TAXTALK - 2010

TAX TALK- 27.12.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“RENT PAYMENT FOR HOUSE PROPERTY IS ELIGIBLE FOR DEDUCTION U/S 80GG….”
Query 1]
Sir, I am a salaried person. My queries are:
1. I want to gift some amount to my daughter, what is the procedure, in which section it will be exempted from Income Tax?
2. How to show Profit and Loss from share market?
3. Which form I should fill up? [avinash.mool@gmail.com]
Opinion:
1. You can gif the amount to your Daughter by executing the Gift Deed. As far as provision under the Income Tax Act-1961 is concern,(i) Gift to your Daughter is not taxable u/s 56(2)(vii)(ii) You can make the gift by simply executing the gift deed on plain paper
2. The profit/ Loss from share market could either be treated under the head “Income from Business/Profession” or under the head “Income from Capital gain”. The head of income under which share profit falls depends upon the volume of transactions, intention behind the investment, use of borrowed funds or own funds, period of holding etc. In your case, being a salaried Assessee, normally & in most of the cases, the volume/ number of transactions are comparatively less and the period of holding is longer. In such circumstances, a] Profit / Loss will be taxable under the head “Income from Capital Gain”. b] Profit arising out of sale of shares after a holding period of more than 12 months would be treated as long term capital gain and the same shall be tax free u/s 10(38) when the sale transactions is subjected to STT (Securities Transactions Tax).c] Profit arising on sale of shares with a holding period of not more than 12 months would be treated as Short Term Capital Gain. It will be taxable @ 15% u/s 111A of the Income Tax Act -1961. If there is loss, it cannot be set off against the salary income. An assessee can carry forward such loss for set off against the capital gain of subsequent years.
3. If the Profit / Loss from shares market is taxable under the head “Income from Capital gain”, you can fill the return by using ITR-2.

Query 2]
I am a private salaried employee & also doing part time consultancy profession.
I am living in rented premises in Nagpur. I am not in receipt of any HRA from my employer. I am living in a rented premises paying rent of Rs.36,000/- p.a. I am also using separate rented premises for office purpose & paying rent of Rs. 27,000/- against office premises. While computing consultancy income, I am claiming the deduction of Rs. 27,000/- Please guide whether I can claim the rent paid for my residential accommodation as deduction from my salary income or from my consultancy income? I have not claimed the deduction against the residential house rent in the earlier years. Whether claiming the deduction in the current year could be problematic? [OL]
Opinion:
1. You can claim deduction towards the rent paid for your residential accommodation from your salary & consultancy income.
2. An individual who is not in receipt of HRA from the employer is entitled to the benefit of deduction of rent paid for residential accommodation from its income u/s. 80GG of the Income Tax Act. The condition precedent to claiming deduction under this section is:-a] He has to file the declaration in Form No.10BA. b] He or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) ( i.e.income from self-occupied house property).Amount of deduction – The deduction admissible shall be the lower of the following: - (i) house rent incurred in excess of 10% of “Total Income”; or (ii) Amount at 25% of “total income”; or (iii) Rs. 2000 per month.[Note: The term “Total income” means total income after allowing all deductions expect the one provided under this section itself.]
3. You can claim deduction u/s 80GG from the current year even though the same was not claimed as deduction in the earlier years.



TAX TALK- 20.12.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“FORM NO. 15G / H & T.D.S. PROVISION….”
Query 1]
We are having a Family HUF having investment in Mutual Fund. During the current Financial year of 2010-11, the HUF has earned a Gross "Capital gain" of Rs. 3.07 Lacs on a fixed maturity plan of Debt fund after a period of five years The capital gain, after indexation, is Rs. 1,31,396/- as per statement received from M.F. Please advice whether HUF is required to file tax Return and can it saves tax by investing under 80C? [vdpankey@rediffmail.com]
Opinion:
1. The capital gain arising out of the transfer/redemption of Debt Fund is taxable.
2. HUF will be required to file the return of income if its Gross Total income exceeds the basic exemption limit. If your HUF have only LTCG of Rs. 1,31, 396/- & don’t have any other income, then your HUF would not be required to file the return of income.
3. No deduction is admissible under chapter VI-A against any Long Term Capital gain income.
4. Basic exemption limit can be used against Long term capital gain. The same is illustrated by following case study: -
(Rs. In Lacs)
CASE STUDY
LTCG
Other Income
Total Income
Investment in Chapter VI-A.
Taxable
Income
Tax Payable
I
1.30
0
1.30
0.00
1.30
Nil
(See Note “A” below)

