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"Can I maintain two PPF accounts?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask.

I am a software profesional presently at Mumbai and shortly to be transfered to Bangalore. My PPF account is with a national bank which does not seem to have a branch in Bangalore, at least where I plan to reside. Am I allowed to open another PPF account in Banglore with some other bank? Is opening two PPF account illegal?

— Ashok

Maintenance of two PPF accounts by the same person as illegal. Banks generally take an undertaking from the person opening an account that he/she does not have any other PPF account with any other branch or banks. Moreover, tax authorities would not allow you to take the investment made in two accounts for the purpose of availing rebate u/s 88. In your case, you may get your account transferred to any other nationalised bank branch at Bangalore, that provides the facility of opening and maintenance of PPF account.

Could you please let me know what is the maximum limit permitted for non taxable allowances for a salaried person. I shall also be greatful if you can show a sample calculation of income tax for a salaried individual. Please calculate on a basis of Rs 360,000 per anum.

— Tapesh Ghosh

Amount of non-taxable income is dependant on your salary structure agreed with your employer. We have endeavoured to provide you with an optimal structure which in our opinion would considerably enhance your take home pay with minimal tax liability. One has to appreciate that this is merely an example and may change for each employee. Also we have not considered the implications the structure may have on your PF and Gratuity or other retirement benefits. Moreover, women would be eligible to an additional rebate u/s 88C, which has not been considered here.

COMPENSATION
Basic: Rs 129,120
DA: Rs 100,000
HRA: Rs 60,000

NON-TAXABLE ALLOWANCES (subject to submission of proof)
Medical allowance: Rs 15,000
Food allowance: Rs 10,080
Conveyance allowance: Rs 9,600
LTA: Rs 20,000
Education allowance: Rs 1,200

Non-taxable reimbursements:
Books and periodicals: Rs 5,000

Uniform: Rs 10,000

TOTAL TAX WITH LTA
Basic: Rs 129,120
DA: Rs 100,000
HRA (taxable): Rs 22,912
Total salary: Rs 252,032

Standard deduction: Rs 20,000
Professional tax (assumed figure): Rs 2,400
Net salary: Rs 229,632

80CCC (max Rs 10,000): Rs 10,000
80D (max Rs 15,000): Rs 6,000
Taxable salary: Rs 213,632

Tax: Rs 38,090

Rebate u/s 88 (investment required Rs 60,000 + Rs 20,000): Rs 16,000
Net tax: Rs 22,090
Surcharge: Rs 2,209

Total tax: Rs 24,299

TOTAL TAX WITHOUT LTA
Basic: Rs 129,120
DA: Rs 100,000
HRA (taxable): Rs 22,912
LTA (taxable if considered once in two years): Rs 20,000
Total salary: Rs 272,032

Standard deduction: Rs 20,000
Professional tax (assumed figure): Rs 2,400
Net salary: Rs 249,632

80CCC (max Rs 10,000): Rs 10,000
80D (max Rs 15,000): Rs 6,000
Taxable salary: Rs 233,632
Tax: Rs 44,090

Rebate u/s 88 (investment required Rs 60,000 + Rs 20,000): Rs 16,000
Net tax: Rs 28,090
Surcharge: Rs 2,809
Total tax: Rs 30,899

INVESTMENT REQUIRED UNDER SECTION
80CCC: Rs 10,000
88: Rs 80,000

EXPENDITURE REQUIRED
80D (assumed figure): Rs 6,000

NON-TAXABLE INCOME: Rs 107,968

My mother is a retired central government employee and gets both pension and family pension (on behalf of her husband). Can she claim standard deduction u/s 16 (i) for her pension income as well as deduction u/s 57(iia) for family pension which is considered as other Income?

— Abhijeet Kumar Ghosh

The Income Tax Act, 1961, contains separate provisions for allowing standard deduction under two different sections 16(i) and 57(iia). Both these sections specifies limits upto which such deductions can be availed. These upper limits have been specified even for salary/pension income from more than one source. Hence, for example, if Mr. A earns salary from XYZ Ltd and POL Ltd the Standard Deduction will be restricted to the overall ceiling specified in section 16 (i).

However, in your case the income received is chargeable to tax under two separate sections i.e Section 15 and section 56, i.e. received from your mother's employer and also from her husbands employer. There is no explicit overall restriction on the amount of standard deduction that can be claimed from such two sources of income.

From the above, based on the information provided by you, it would not be wrong to infer that your mother would get the benefit of standard deduction u/s 16(i) of the I.T. Act, 1961 for her pension income and also the standard deduction u/s 57(iia) of the I.T. Act, 1961 for the family pension received by her on behalf of her husband.

I have withdrawn some money from mutual funds and invested it in PPF. Where the tax-rebate is concerned, the capital gains due to withdrawal creates a problem. Later in the same year, if a capital loss occurs, or if I invest the gains in capital gain bonds, will I be able to claim the full rebate of my PPF investment now?

— M P Ramanathan

Since you withdrew the amount from Mutual Fund it will attract Capital Gains Tax. The nature of tax will depend on your holding period. You can certainly set-off the capital loss against this capital gains. If you invest the gains in capital gain bonds you will be allowed tax deduction under section 54 EA/EB (now section 54 EC).

Rebate under section 88 for investments in PPF. This rebate is not available in case of Tax on Long Term Capital Gains. Hence, such rebate cannot be used to reduce the tax liability if your source of income is only Long Term Capital Gains.

We have tried to illustrate the above by following example.

Salary income: Rs 150,000
Short-term capital gains: Rs 20,000
Long-term capital gains: Rs 25,500
Gross total income: Rs 195,000

Mediclaim premia: Rs 1,500
PPF contribution: Rs 40,000
Deduction u/s 80D: Rs 1,500

Net income: Rs 193,500

Net income (less long-term capital gains): Rs 168,500

Tax on the above: Rs 24,550
Less: rebate u/s 88: 8,000
Balance tax (A): Rs 16,550
Tax on LTCG @ 20% (B): Rs 5,000
Total Tax (A + B): Rs 21,550
Add: surcharge @10%: Rs 2,155

Total tax: Rs 23,705

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