Bull run due to FIIs, mutual funds
The stock market broke its all-time high records thrice last week. On September 27, Sensex closed at 8525.52 points. On September 28, Sensex again created a new all-time high record by closing at 8613.83.

Tax Advice

Non-resident Indians can remit up to $1,00,000 annually
Q. I am an NRI settled in the UK. I have a cousin who is also a NRI settled in the UK. My father bought a plot from PUDA in 2001 for Rs 25 lakh from the money sent by us (me and my cousin) in his name.

• Tuition fee

• Change in PAN

• Tax liability

• Capital gains tax

• Take loan to save tax

Market Scan

by J.C. Anand

Bull run due to FIIs, mutual funds

The stock market broke its all-time high records thrice last week. On September 27, Sensex closed at 8525.52 points. On September 28, Sensex again created a new all-time high record by closing at 8613.83. On September 29, Sensex once again created a new all-time high record when it closed at 8650.17. A strong bull phase is sweeping the stock market. Only on Friday (September 30) when the market closed, Sensex went down by 15.69 points though it had opened at 8672.66 points on that day.

The bull rally has been triggered by a number of factors. There have been heavy purchases by FIIs and domestic funds. According to one analysis, FIIs have pumped in $ 1.06 b in September and their total investment in the year so far is $ 8.59 b. The mutual funds, which have also raised large funds from the investing public, have invested in the frontline stocks.

Secondly, the economy is doing well. Fundamentals of the corporate sector are sound. The Finance Minister has indicated that there has been no scam, and Sebi was quite alert in keeping the stock market in a healthy condition. The Finance Minister also stated that the present boom reflects a good performance of the corporate sector.

This has been confirmed by the latest Central Statistical Organisation data for the April-June quarter of the current fiscal year. According to this data, the economy grew by 8.1 per cent against 7.6 per cent in April-June 2004.

Another important factor buoying up the market has been the expectations that the second quarterly results would be as good as the first quarterly ones. This has been stated by the Finance Minister himself. However, the stock market is likely to stay flat during the current week awaiting the announcement of corporate results after October 10. Market correction is due no doubt but it may be halted by good corporate results in the second quarter. According to some reports, the advance taxes deposited by the corporate sector are quite high. The UBS analysis has picked up the following five companies as good investments: Infosys, Bharti, Cipla, Hindalco and ITC.

Reliance Industries and Lasen and Toubro have made ample gains in the market prices last week. Reliance Industries is now convening the shareholders meeting as required by the court to approve the demerger proposal. The process may take some time to get the court’s sanction but the shareholders will make good gains by the division of assets between the Ambani brothers as rooted n the demerger proposal.

Tax Advice

by S.C. Vasudeva

Non-resident Indians can remit up to $1,00,000 annually

Q. I am an NRI settled in the UK. I have a cousin who is also a NRI settled in the UK. My father bought a plot from PUDA in 2001 for Rs 25 lakh from the money sent by us (me and my cousin) in his name. Now we are planning to sell the plot at current market price of around Rs 37 lakh and transfer the money to the UK. The plot is in my father’s name and he is retired bank officer who is receiving his pension. Can you please inform us about the tax implications involved in selling the plot and transferring the money to the UK.

— G. Singh

A. The long-term capital gain tax arising on the sale of plot is taxable at the rate of 20 per cent plus education cess of 2 per cent of income tax. A further surcharge of 10 per cent on income-tax is chargeable if the total taxable income exceeds Rs.1,00,000/-. The capital gain would be computed by the indexing cost of Rs 25 lakh on the basis of the following formula.

Cost of Acquisition X Cost Inflation Index of year of sale Cost Inflation Index of the year of acquisition. The amount so computed will be deducted from the sale proceeds of the plot. The balance amount would be taxable. The cost of inflation index for the year 2001-02 is 426 and the present cost of inflation index is 497.

You can transfer the amount of the sale proceeds to UK in accordance with Regulation (3) of Foreign Exchange Management (Remittance of Assets) Regulation, 2000, wherein an amount not exceeding $ 1,00,000 per calendar year out of balances held in NRO is allowed to be repatriated.

