Is your provident fund withdrawal taxable?

In a chat with readers on February 27, Get Ahead tax expert Mahesh Padmanabhan answered these and many more queries related to tax treatment of capital gains tax and EMIs paid for home loans?

For those of you who missed the chat, here is the transcript.

ankita asked, If i'm not liable to pay tax this financial year, can i show the investments done till now in next financial year?

Mahesh Padmanabhan answers, No you can claim deduction for eligible investments only in the year such investment is made.

iicci asked, if the apartment is bought in the joint name of husband and wife, can the wife give rent to the husband for his share of the property?

Mahesh Padmanabhan answers, There cannot be a commercial consideration between a husband and wife and hence it is not advisable for someone to use this route of tax planning.

sd asked, Hi Sir , I have one child 6 yrs old, what is best for his future either a MF(sip) or a ELSS for 12-15 yrs duration. I want to invest 35 k per year. can i invest in one plan?

Mahesh Padmanabhan answers, Financial planning per se is done keeping in mind various milestones or goals that an individual is interested in providing for. Hence in your case theoretically you could look at financial planning for your retirement, your child's education / marriage, health expenditures, holiday plans, asset purchase etc. Each of these goals would have certain time horizon / range for which the planning is to be done.

Generally, equities perform well in the long run and yields good returns in the long term horizon and the same applies to equity oriented Mutual Funds. In your case as the investment is with a long term perspective, you could definitely look at diversified equity oriented mutual funds (including ELSS from the perspective of tax saving). You could invest in multiple funds instead of putting your entire fund into one MF.

qwet asked, Mahesh, my father had lost his left eye long back, and now since my parents are old, my parents are dependent on me, i spend lots of money on their health (and i feel it as my responsibility), can i claim any tax rebate apart from that 1 lakh limit for the expenses incurred on him? if so what is the procedure?

Mahesh Padmanabhan answers, Section 80DD allows deduction in respect of maintenance including medical treatment of a dependant being a person with disability. Blindness is one of the listed disability and in case you incur even a rupee of expenditure, if you satisfy the other conditions, you could be eligible for a further deduction of Rs. 50000. Higher deduction of Rs. 75000 would be available if the disability is severe (i.e. over 80%).

archana asked, HELLO MAHESH FOR LAST FINACIAL YRS I HAVE NOT INVESTED IN ANY INSURANCE OR MUTUAL FUND AND THAT YRS I HAVE VERY LARGE AMT OF TAX AT THIS TIME I HAVE INVESTED IN BAJAJ ALLIANCE MUTUL FUND UP TO RS 50000 AND IN POST UPTO RS RS 75000 IS THIS FUNDS IS GOOD TO SAVE THE TAX IF NOT WHICH WILL BE THE BEST SCHEMES TO SAVE UPTO CERTAIN PERCENT OF TAX?

Mahesh Padmanabhan answers, Section 80C offers deduction of upto Rs 100000 from the taxable income and defines the investment options available. If you have invested in the ULIP scheme of Bajaj and have invested in NSC of post office, then you have exhausted your eligible limit of deduction under section 80C. Other options are PPF, 5 year term deposits with scheduled banks, ELSS, MFs etc.

vsnurdy asked, hi mahesh good afternoon i'm going to start my career in july of this year.my monthly salary is around 33k. as a young investor where do you suggest me to invest money and what is good part of my money i have to put in saving every month for comfortable future as i'm planning to get married after 2 years?

Mahesh Padmanabhan answers, It is always wise to start off investing early on in your career. Here is a broad rule that you could follow in managing your finances:

1. Draw up a fund flow statement with all your monetary inflows and outflows. This would give you a reasonable hang on your financial position and the amount available for your investments.

2. Start investing regularly (preferably monthly basis) with the following priority sequence; life insurance coverage, health insurance coverage, mutual funds (including ELSS), debt instruments (such as PPF, NSC, term deposits etc), equities.

3. Keep track of your investments and be a long term player. For a short term requirement you could start a recurring deposit with any nationalised or private sector banks.

Mahesh asked, Even last time when you were on rediff I had asked this question. Please answer this. I am a salaried person. I also do trading in Futures on NSE. My turnover is more than Rs.2crore. The profit position is around Rs.5lakh. Do I need to get tax audit done in this case?

Mahesh Padmanabhan answers, Turnover for the purpose futures trading is not based on the gross trading but on the net figures. Hence only if the net figures are in excess of the stipulated limits, tax audit would be applicable else the same would be applicable.

skumar asked, Is the interest income from post office savings account taxable?

Mahesh Padmanabhan answers, Yes the interest from post office savings is taxable.

sanjib asked, SIR, GOOD AFTERNOON, ONE QUESTION THAT I HAV ONE LIFE POLICY THAT POLICY NOMINEE IS MY MOTHER. CAN MY FATHER GET INCOME TAX BENIFIT OF MY POLICY? PLEASE SUGGEST ME, I AM WAITING YOUR REPLY.

