T. Banusekar

How is interest from NSC taxable at the time of maturity? – Ravi Prasad M.

Interest on NSC accrues every year and stands reinvested at the end of each year.

Therefore, usually, the interest is accounted every year as income from other sources and as the amount is reinvested, credit is taken for the reinvestment by way of deduction under Section 80C. In the last year of the scheme however, as there will be no reinvestment, the deduction under Section 80C will not be available and the interest for the year will be offered to tax.

If, however, one chooses to offer the entire interest income on cash basis in the last year, the entire interest will be taxable in that year.

I have a PPF account in my name and one in my wife’s name. We are salaried employees and have independent sources of income.

Can each of us invest Rs 70,000 in the PPF account and claim deduction under Section 80C in our respective returns on the investment of Rs 70,000 each made by us. – Jitendra Chouhan

The Central Government has amended the PPF Scheme through G.S.R. 908(E) dated December 6, 2000.

The application form under the scheme, being Form A issued through G.S.R. 908(E), makes it clear that no interest will be paid to a subscriber on the deposits made in excess of Rs 70,000 in a financial year.

In computing this limit the deposits made in the following names need to be aggregated: self account; and minor(s) of whom the individual is the guardian

There are individual limits of Rs 70,000 each for a Hindu Undivided Family and an association of persons.

It can be seen that there is no bar on making Rs 70,000 as investment in your name and a further Rs 70,000 by your wife in her name and each of you will be eligible to claim deduction under Section 80C against your respective incomes on the investment made in PPF.

I sold a residential house in February and there is a long-term capital gain of Rs 90 lakh arising from the sale. On March 21, under Section 54EC of the Income-Tax Act, I invested Rs 50 lakh in REC bonds.

Can I invest Rs 40 lakh in 2009-10 (within six months from the sale of my residential house) in the bonds of REC and claim the entire capital gain as exempt? – Arun Goel

Exemption under Section 54EC is available if the asset transferred is a long-term capital asset, and the investment is in bonds of the NHAI or REC and the bonds are redeemable after three years. To claim the exemption, the investment should be made before the expiry of six months from the date of transfer of the capital asset.

The section also imposes a restriction in respect of the investment made on or after April 1, 2007; the investment in a financial year cannot exceed Rs 50 lakh.

The language in the section restricts the investment beyond Rs 50 lakh in a financial year.

In your case you have invested Rs 50 lakh in 2008-09 and Rs 40 lakh in 2009-10 — both investments are within the stipulated time of six months from the date of transfer in Section 54EC.

There appears to be no restriction on your making such investment spread over two financial years and claiming exemption of the entire gain of Rs 90 lakh.

The company I work for has to pay a consultancy fee of Rs 12 lakh to an engineering college. Is tax required to be deducted at source by the company while making such payment to the college?

What will be the position if the college is exempt under Section 10 and what is the procedure to be followed in such cases? Will it make a difference if the college is a government college or private college? – Sujit Talukder

There is no specific provision clarifying if tax has to be deducted at source while making payment of consultancy charges to an educational institution exempt under Section 10.

It may be noticed that there is an old instruction — dated October 28, 1968 — of the Board in this context stating that Section 194A will not apply to an educational institution and no deduction of tax at source from interest is required to be made by the payers if the institution’s income is exempt from tax under Section 10(22).

With regard to a charitable trust whose income is exempt under Section 11, a statement in writing may be made by the institution under Section 194A, or the institution may apply for a certificate for deduction at a lower rate or for authorisation of non-deduction at source under Section 197.

It would be advisable that the engineering college make an application under Section 197 to the assessing officer for nil deduction of tax at source.

On receipt of such certificate, payment can be made by the company without deduction of tax at source.

It will make no difference whether the college is government or private. The issue to be considered is whether the college is exempt from tax or otherwise.

(This article was published in the Business Line print edition dated July 26, 2009)
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