Investor guidance

by A.N. Shanbhag

Q: I am US citizen. I am living in USA since June 1981. I inherited a farmland in India recently when my parent’s farmland was divided among four children (me and my three brothers who are farmers in India). Currently the land is in my parent’s names. Can I own this farm and transfer the title on my name? I know PIO cannot purchase farmland but this is not a purchase. If I cannot own this land, how can I dispose off this property? Can I sell it to other farmers in my village and remit the proceedings to the USA? If I am allowed to title this farm on my name, can I lease it to local farmers and remit the lease money? If legally allowed I would like to keep that property in my name at this time and lease it to local farmers.

— P. Kasundra

A: A PIO can receive inheritance of any immovable property. He can continue to hold title to it. A PIO may transfer immoveable property by way of sale or gift of agricultural Land/ plantation property /farmhouse in India to a resident who is a citizen of India.

PPF nominee

Q: Can a nominee withdraw from PPF account partially after the death of an account holder?

— Manju

A: The PPF rules do not permit this. After the death of the accountholder, the account can be either on or off. If it is not closed, it continues to attract interest but fresh contributions and partial withdrawals are just not permitted. It is quite dangerous for a nominee to allow the money to remain in the account for some time. The reason is - Nominee cannot nominate. In the event of demise of the nominee, his/her legatees will have to obtain a probate or succession certificate from a court of law. This process is time consuming, costly and riddled with many hassles.

Dividend option

Q: I would like to know how the dividend option & growth option are calculated in the same scheme. Also, if I shift from one option to another, will there be any tax incidence?

— Manas

A: The dividend option requires the dividend to be paid if certain criteria are fulfilled. After the payment, the NAV of the scheme naturally drops to the extent of the payment of the dividend. There is no dividend in the growth option. The NAVs of the schemes are separately computed. The dividend attracts the dividend distribution tax (DDT) for debt-based schemes and not for equity-based ones. The growth is immune for DDT. Therefore, it makes immense sense to apply for growth in the case of debt-based schemes. In the case of equity-based, though the two options are tax neutral, the hassle of receiving the dividend and reinvesting it in the same or similar schemes can be avoided with the option of growth.

A shift from one option to another, even in the same scheme does attract capital gains tax.

LTCG on house

Q: Could you please confirm long-term capital gains tax payable and amount to be invested to avoid it as per data below:

a) Residential property SFS flat in Mayur Vihar, New Delhi. Original allotment. Booked in 1986.

b) Payments made over a length of time. Interest paid on loan. No income tax rebate availed on interest.

c) Value Rs. 5,39,000.

d) Possession received in September, 1998.

e) Freehold conversion fee paid approx Rs 55,000.

f) For determining gain is 1986 to be taken or 1998 ?

g) No improvements done.

h) Sold in June 2005 for Rs 22 lakh.

— Soham

A: It was in 1998 you had acquired a right to possess the house on its completion. Had you sold this right before taking possession, you would have been entitled to claim benefit of long-term gains depending upon the index of 1986-87. You have extinguished this right by taking the possession. Therefore, it is the index of 1998-99 which has to be taken for computing the long-term capital gains (LTCG). Your cost of acquisition is Rs 5,39,000 plus Rs 55,000. The index for FY 98-99 is 351 and the index for FY05-06 is 497. The indexed cost works out to Rs. 8,41,077. The LTCG will be Rs. 13,58,923. The tax payable @20 per cent will be Rs. 2,71,785. You will have to invest Rs 13,58,923 in infrastructure related bonds of Nabard, NHAI, NHB, REC or Sidbi within 6 months from the date 
of sale.

Regarding interest paid on housing loan —

The deductions u/s 80C (formerly Sec. 88) for capital repayment and u/s 24 for the interest payable (note that the word used is ‘payable’; therefore the benefit can be claimed even if the interest is not paid) are allowed only when the income from house property becomes chargeable to tax. The same is the case for the capital repayment. In other words, the construction should be complete, the flat should be ready for occupation and the municipal annual value is known. You were not in a position to claim both the tax benefits when you paid the instalments.