II
1.30
1.30
2.60
1.00
1.60
Nil
(See Note “B” below)


Note:
A] Income is below the basic exemption limit and entire Basic exemption limit is adjustable against the LTCG.
B] Deduction under Chapter VI-A (of Rs. 1 Lacs) is utilized against the other income (of Rs. 1.30 Lacs). The other Income as a result is reduced to Rs. 30,000/-. Total Income after Chapter VIA deduction is Rs. 1.60 Lacs consisting of Rs. 1,30,000/- LTCG & Rs. 30,000/- as other Income. After utilizing basic exemption limit of Rs. 30,000/- against other income, Rs. 1.30 Lacs of unutilized basic exemption limit is adjusted against LTCG.

Query 2]
I have two deposit accounts (Rs. 3.50 Lacs – Oct 2005 & Rs. 2.00 Lacs – Feb 2006) under Senior Citizen Saving Scheme - 2004 in SBI Branch. I am regularly and timely furnishing declaration in Form 15H , mentioning my PAN for these two Deposits . I am non–pensioner Senor Citizen and source of income is interest from bank/ post deposits. I would like to know:
1. Whether bank can still deduct tax at source on quarterly interest paid to me for these deposits?
2. What are the rules for TDS on bank/post deposits and are there any amendments regarding TDS on bank deposit interests and Form 15 H/G by IT Department from 01/04/2010? [kaustubhdixit@ibibo.com]
Opinion:
1. In routine process Bank will deduct tax at source on fixed deposit interest, if it is above Rs. 10,000/-. The TDS is to be done @ 10% (w.e.f.1-4-2010 If PAN is not furnished then TDS is required to be done @ 20%).
2. No tax is deductible at source if the depositor submits Form No. 15G/H & quote Permanent Account Number (PAN) thereon. The main and only purpose of these forms, is to submit declaration in writing in duplicate that there is no tax payable on his total income.
3. In your case, since you don’t have any income tax liability on your income, you can furnish Form No. 15H by quoting PAN on the Form.

Query 3]
Kindly clarify whether HUF can take an interest free loan from one of its members and how income from the same in the hands of HUF will be treated. Will such income be counted as income of the member from whom loan has been taken? [S.S., Nagpur]
Opinion:
The clubbing provision is not applicable if a member of HUF gives interest free loan to HUF out of its own (interest free) funds.