Tuition fee

Q. Please clarify whether tuition fee amounting to Rs 98,000 paid for education of two children is exempted from income tax for the F.Y 2005-06

— S.N. Bihani

A. According to the provisions of Section 80C of the Act, deduction is allowable out of the total income of an individual or a HUF in respect of tuition fee which is payable whether at the time of admission or thereafter to any university, college, school or other educational institution situated within India and for the purpose of the full-time education of the person himself, his wife/husband and any child of such individual. In the case of HUF the deduction is allowable if the payment is made for any member thereof. The tuition fee which can be allowed as deduction should not be in the nature of any development fee or donation or payment of similar nature. The maximum amount permissible under Section 80C of the Act is Rs 1,00,000. In case the above conditions are satisfied you would be entitled to a deduction of Rs 98,000 from your total income paid as tuition fee for the education of the two children.

Change in PAN

Q. If a female changes surname after marriage, is it necessary to get a new PAN No. of new surname or we can file name with old PAN with old surname.

— Dr Sanjeev Gupta

A. A new PAN may be obtained after the marriage of a female as the name and address would change in her case. In case you wish to retain the same PAN No. you should file an application for correction of PAN data with UTI or NSDL as the case may be.

Tax liability

Q. I am working in a private organisation wherein in year 2004-05 my total income detail is herewith

Taxable total income - Rs 1,20,510

Tax rebate - Rs 3,537 (from PPF,LIC, NSC Rein. Int.)

Tax payable - Rs 9,757

My query is where I should I invest so that in year 2005-2006 I should have no tax liability.

— Sunil Aeri

A. The maximum amount not chargeable to tax in case of an individual as per provision of Finance Act 2005 is Rs 1,00,000. Accordingly, if you deposit Rs 20,510 in the PPF account no tax would be payable by you.

Capital gains tax

Q. I purchased a plot for Rs 40,000 on 02.06.1983, constructed a room then present value Rs 42,000 plus registration expenses Rs 5,800.

I sold the plot for Rs 5 lakh in April 2005. Now I’am purchasing a home for Rs 3 lakh plus Rs 25,000.

Can I purchase in the name of myself and my only son.

Can I purchase in the name of my son, make payment from sale proceeds and will get benefit in capital gain tax.

— H.R. Aggarwal

A. (a) It is not possible to compute your tax liability with regard to the capital gain tax as you have not indicated the cost of the room constructed by you. The present value of Rs 42,000 is not relevant because the indexation has to be done with reference to the cost of construction.

The exemption in respect of taxability from capital gains can be availed by the person who has earned the capital gain and therefore the new house will have to be purchased by you in your name only.

Take loan to save tax

Q. My basic salary is Rs 3 lakh, HRA Rs 1.2 lakh & personal allowance is Rs 90,000 in a year. I am paying a rent of Rs 1.08 lakh a year. My tax liability comes to Rs 48,000 p.a. after saving Rs 1 lakh. Now please guide me if I have to save this tax, what are the option available to me-

a) Is it better to opt for home loan and move out there, if so, how much loan should I take and for what duration, joint or single, so tax is saved.

b) My wife is housewife, can I lend her some loan so this income does not included in my gross salary, if so, how much loan can I give to her and what is the procedure.

c) Can I give some money as gift to my parents every month to save tax, if so, how much ?

d) What is the best way of investment planning in above circumstances, so that I save more tax.

— Vidyut Kumar

A. The answer to your queries is as under:

a) It is advisable for you to buy or construct a house for your occupation. Section 24 of the Income-tax Act 1961 (The Act) provides for the deduction of a sum of Rs 1,50,000 if the house is acquired or constructed with borrowed capital on or after 1st day of April 1999 and such acquisition or construction is completed within three years from the end of the financial year in which the capital is borrowed. You can, therefore, make your budget in accordance with the aforesaid provisions. I may add that the amount of interest paid would be allowed as a deduction from your other income since income from property would be in negative as the annual value of self-occupied property is considered to be ‘Nil’ for the purposes of the Act.

b) The provisions of Section 64 of the Act provide that any income arising from the asset transferred directly or indirectly to a spouse shall be included in the income of the transferor. Accordingly, no tax benefit would arise to you in case money is gifted by you to your wife. However, if you give a loan to your wife the loan must be with interest and should be repaid back within a reasonable time.

c) You can gift any amount to your parents. However, no deduction from taxable income is allowed for such a gift.

d) The Finance Act 2005 has amended the provisions of the Act and presently therefore the saving instruments specified in Section 80C of the Act can only be considered for a tax benefit.