Market Scan

by J.C. Anand

Stock market greets Budget

The Budget has its main focus on the infrastructure and power sectors as well as on sustaining growth in the industry and rural areas. The stock market greeted it by gaining 88 points on the Budget day and 195 points on March 1 in Sensex. The major gainers were the companies engaged in the infrastructure and power sectors.

The reduction in Customs duties on alloy steel and non-ferrous metals from 10 per cent to 7.5 per cent will benefit companies in the iron and steel industry. Tata Steel, Jindal Steel, JSW Steel and Sail fall in this category. The Budget has also removed excise duty on condensed milk, ice-cream, poultry and ready to eat packaged food etc. This would benefit Nestle as well as Hindustan Lever. HLL also gains from reduced excise duty on key inputs, soaps and detergents. Man-made fiber industry would be the beneficiary due to reduction in excise duty from 16 per cent to 8 per cent and in import duty from 15 per cent to 10 per cent. Leather and footwear companies within the retail price of Rs 250 to Rs 550 would extend their sales. In this category fall the companies like Liberty Shoes, Bata India, Lakhani India and Relaxo Footwear.

The major loser from his Budget would be the companies engaged in oil and gas. This would affect the ONGC, Hindustan Petroleum, Indian Oil, BPCL and HPCL but the general view is that some months later or in a supplementary Budget the government will provide for some kind of relief to this sector.

On the negative side, the Budget has disappointed the pharmaceutical companies in failing to provide any relief for R&D activities. However, the Budget proposes to give some concessions to vital drugs by reducing the Customs duty on anti-AIDS, anti-cancer drugs and certain life saving drugs, kits and equipment from 15 per cent to 5 per cent.

The Budget has not given much relief to the banks which suffer from mismatch between high outgo in the form of debts to industry, retailers etc and poor inflow of deposits from the public. The Budget has, however, provided for fixed deposits of not less than 5 years with a scheduled bank in the category of items which qualify for Section 80 C exemption. But the overall total limit for exemption has been pegged at Rs 1 lakh.

Industry and the stock market would continue to do well in the next two to three years unless agriculture suffers some setback and the international crude price does not jump very high abnormally.

Tax Advice

by S.C. Vasudeva

No cap on deduction with respect to education loan

Q. I am a retired PCMS officer. My son got admission in MDS in SRMC Chennai in April 2004. I paid his tuition fee for 1st year, but did not get income tax rebate.

For 2nd and 3rd year, my son took education loan from bank in May 2005 in his own name. Please let me know how much income tax rebate is permissible and to whom.

— Dr Inder Krishan Sharma, Talwara

A. In accordance with the amended provisions of the Act, the deduction is now allowable in respect of interest on loan taken for higher education. The deduction allowable to an individual assessee, who has paid any amount out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution on or approved charitable institution for the purpose of pursuing his higher education. The deduction is allowable for 8 assessment years. There is no cap with regard to the amount allowable as deduction.

Gift to relative

Q. Is it correct that after 1st September, 2004 any amount of money received by an individual from blood relations, lineal ascendants and lineal descendants due to natural love and affection shall not be treated as income for the purpose of income tax?

Kindly also clarify the following points:

i)Who falls under the category of blood relations, lineal ascendants and lineal descendants?

ii)Can one give gift money which will not be treated as taxable income to the grandson of his real paternal uncle?

— Inderjeet Singh, Punjab

A. You may refer to the answer given in respect of query of Sh. Harbhajan Singh, which appeared in this column on 27th February 2006. The gift to grandson by his real paternal uncle is not covered within the exempted category and, therefore, the said amount would become taxable as the income of the recipient.

Section 80C

Q. In the year 2005-2006, if I pay Rs 45,000 as tuition fee for my elder son and Rs 5,100 for my younger son, then how much tuition fee will be exempted from tax under Section 80C.

— Naib Singh Sandhu

A. In accordance with the provisions of Section 80C of the Income-Tax Act 1961 (the Act), any tuition fees (excluding any payment towards any development fee or donation or payment of similar nature), whether at the time of admission or thereafter:

(a)to any university, college or other educational institution situated within India;

(b)for the purpose of full time education of any of the persons specified in the Act.