Mahesh Padmanabhan answers, In case your father is paying the premium on the policy taken on your life, then yes he can claim the deduction for the same.

vijay asked, hi mahesh, I WANT TO KNOW WHETHER UNIT LINKED POLICY IS BETTER THAN INVESTING IN TERM INSURANCE AND MUTUTAL FUND?

Mahesh Padmanabhan answers, Our advice to our viewers has always been to look at an investment class independantly and not to mix multiple needs from one investment. Look at securing your life risk cover with as much cheap insurance as possible (which is possible only with the likes of term insurance) and for the purpose of investment look at other options such as MFs, Equities, ULIP funds etc.

Logix asked, HELLO MAHESH, I AM PLANNING TO WITHDRAW MY PF ACCOUNT. SO FAR THE PF ACCOUNT WAS IN A DORMANT STATE AND NOW ITS MORE THAN 5 YEARS SINCE THE ACCOUNT WAS OPENED. IF I WITHDRAW NOW, WILL IT ATTRACT ANY TDS?

Mahesh Padmanabhan answers, PF withdrawal is not taxable only if a person has been in continuos service for 5 years. In your case if you have had PF balance from your previous employer then such balance should have been transferred from your previous employer to your current employer and the period of service of both employers would need to be aggregated to check if you have completed 5 years of continuous service.

virendra asked, Dear Mahesh Is retail investor in share market liable to pay tax on capital gain? if so please tell the limit of capital gain? virendra, delhi

Mahesh Padmanabhan answers, Capital gains tax is applicable on the gains from equity share sale. This is applicable to all investors and in case the transaction is done through any recognised stock exchange and STT is paid on the transaction then the gains is chargeable at a special rate. In case of short term capital gains (i.e. assets held for less than 12 months) the rate is 10% (base rate) and for long term capital gains, it is currently taxable at 0%.

J.C. Thukral asked, Whether deduction is admissible for repayment of housing loan, principal and interest, in respect of the second house purchased with the loan? First house was also purchased with loan and still repaying. What if the second house is let out and what if lying vacant?

Mahesh Padmanabhan answers, In case an individual has multiple house property then 1 house (at the option of the individual) could be treated as self occupied house property and the other house/s would be treated as deemed to be let out if it has not been actually let out. In case of deemed let out property, fair rent for such property would be taxable and you would be eligible for a standard deduction of 30% on the net value and the interest deduction. The deductions are also available to let out property. In case of self occupied property, you would be eligible to a deduction of the loan interest only upto a limit of Rs. 1.5 lakhs.

vaddanam asked, HI Mahesh I have a loan from a bank nearly two lakhs. This is personal loan and I am paying in emi. Can this be shown in it returns? IS there a chance of tax exemption for this?

Mahesh Padmanabhan answers, In case such personal loan has been used for the purpose of your business or profession, then the interest on such loans can be used as deduction from your income, else the same would have no bearing on your tax calculation.

rameshr asked, hi mahesh, is gratuity exempt from tax?

Mahesh Padmanabhan answers, Section 10(10) of the income tax act defines the exemption from tax of gratuity receipt. Subject to the conditions being met, the max amount that you could claim is upto Rs. 3.5 Lakhs. However, please note that such limit is for the lifetime of an individual i.e if you have already claimed Rs. 1.5 lakhs of gratuity exemption earlier, the balance i.e. Rs. 2 Lakhs is the max amount eligible.

Mahendra asked, Mahendra : My father-in-law is retired person, is it compulsory for him to file IT returns?

Mahesh Padmanabhan answers, An individual is supposed to file his/her IT returns if he/she has taxable income in excess of the threshold limits. In case your father in law is a senior citizen, then the current threshold limit is Rs. 1.95 lakhs.

rajakattur asked, Sir, Whether the PF deducted from the salary can be taken 100% for arriving taxable income?

Mahesh Padmanabhan answers, Employer's contribution to EPF is not considered as taxable salary subject to compliance of stipulated conditions. Employee contribution to EPF is considered as deduction under section 80C from the gross taxable income to determine the net taxable income.

nidhi asked, Are Mutual funds better options or IPOs?

Mahesh Padmanabhan answers, For a new entrant into the equities market, it is always advisable to invest through the MF route. Equity investments through IPO is good in case the company is good and you have a long term vision for the stock.

NarHS asked, Hi Mahesh, I am an NRI working in Kenya. For the past 11months iam working over here. 1. What documents I need to show in case if I want to file Tax returns? Thanks and regards, Naresh HS.

Mahesh Padmanabhan answers, Subject to the conditions being met, you would be currently slotted as Resident but not ordinarily resident (RNOR) in India. Accordingly all income generated in India is taxable here in India and such income generated outside India is not taxable in India. This is true till the currency of your status as RNOR. The documents that you would need is the PAN card copy & form 16 / form 16A ie. the certificate of tax deduction to file your returns.

Mahesh Padmanabhan says, Thank you friends for this interactive session, we would now be logging off and would return soon with insights on how the budget 2008 impacts you in the coming year. Thank you and have a good day. Mahesh