Now, u/s 24 deduction of Rs. 30,000 is available on interest on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing. This deduction is available against “Income from house property”.

Enhanced limit of Rs 1,50,000 is applicable on loans taken on or after April 1, 1999, only for acquiring or constructing. This enhanced limit can be claimed only if the acquisition or construction is completed within 3 years from the end of the year in which the capital was borrowed. Obviously, you are not entitled to the enhanced limit of Rs. 1,50,000.

What about the basic Rs. 30,000? The interest for the years prior to the year in which the property was completed, shall be deducted in equal instalments for the year during which it was completed and each of the 4 immediately succeeding years. Unfortunately, there is no corresponding provision for the capital repayment.

You were entitled to claim this benefit from FY 98-99 to FY 02-03.

by K.R. Wadhwaney

Mist-induced delays, brawls fog country’s image

Mist-induced delays, brawls fog country’s imageIndia was an emerging power in aviation sector as India gained Independence in 1947. Then legendary flyer-administrator JRD Tata was in total command in air and on ground.

Tata’s exit from Air-India, then genuinely ‘Maharaja’ in concept and deeds, was totally political. He was asked to relinquish his office, which he did on February 1, 1978. In his touching and passionate farewell address, he said: “ I cannot hide the sorrow I feel at our parting. To part is to die a little (French poet’s words), and the part of me that died represented more than half of my life....”.

The Indian aviation sector plunged into darkness. Since then it has been steadily sliding backwards.

Why are India’s airports pygmies as compared to airports in these countries? It is because these countries attach due importance to aviation sector which, according to them, is an economy boosting unit. India, in contrast, accords it low priority for some unexplained reasons.

Who is to blame for this unprecedented dismal show and continued and systematic deline? Naturally government which has ‘closed vision’ instead of far-sighted and long-term planning. The fact of the matter is that India’s ‘building and construction policy’ has been for ‘yesterday’ instead of tomorrow.

Soon after commissioning the much delayed international concourse at the Indira Gandhi International Airport (IGIA) in 1986, it was announced that another ultra-modern module would be raised immediately to provide refreshing thrust and impetus to aviation. Almost two decades have passed by without any sign of another module coming up. The plans, half-cooked and haphazard, are still on drawing board as several involved ministries and political parties have been on different wave-lengths.

Worldwide, playgrounds are first created, developed and tried before they are thrown open for ‘commercial use’. Here the system is in a reverse gear.

While the infrastructure is in total disarray, there is an unprecedented growth of players. There is no room in terminal buildings; there is no parking space for aircraft. Why are they being granted licences when there is absolutely no room for them to operate.

It is great that the ministry has eventually woken up from its deep slumber to warn private airlines that they will be penalised if they scrape their flights in the absence of trained pilots to operate in foggy conditions. This is not the first warning. But warning is one thing; implementing is quite another.

While appreciating ministry’s ‘awakening’, it should consult the Airlines Operators Committee (AOC) to know what all goes on at Delhi airport during this foggy season when flights are bunched. There is virtual “jungle raj” at the IGIA.

Year in and year out, the fog totally disrupts flights. Passengers are inconvenienced and harassed; airlines sustain heavy losses for diversions and delays as airlines are obliged to provide hotel accommodation to stranded passengers.

There have been instances when heated arguments have taken place. There have been brawls as well. If airline officials go into hiding, the Airports Authority of India (AAI) officials go underground. In the process, country gets negative publicity worldwide.

A small part of fog-related disruptions may be beyond the control of human endeavour. But who prevents AAI from establishing stalls and canteens for passengers to serve them tea/coffee and snacks. Imagine the plight of passengers, particularly ladies with tinytots in their laps.

It is simply great that, on the insistence of the ministry, the AAI has decided to raise temporary shamianas to provide seating to stranded passengers. Why can’t AAI display courtesy to senior citizens in throwing open VVIP. Lounges and halls reserved for politicians? What is more important — country’s image or welfare of handful of politicians?