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Banks are offering higher interest to senior citizens on... (TAX QUERIES)

...80C deposits. Banks define senior citizens as those above 60 years. The tax department, however, sets the minimum age limit at 65.
Do FDs offering a higher rate of interest to a person who is, say, 63 years also qualify for Section 80C benefits? Or is the relief available only for investments made in FDs offering the normal rate of interest?

The higher rate of interest for senior citizens on bank deposits should not be confused with recently notified scheme for bank fixed deposit for the purposes of availing of deduction from gross total income amounting to Rs 1 lakh under Section 80C. The lock-in period of such deposits is five years. Deduction is available only in respect of deposits under the notified scheme, and not on any other deposit with a bank.

I am a senior citizen with a yearly income of Rs 3 lakh (Rs 1.35 lakh from a Senior Citizens' Savings Scheme, Rs 65,000 as interest from a bank deposit and Rs 1 lakh from a Post Office Monthly Income Scheme). How do I limit my tax liability?

Out of your taxable income of Rs 3 lakh, you may deposit a sum of Rs 1 lakh in any of the instruments specified under Section 80C. In your case, you may consider depositing in the recently notified five-year deposit scheme with a bank and bring down your taxable income to Rs 2 lakh. On the balance amount of Rs 15,000 over Rs 1.85 lakh (the basic exemption to which you are entitled as a senior citizen) you have to pay tax of 20 per cent plus 2 per cent surcharge thereon. You may consider parking some of your funds in a mutual fund scheme, the income from which will be totally exempt in your hands under Section 10, whereby you can become a zero-tax individual.

*Joint account

I hold a joint demat account with my husband in which he is the first account holder. I also hold another independent demat account. What are my tax liabilities on both these accounts?

Mere holding of a demat account, whether independent or jointly with your husband, does not invite any tax liability. It is only on the surplus, that you may generate from purchase and sale of shares, that you will have to pay tax. In your case, if it exceeds Rs 1.35 lakh in a year and if it is treated as business income.

Click on full story about more information....

By Dr arvind, Section Finance & Taxes
Posted on Mon Aug 21, 2006 at 07:10:30 AM EST

*Non-resident

I am an NRI. Although my taxable income does not exceed Rs 1 lakh, I have received a notice from the tax department to file my annual return, on the grounds that I invested Rs 2 lakh in mutual funds. Do I have to file my return?

A mere investment of Rs 2 lakh in a mutual fund does not attract income tax liability. A notice from the income tax department is triggered by information provided by mutual funds on persons investing more than Rs 1 lakh. You may choose to reply to the notice by indicating your factual position that you do not have taxable income in India to render you to file a return of income. It is possible that the tax department may insist on your filing a not taxable income return to close the proceedings initiated against you.

My niece is a foreign national and has a PIO (person of Indian origin) card. She wants to work in India so she can live with her parents, both of whom are Indian nationals. She wants to know whether she can use her father's PAN to file her returns once she begins working. Is this permissible?

A PAN issued to a taxpayer is neither transferable nor usable by any other person. Your niece should apply for her own PAN by filing an application in the prescribed Form 49A, with the commissioner of income tax having jurisdiction over the area in which she resides or where her employer's office is located.

*Professional income

I am a freelance computer consultant. I took a car loan of Rs 3 lakh and am paying a monthly instalment of Rs 6,000. Is the interest on the loan exempt from tax? Or can I claim only depreciation, and not interest, since I do not have a company and take all cheques in my name?

You are a consultant who should be assessed under the head `income from business or profession'. You can deduct all legitimate expenses like rent, salary and electricity charges incurred by you for carrying on your profession and earning income from it. That means both the interest on your car loan and the depreciation available on your vehicle would be deductible against your income and only the balance income will be chargeable to tax.

From: Express money, 21-08-06

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