Senior citizens have welcomed the new reverse mortgage scheme in the Union Budget, but they are most troubled by the tax burden.

The Senior Citizens' Savings Scheme 2004 offers 9 per cent rate of interest on deposits. But most banks offer 9 per cent or more interest rate these days.

So many senior citizens find it profitable to withdraw money from older schemes and put it in one offering a better rate of interest on deposits.

The Senior Citizens' Savings Scheme is not without its flaws. If you withdraw from it between one to two years, 1.5 per cent of the investment amount will be deducted. If you withdraw after two years, you have to pay 1 per cent of the total investments as penalty.

Thus, senior citizens are worried about paying penalty and want the finance minister to waive it.

Medical insurance companies don't provide mediclaim cover to senior citizens. So the Rs 20,000 tax exemption announced in the Budget on medical insurance has been rendered useless. How can this problem be resolved?

-- Sampuran Singh, 89, Noida

Unless companies start offering mediclaim policies to senior citizens, the tax deduction announced for them in the Budget has no meaning. In our opinion, senior citizens should be given tax deduction on producing medical bills to the tune of Rs 20,000.

The Budget did not increase the tax exemption limit for the salaried class. What are the tax exemptions one can avail of on donations?

-- Manish Bhagat, Ahemdabad

Under Section 80G of the Income Tax Act, if you give donations to select trusts which have the required certificate from the income tax department, you can claim tax exemption. But you can donate a maximum of 10% of your income and get tax exemption of up to 50% on the donation. You can claim tax exemption provided the company has the 80G certificate.

Are central government employees barred from buying and selling shares? What is better, opening a demat account in my name or opening one jointly with my wife?

-- Nand Kumar Bhagwat, Mumbai

While government employees are barred from doing any business, they are allowed to invest in shares. It is fine to open an account in your name or jointly with your wife, provided she has a PAN number.

But the income from shares will be clubbed with your own income even if the account is in your wife's name, as the funds are yours and not that of your wife.

I am five months short of 65 years. Can I avail of tax exemption benefits specified for senior citizens in the current year?

-- Praveen Bhai, Ankaleshwar, Gujarat

You cannot claim tax benefits meant for senior citizens in the current financial year 2006-07. You can avail of tax benefits on completing 65 years of age. If you complete 65 years in the current year, you will get a tax exemption up to Rs 1.85 lakh and up to Rs 1.95 lakh next year on.

Earlier, there was no limit on investments under 54EC. A limit of Rs 50 lakh has been introduced in this budget from retrospective effect. What about those who have already done their investments? Will they have to pay tax from retrospective effect?

-- RB Singh

In December 2006, the government issued a circular clarifying that one cannot invest more than Rs 50 lakh in these bonds. But one can invest the full amount of capital gains under 54 EC this year, as per the IT law. The circular is expected to become a law during the budget session of the Parliament.

Will companies pass on the tax burden of ESOPS to its employees?

-- XYZ

The company will have to pay Fringe Bebefit Tax (FBT) on the entire amount, i.e. 30% tax with surcharge and education cess.

Whether it is passed on to the employees or not is between the employer and the employee.

In our opinion, the company is likely to ask its employees exercising stock options to pay tax, since companies give them stock options free of cost.

My niece is an NRI and holds dual citizenship. What will be the tax liabilities on her if she sells shares she inherited from her grandfather and father? Can she convert them in dollars and take it abroad?

-- Manish, Ahemdabad

She will have to give long-term capital gains tax on the inherited shares that have been kept beyond one year. If she sells those shares now, she will not be charged any capital gains tax on it. For currency conversion, she should contact a bank.

And, as per FEMA directions, she should be allowed to take the money abroad.