This form must be filled in order to continue PPF with subscriptions
Q : I had opened a PPF account in March 1979 and on completion of 15 years, I had applied for 5 years extension in March 1994, as I thought I would continue to use this beneficial scheme. I had also on 7.4.94 taken a partial withdrawal of 60 per cent of my credit balance (my first withdrawal). At the same time, I continued to contribute Rs 60,000 in each year thereafter, including the year 1994.
Recently I had been to the SBI to enquire about the possibility of a partial withdrawal. I was shocked to know that I will not be eligible to any partial withdrawal as I had withdrawn 60 per cent of the then balance in 1994.
This appears to be an injustice especially as I have contributed additional Rs 1.8 lakh after the partial withdrawal. Is there no remedy?
A : A similar question has been asked by Mr M. Gopalkrishnan, Chennai, hence a detailed answer.
At maturity, the subscriber has the option of continuing the PPF account with or without contributions, for a block period of 5 years. The subscriber may avail of this opportunity for a further period of 5 years on expiry of 20 years and yet another 5 years on expiry of 25 years and so on.
A subscriber who continues his account with fresh contributions, either after 15 years or at the end of each block period, can make one withdrawal per year subject to the condition that the total of the withdrawals during a block period shall not exceed 60 per cent of the balance to his credit at the commencement of the extended period.
In other words, the entire chunk of 60 per cent of the balance can be withdrawn altogether, during the same year or in more instalments, but only one per year.
If he wishes to continue the account without contributions, he will also be allowed the facility of making the withdrawal in instalments not exceeding one in a year till the entire balance (100 per cent) is withdrawn. The balance in the account will continue to earn interest at the prescribed rate.
Now, this is important. Form H is to be used to declare intentions of continuing the account with subscription whereas no special action is necessary to continue the account without subscription.
It is important to file form H. CBDT has clarified [MOF(DEA) No. 7/21/88-NS-II dt. 10.8.90] that the benefits of Sec. 88 will not be available on deposits made in PPF account after the expiry of 15 years without exercising option for continuance of the account. The contributions will however, attract the normal tax-free interest. So, please take abundant precaution to fill the form better late than never.
Incidentally, I find that at maturity, it is more advantageous to close the old account and start a new one rather than opt for post-maturity continuation.
Q : The terms and conditions printed under the heading Tax Benefits on the application form of UTIs Children Gift Growth Fund (CGGF) for NRIs states, In the case of Indian nationals and persons of Indian origin resident abroad, if units are bought directly through remittance in foreign exchange or through payment from a non-resident (external) account kept in India, income from such units is totally exempt from income tax. UTI shall not deduct income tax at source irrespective of the amount of dividend.
I also request you to refer to the recently introduced pension scheme, Retirement Benefit Plan of UTI for NRIs. UTI also states that the income from the investment would be tax-free.
A : Perhaps there is a drafting error in the two brochures.
Once a gift is given through CGGF, it becomes property of the child and the income earned thereon is required to be clubbed with the income of the parent earning higher income than the other parent. Only in those cases where the child as well as his parents are NRIs, as defined by ITA and not FERA, this income will escape the tax net.
As regards the pension, it is chargeable to Indian tax once the NRI returns to India even if the original investment was made through remittance in foreign exchange/by cheque/draft issued from the proceeds of FCNR deposits or through payment from NRE account kept in India.
It will not be charged to tax only if the NRI remains an NRI even after the vesting date.
I had requested UTI to look into these aspects. Thanks are certainly due to UTI for the following clarification that was forwarded to me :
In this connection we agree with your views that the tax benefits under Childrens Gift Growth Fund 86 will be admissible, provided both the donor and donee retain their NRI status. Also under Retirement Benefit Plan, the pension amount would not be charged to tax only if the investor continues to be an NRI. We will be amending both the NRI brochures cum application forms shortly.
sd/- Mr A. G. Joshi, General Manager, Business Development & Marketing, Unit Trust of India, Mumbai.
Q : In one of the your articles you have stated that if 10 per cent relief bonds are bought at a discount price from market the difference between redemption price and cost will be treated as interest applying the analogy of deep discount bonds. I, however, feel that such a transaction will attract concession of capital gains.
If my contention is correct kindly issue a suitable clarification.
A : I am afraid, it is CBDT and not I who will have to issue a clarification on the clarification they have already issued. It states, It is clarified that the difference between the issue price and the redemption price of Deep Discount Bonds will be treated as interest income assessable under the Income Tax Act. On transfer of Bonds before maturity, the difference between the sale consideration and issue price will be treated as Capital Gains/Loss if the assessee purchased them by way of investment.
