Q&A: Mutual Funds

Vaibhav Sankala, Director, H&R Block India

Contribution to Wife’s PPF

I and my wife — she is a housewife — have PPF ( public provident fund) accounts with SBI. If I contribute Rs 70,000 towards my account and Rs 30,000 towards her account (all the money paid by me), can I claim income tax deduction on the Rs 1 lakh under Section 80C? So far I have been claiming deduction on Rs 70,000 only.

D Ray

Yes, you can claim deduction under section 80C on contributions made by you to your wife’s PPF account.

Capital Gains Tax on Esops

My husband encashed his ESOPs in January and earned long-term capital gains. Our tax consultant has suggested that we invest the gains in a property or in bonds to save tax @20%. We purchased a flat two years ago. Hence, will we be able to claim exemption if we invest the gains in another home? Please suggest alternative ways to save the capital gains tax.

Madhuri

Long-term capital gains would arise if the shares obtained through the ESOP ( employee stock option plan) were held for more than a year.

If the shares were issued by an Indian company and the STT ( securities transaction tax) was paid at the time of sale of such shares, then long-term capital gains would be exempt from tax. If the shares so sold were issued by a foreign company, then the gains are taxed at 20.6%.

In such case, you can claim exemption under section 54F by reinvesting the sale proceeds in a residential house within two years from the date of sale or for construction of residential house within three years from the date of sale.

If you did not own more than one house at the time of sale of shares obtained under ESOP scheme, you would be eligible to claim exemption under section 54F. Another option would be to claim exemption under section 54EC by investing in REC/NHAI bonds within six months from the date of sale.

The amount of long-term capital gain would then be exempt to the extent of such investment. Note that investment in REC/NHAI bonds cannot exceed Rs 5,000,000 per financial year. Interest earned on such investments is taxable.