TAX TALK- 13.12.2010-THE HITAVADA


TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“LTCG & CONSTRUCTION WITHIN 3 YEARS …”
Query 1]
In my case, I have deposited Long Term Capital Gain (LTCG) Amount, in the bank FDR without mentioning it as Long Term Capital Gain. I have also paid the Income Tax on the sum so earned via Interest from bank FDR. My house is under construction and the Gain amount exhausted. Please clear the point and let me know if there any liability? I have read Tax talk dated 14.06.10 in Hitavada regarding Long Term Capital Gain (LTCG). The relevant part of my query therein is reproduced hereunder:
“Tax on long term capital gain can be saved:
a) U/s 54EC by depositing the amount of LTCG in the notified bonds issued by National Highway Authority of India (NHAI) or in the notified bonds issued by Rural Electrification corporation (REC). To save LTCG tax u/s 54EC, one need to invest the Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets from which LTCG has arisen.
b) U/s 54 if the LTCG arises from the sale of any house property.To save tax U/s 54, assessee has to invest the LTCG for purchase of a residential house property (not commercial property as mentioned in the query) within a prescribed period. If the amount is not utilized for purchase of a residential house property till due date of filing the return of income, it should be deposited in the capital gain deposit account scheme to claim an exemption u/s 54.
c) U/s 54F if the LTCG arises from the transfer of any long term capital assets other than residential house property. For exemption u/s 54F, subject to various other terms / stipulations, assessee has to invest the sale consideration for purchase of a residential house property (not commercial property as mentioned in the query) within a prescribed period.If the amount is not utilized for purchase of a residential house property till due date of filing the return of income, it should be deposited in the capital gain deposit account scheme to claim an exemption u/s 54F.”
Please advise. [vwsc@rediffmail.com]
Opinion:
A. For the mass benefit of our readers, we are highlighting certain important points while claiming an LTCG exemption.
B. It is clear that an individual (also HUF) assessee can save LTCG arising on sale of capital assets by claiming an exemption u/s 54EC, 54 or U/s 54F.
C. For claiming an exemption u/s 54 & U/s 54F, assessee has to either purchase or construct a residential house property. The time limit prescribed for the purpose is:a] For purchase:One year before or two years from the date of Transfer.b] For Constructions: Three years from the date of Transfer.
D. Scheme of Deposit: Although under section 54 & under section 54F, the assessee is given 2 years to purchase the house property or 3 years for construction of the house property, but the capital gain on transfer of the original assets is taxable in the pervious year in which the transfer took place. The return of income of that previous year is to be submitted by the specified date. Hence, the assessee will have to take a decision for the purchase/ construction of the house property till the date of furnishing of the return otherwise the capital gain would be taxable.To avoid the above situation, the Income Tax Act has specified an alternative in the form of a Deposit under the Capital Gain Deposit Accounts Scheme-1988.The amount of the capital gain, which is not utilized by the assessee for purchase or constructions of the new house before the date of furnishing the return of income, should be deposited by him under the Capital Gain Accounts Scheme, before the DUE DATE of furnishing the return. After Deposit, the amount already utilized by the assessee for purchase/ constructions of the new house, along with the amount so deposited, shall be eligible for exemption under section 54/54F in the year in which LTCG has arisen.
E. Consequence where the amount deposited in the capital gain deposit account scheme is not utilized for the purchase or the construction of a residential house property within the specified period:In this case, the amount not so utilized shall be charged as capital gain of the previous year in which the period of 3 years from the date of LTCG expires and it will be taxable as LTCG of that pervious year. The assessee then shall be eligible to withdraw the amount from the scheme. As per scheme, he is required to submit an application in Form G after getting the approval of the Assessing Officer.
With above basic idea, replies to your queries are as under:
1. Deposit in the Capital gain Deposit Scheme (& not other/normal Bank FDR) enables an assessee to claim an exemption u/s 54 or 54F in the year in which LTCG has arisen.
2. For exemption under section 54/54F, assessee has to construct the house property within a period of 3 Years. Merely investment of the amount of LTCG for construction of house property is not sufficient for having a valid exemption claim under section 54/54F. It has been held in various judicial pronouncements that for the purpose of section 54/54F, the completion of construction within a period of 3 years is essential.





TAX TALK- 06.12.2010-THE HITAVADA



TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“FESTIVAL ADVANCE / ADVANCE SALARY IS TAXABLE AS PERQUISITE?”
Query 1]
Sir, I have the following quarry about Housing Loan exemption
1. A Housing Loan is taken from a scheduled Bank in April-2010 by my son who is the owner of the property.
2. I being the father of the borrower, I have become Co-applicant & Guarantor for that housing Loan.
3. My son (borrower) has gone to London on Work contract basis for one year in April-2010.
4. He is not earning any income in India and being a non resident, not paying any Tax in India & he is paying Tax in London on his salary Income.
5. As I am in service with a Public Limited Company, & have income above Taxable limit and also I am a co-applicant for the housing Loan, I have requested my employer to consider Interest and Principal repayment in the Financial Year 2010 -11 through EMIs on present housing Loan u/s 24 & u/s 80C while working out T.D.S liability U/s 192.
6. My employer has allowed only 50% of Interest paid in EMI while working out T.D.S U/s 192.
7. I am not convinced / satisfied with his action.
Please clarify whether the decision of my employer in considering Interest paid @ 50% for calculation of Tax is correct as per the provision of Income Tax Act & Rules and further notifications. Please clarify & cooperate. [tscbose@sunflagsteel.com]
Opinion:
1. The deduction u/s 24(b) towards interest on borrowed capital for purchase/construction of house property & u/s 80C towards principal repayment is available to the person who owns [including co-owner (& not merely co-borrower)] the property. Right to claim deduction u/s 80C & U/s 24(b) flows from ownership. Ownership is one of the most important pre-condition to deduction u/s 24(b) & u/s 80C.
2. In the absence of anything contrary to prove otherwise, the owner and co-owners are normally presumed as holding equal share in the house property as well as in the loan borrowing (50:50, in your case).
3. Merely repayment of entire loan amount by one of the borrower, the absence of ownership, will not entitled him for 100% deduction u/s 24(b) & u/s 80C. In your case, you may be repaying the EMI of loan, still you may not be able to get 100% benefit towards deduction u/s 24(b) / 80C.

