The Hindu Business Line : There's a tax block before you drive away the prize car

Very much. You have to pay a 30 per cent tax. In fact, you would not have been given possession of the car unless you had either shown proof of payment of tax or had handed over the requisite amount to the organisers. The onus is on the organiser to ensure that no prize is released unless tax thereon has been paid or deducted at source.

Bonds for the broken

IN BANKING parlance what are recapitalisation bonds issued by the RBI?

Preeti Sundarrajan, e-mail

Recapitalisation bonds are issued by one which has gone broke financially. Several banks in India have in the past wiped out their net worth, thanks to huge accumulated losses engendered to a great extent by wreck-less lending and absence of proper pursuit of outstandings owing to political and other extraneous reasons. The RBI has often bailed out such banks by subscribing to their long-term bonds which not only infuses funds into the moribund institutions but also provides sufficient capital cover so as not to fall foul of the Basle capital adequacy norms.

MF kya hai?

I AM a commerce graduate. Please explain what is a mutual fund.

Mukta Janardanan, Chennai

Mutual funds, manned as they are by experts, invest on behalf of the investors. In the US, mutual funds are the preferred vehicle for channelising one's investments into the secondary market. Individual investors seldom confront the rough and tumble of the equity market themselves. In India, on the other hand, despite the growing popularity of mutual funds, individual investors do enter the market themselves.

Besides bringing in expertise, mutual funds also enable investors to spread their risks by following the dictum "don't put all your eggs in one basket". A mutual fund, unless it is sector-specific, invests in a diverse portfolio across industries and sectors. But then there is an intermediation cost to be paid by the investor to the managers of the fund. An open-ended fund goes on and on. A close-ended mutual fund has a fixed duration after which it is wound up.

Between floors

I HAVE sold one of my two residential houses. Can I add a floor to the other house and claim exemption from tax on the capital gains made from the first house?

Charulatha Nambiar, Thiruvananthapuram

I presume that the house sold was a long-term house, that is, it was held by you for at least 36 before you sold it. The long-term capital gain on sale of a residential house is free from tax to the extent it is used for buying or constructing a house within the prescribed period. Courts have held that one need not go for a brand new house. Buying a second hand house will do. Similarly, addition of a floor to an existing house will also pass muster. But this you must do within three years of transfer of the first house. If you are unable to add a floor before the last date for filing of the income-tax return relevant to the year in which the house was sold, you must deposit the requisite amount in `Capital Gains Account Scheme', which facility is provided by most of the public sector banks pending utilisation for the purpose of construction.

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

S. Murlidharan

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