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

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.

From this year gallantry award winners have been exempted from paying income tax. Under which Section of the act does this exemption fall? Is income from investments also exempted?

-- C S Sandhu

From the financial year 1999-2000 a new section 10(18) has been inserted to provide exemption from Income Tax for any income by way of:

1. Pension received by an individual who has been in the service of the central or state government and has been awarded a Paramvir Chakra/ Mahavir Chakra/Vir Chakra or other gallantry awards as the central government may, by notification in the Official Gazette, specify in this behalf;

2. Family pension received by any member of the family of an individual referred to above.

Explanation to the above section the expression 'family' in relation to an individual, means

a. the spouse and children of the individual; and

b. the parents, brother and sister of the individual or any of them wholly or mainly dependent on the individual.

From the above it can be inferred that income from investments will not be exempt from tax only by virtue of a person being a gallantry award winner.

I am an engineer in a private limited company earning Rs 9,000 per month after deduction of professional tax. I am making short term investments in mutual funds/shares etc every month (Rs 3,000 approximately). Please advise me on the possible ways of planning my tax payments?

-- THR

Investments in mutual funds/shares are eligible for rebate under section 88 of the income tax act, 1961 and can be reduced from the tax liability, provided the following are taken into consideration:

1. Contribution up to Rs 10,000 are made to notified Equity Linked Saving Scheme of a Mutual Fund.

2. Contribution to any notified pension fund set up by a notified mutual fund.

3. The amount invested in debentures/equity shares in a public company (approved by the Central Board of Direct Taxes) engaged in infrastructure including the power sector. It also includes subscription to equity shares and debentures of a public company for the purpose of providing telecommunication services -- whether basic or cellular -- and further eligible issue of capital by a public financial institution.

All the above investments, in order to qualify for the rebate, cannot be sold/pledged/transferred for three years. Further, all investments in/payments made towards the items mentioned in section 88 of the Act also qualify for the rebate.

On all such investments, rebate @ 20% of the amount invested shall be available. This is, however, limited to a maximum investment of Rs 60,000 with an additional investment of Rs 10,000 being available in case of investment in infrastructure undertakings/projects etc.

I am employed with an MNC subsidiary in India. On joining the company I got stock options from the company. Stocks vested after one year. I immediately sold them and got the proceeds (in USD) transferred to my savings account (in rupees) in India. The gain I made was (share price one year from joining -- share price at the time of joining) number of shares. What are my tax liabilities?

-- Abhigyan Modi

The tax liability shall be as under:

When the stock option is exercised, the difference between the market value of the shares and the price paid for such shares is taxable as perquisites in the year in which such options are exercised. If no price has been paid for the shares, the market value of shares will be treated as perquisites.

When the above shares are sold, the difference between the sale proceeds and the fair market value of the share on the date of exercising the option is chargeable to tax as capital gain.

The liability to Income Tax would depend on the nature of capital gain which can be either of a short term nature or long term nature. We would be able to comment on such a nature only if we have full knowledge of the ESOP scheme followed by your company.

I have a doubt regarding gift tax. As per the new law the gift tax is totally abolished. But yet they club the income received from the amount gifted. My query is:

1. The income which arises from the gifted amount. Is it clubbed only for the respective financial year in which the amount is gifted or for a lifetime?

2. If it is clubbed for a lifetime, how does one keep track of what amount of the gift received is used for what purpose and how much income the gifted amount has generated?

3. What if a gift is invested in the Public Provident Fund, how does:

a. One account for the tax free 12% income generated and b. Who gets the tax benefit of 20% for putting the money in PPF (the person who gives the gift or the person who receives it?

-- Mohan Bajaj

1. Gift given is not chargeable to any tax as the Gift Tax Act has been abolished with effect from October 1, 1998. There is no Income Tax chargeable on the recipient of the gift.

2. The income arising from the gifted amount will be treated as income in the hands of the person receiving the gift.

3. This query does not relate to taxation.

4. Income from interest in PPF is fully exempt from tax and as such there is no tax levied on it. Further, once a gift has been made, the interest on PPF will be income in the hands of the donee.

5. Benefit under section 88 cannot be claimed, as the investment would not be out of income, which is chargeable to tax.

I am buying a flat through a government society valued at Rs 11.3 lakhs in Gurgaon. Both my sons will contribute towards the instalments and interest on the borrowed money on the housing loan. All of us are PAN holders. The house is in my name and will be ready in about two years. Both my sons are co-owners. Can all the three avail proportionate tax benefit on repayment of borrowed capital within the limit of Rs 70,000 per annum? I am also having a flat in Delhi for self use.

-- V C Mathur

Section 26 of the Income Tax Act, 1961 stipulates that where property is owned by two or more persons and their respective shares are definite and ascertainable, the share of each such person in the income of such property shall be included in their respective income. From a reading of section 22 of the Act, it can be interpreted that legal ownership is a necessary condition for falling under the provisions of that section.

In your case, the flat is registered in your name and from the above it can be seen that just because your sons are contributing towards the instalment and interest they cannot avail proportionate benefit under the Act.

You can avail tax rebate @ 20% of the amount you have paid towards principal repayment, but the amount contributed shall be limited to Rs 10,000. Hence the benefit under section 88 shall be limited to Rs 2,000. Further, where the property is acquired or constructed with capital borrowed on or after April 1, 1999 and such acquisition or construction is completed before April 1, 2001, the deduction on account of interest will be Rs 75,000.

I am a salaried employee. Could you please let me know whether form 2C is necessary? Is PAN a must even if I am not paying income tax? If I avoid income tax by investing in LIC etc should I file my tax returns? If so when should I do it?

-- Ravi

• As per the provision to section 139(1) every individual who satisfies any one or more of the six conditions is required to furnish his return in Form no 2C. The six conditions are as follows:

1. in occupation of an immovable property exceeding any specified floor area;
2. is a owner or lessee of a motor vehicle other than a two wheeler;
3. subscribe for a telephone;
4. has incurred any expenditure on foreign travel;
5. holder of a credit card not being an add-on-card;
6. is a member a club where entrance fees +charged is Rs 25000 or more;

• As per section 139A(1)(i) individuals whose income exceeds the maximum amount not chargeable to tax (presently Rs 50,000) is required have a Permanent Account Number.

• As per section 139(1) every individual whose income exceeds the maximum amount not chargeable to tax is required to furnish his return in prescribed form before the due-date which is June 30th of the respective assessment year.

• Further, any person who satisfies any of the above six conditions is also required to furnish his return before February 28, 2000.

A person would be required to file his returns irrespective of his tax liability under any of the above conditions.

I am the Karta of my HUF and I had given some land (belonging to HUF) as collateral security to a bank. Now there is some dispute in the company (partnership) for which the land was mortgaged. Can the court attach the HUF property?

-- Bhaskar Singhal

The above question does not pertain to taxation.

EARLIER Q&AS:

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

How can I avoid TDS?

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