factors you are entitled to rebate in the current year itself, especially given the fact that purchase of land is preparatory to construction of a house.

Speculation

I AM a speculative trader and long-term investor in shares with my turnover in excess of Rs 1 crore. What is my tax liability? I do not withdraw the profit but keep on rotating the same in some share or the other. -- Dilip, Kochi

Your claim of being a long-term investor is not consistent with your initial assertion that you are a speculator. May be you are both. In that case while your income from speculation will be taxable as a business income, your capital gains from investments that have been nursed for more than a year would be taxable as long-term capital gain.

On LTCG the rate of tax is 10 per cent if you do not claim indexing of cost and 20 per cent if you so claim. You can also avail of tax shelters under Sections 54EC, 54ED, and so on, in respect of your LTCG. As for your business income, well you would pay tax at the applicable slab rates.

Gilt vs fund

WHAT is the difference between a gilt and liquid fund as well as between an open and close fund? -- George K. John, e-mail

A liquid fund invests in short-term avenues capable of being converted into cash without much hassle. A gilt fund, though safe, may not have enough takers in the market especially when the interest rates are climbing. Moreover gilt instruments are those offered by government implying relative safety of investment vis-à-vis liquid funds.

An open-ended fund goes on and on whereas a close-ended fund is disbanded on the specified date of its maturity. While in an open-ended scheme the scheme itself affords the entry and exit routes, the only exit route for one wanting to exit prematurely in a close-ended scheme is the market.

Cash depreciation?

FOR one following the cash system of accounting, is depreciation available given that there is no cash outgo which is the sine qua non of the system? -- Naresh Acharya, e-mail

Depreciation has got nothing to do with one's system of accounting. If your argument were to be accepted, then 100 per cent depreciation will have to be granted in the very first year. But that is not how the system of depreciation works. It has a time dimension.

VRS worries

I VOLUNTARILY retired on April 1, 2001. But my employer contends that the VRS and other retirement benefits relate to the previous year 2000-2001. Advise. -- Vibavasu Sharma, e-mail

The date speaks for itself. You retired on April 1, 2001, by accident or design that is immaterial. By pushing the denouement to the next previous year, you have naturally succeeded in getting the retirement benefits, to the extent they are taxable, taxed in the previous year 2001-2002.

Open and close

WHAT is the difference between a close-ended and open-ended mutual fund scheme? -- Pandurang Dikshit, New Delhi

An open-ended scheme has no maturity. In other words, it is conceived to go on and on. The infamous and now defunct US 64 scheme of the UTI belonged to this genre. A close-ended scheme, on the contrary, must be closed and the units redeemed on its maturity, the date of which must be specified in the offer document.

Exit route is provided to the investors in an open scheme by mandating the fund itself to offer entry and exit quotations based on the net asset value (NAV) of the scheme. In other words, an open scheme must provide for a revolving door mechanism so that investors can enter and exit at will at a fair price.

A close-ended scheme has an exit route only at the end of the tunnel which, of course, may be felt to be too long. To take care of the premature exit needs, units of close-ended schemes are mandated to be listed in a recognised stock exchange.

Mixed voices

REGARDING `minimum subscription', the applicable laws — Section 69 of the Companies Act and SEBI regulations — speak in divergent voices. Which one holds the field? -- Praveen Urs, e-mail

Section 69 requires a company to spell out in its prospectus the amount of minimum subscription which, in the opinion of the board of directors, must be raised for carrying out the purposes set out in clause 5 of Schedule II and prohibits it from making allotment unless the application money which should not be less than 5 per cent of the nominal value of the shares has been received in part receipt of the minimum subscription.

While this is the money that must be subscribed to by the promoters and their associates before going public, what SEBI seeks to do through its investor protection guidelines is altogether different but not inconsistent.

It says if the public issue is not underwritten, failure to muster at least 90 per cent subscription would result in the company having to refund the entire subscription forthwith.

Ditto if the underwriters fail to fork out the requisite money within 60 days of the closure of the issue. Far from contradicting the mandate of company law, what SEBI has done is to reinforce the protection for the investor by securing for him the additional assurance that he is not investing in a company which lacks overwhelming public support as manifest in 90 per cent subscription. SEBI's is, therefore, supplementary and not contradictory.

Inflation ignored

WHILE the regime for capital gains taxation has a built in mechanism to take care of inflation, no such luck for others. Isn't it unfair? -- TAP Krishnan, e-mail

I couldn't agree with you more. In fact many a committee and expert have suggested automatic indexing of amounts fixed in the Income-tax Act a la the cost inflation index for capital gains tax, including the tax-free limit (as in the UK). But the counsel seems to have fallen on deaf years.

The Government's sympathy for capital gain earners is inexplicable. Most of them are wealthy individuals who, in addition, inevitably avail themselves of the tax shelters. Ask the Kelkar committee.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

Article E-Mail :: Comment :: Syndication

Stories in this Section
There is safety in numbers

Directors, your attention please

Cows, goats and a cart-pusher with a CA goal

Walk me on the tax land

Guard your cyber-baggage from thugs and bugs

Remember what a `forgetting curve' is?