The persons specified for this purpose are any two children of such individual. In view thereof, you would be entitled to a deduction of the total tuition fees of Rs 50,100 from your total income provided you to satisfy the above provisions.

Tuition fee

Q. I and my wife are both government servants. We are paying the tuition fee to the tune of Rs 80,000 annually for one child. Please clarify this point whether we can enjoy rebate on Rs 12,000 separately.

—Ashok Kumar, Amritsar

A. The provisions of Section 80C of the Act have been amplified in the aforesaid, in reply to therefore said query. Accordingly, you and your wife would be entitled to a deduction of Rs 80,000 from the total income. It may be added that there is no rebate allowable now from the income tax instead the amount paid deducted from the total income of the assessee.

Tax liability

Q. I have gross annual income of Rs 2.1 lakh. What is my tax liability?

1. Can I save Rs 1 lakh in any one of the schemes i.e. LIC, NSC, PPF, GPF etc. or is there an upper limit of saving in each scheme?

2. Is the interest on NSCs to be included in the salary or is it exempted from any tax?

3. Can I save beyond Rs 1 lakh in any mediclaim or pension policy of LIC?

—Rajwant Rai

A. The answers to your queries are as under:

1. The total tax on an income of Rs 2.1 lakh for assessment year 2006-07 would be Rs 17,340, including the education cess of 2 per cent. The tax is computed on the presumption that you are below the age of 65 years.

2. Yes, you can contribute up to Rs 1 lakh in the saving schemes such as buying of NSC, depositing in PPF account, contribution to General Provident Fund or buying of LIC policy. There is no sectoral cap in respect of various saving schemes except that as per PPF Rules, the maximum amount which can be deposited in the PPF account is limited to Rs 70,000. It may also be noted that in respect of LIC policies so much of the premium would be considered for the purposes of deduction under Section 80C of the Act which is not in excess of 20 per cent of the actual capital sum assured. For the above purposes, the actual capital sum assured no account would be taken of the value of any premiums agreed to be returned or any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.

3. The interest on NSCs is includable in the total income.

4. The contribution to pension policy of LIC is limited to Rs 10,000 for the assessment year 2006-07 and has to be within the overall sum of Rs 1 lakh provided for by Section 80C of the Act. The deduction allowable for Mediclaim Insurance Policy is covered under Section 80D of the Act and is limited to Rs 10,000. However, in case of senior citizen, the limit provided is Rs 15,000.

Loan from PF

Q. I am a government employee and want to purchase one plot for residential purposes with the help of provident fund loan (non-refundable).

(i) Is it necessary to construct house on the said plot within 18 months from the date of purchase?

(ii) Can I sell the said plot without getting any construction on this? And when?

—Dinesh Nagpal, Panipat,

A. There is no provision of the Income-Tax Act 1961, which requires the construction of a house within a particular time. The time limit for construction applies only in such cases where longterm capital gain is to be invested in the construction of a residential house so as to claim exemption under Section 54 or 54F of the Act. However, you may have to look into the provisions of the Provident Fund Regulations under which you have obtained the non-refundable loan. If the regulations so provide you may have to comply with such regulations.

Subject to any restriction in the Provident Fund Regulations you can sell the plot without any restriction under the Income Tax Act.

IT return

Q. I am serviceman. My income is:

Salary income = Rs 70,000

Interest income = Rs 30,000 for the financial year 2004-05.

I could not file my return. Kindly inform me my tax liability, if any.

Is Rs 1 lakh exempt from income tax or Rs. 50,000 to 60,000 slab. 10 per cent tax after standard deduction of Rs 30,000 or 40 per cent whichever is less and Rs 12,000 deductible under 80L Formula is applicable on that. Kindly clarify at the earliest so that I can file my return.

—Rajeev Chopra

A. In case your total income does not exceed the maximum amount of which tax is payable, you need not file the income tax return for the assessment year 2005-06, provided you do not fall within 1/6 scheme.