Query 2]
Sir, I want to know whether Festival Advance or Salary advance shall be considered as concessional Interest Loan or Interest Free Loan for the purpose of perquisites calculation? [priyamvada.shekdar@mahabank.co.in]
Opinion:
Rule 3 of the Income Tax Rules, 1962 prescribes that interest free or concessional loan provided to an employee (or any member of an employee) by an employer will be treated as perquisite and the perquisite value is required to be calculated at a specified percentage. These percentages are to be reduced by the amount of interest charged by the employer from the employee.
It may be noted that the above interests are to be computed on the basis of the maximum outstanding monthly balance. It may also be noted that no interest will be treated as a perquisite if the aggregate of loans does not exceed Rs 20,000, or where the loan is made available in respect of medical treatment for specified diseases.

Festival Advance:A loan will also include an Advance and therefore, a perquisite value will also arise even on a festival advance by an employer to an employee.
Advance Salary:
1. The basis of charge of salary income is fixed by section 15 of the I.T. Act-1961.
2. As per section 15, salary is chargeable to tax either on due basis or on receipt basis, whichever is earlier.
3. Similarly, u/s 17(1)(v), Salary includes Advance salary also.
4. As the advance salary is taxable u/s 15, we are of the considered opinion that it will not again be taxable as provided in Rule 3 of the Income Tax Rule – 1962.






TAX TALK- 29.11.2010-THE HITAVADA
TAX TALK BY CA. NARESH JAKHOTIA(Chartered Accountant)“SECOND HOUSE PROPERTY & INCOME TAX IMPLICATIONS”Query 1]I am a retired official. I shall be getting the following income:
1. Rs. 3,90,000/- Pension.
2. Rs. 2,00,000/- as F.D. Interest.
3. Further, I have received Rs. 22,000/- as Dividend from shares andRs. 13,500/- Dividend from MF’s.
4. Also I have sold:a)100 shares of company "A" for Rs. 1,28,000/-in June- 2010. Theseshares were purchased in Nov- 2005 at cost of Rs. 45,000/-;b) 120 shares of company "B" for Rs. 1,08,000/- in Oct-2010. Thesewere purchased in Feb-2006 at cost of Rs. 48,000/-
5. Further, I purchased 80 shares of company "X" in April 2010 for Rs.28,000/- and company "Y" in May 2010 for Rs. 41,000/-and sold them inOct-2010 for Rs. 98,000/- and Rs. 39,500/- respectively.
6. I own two houses, one purchased in 2005 is occupied by me & myfamily on which I am paying bank loan EMI (For current year, Principal is Rs. 64,140/- & Interest is Rs. 48,505/-). The other house 20 year old is kept vacant on which I paid Rs. 2,050/- as Property tax. Theannual rent as assessed by NMC for same is Rs. 7,602/-Please advise what shall be the tax implication on above duringassessment year 2011-12. [patilchandrakant1949.29@rediffmail.com]

Opinion:
1. & 2: - Pension income of Rs. 3.90 Lacs & FDR Interest of Rs. 2 Lacsis taxable in your hands.
3. : Dividend income of Rs. 35,500/- from shares/ mutual funds shallbe exempt from tax u/s 10(34) of the Income Tax Act-1961.4. : Long term capital gain of Rs. 1,43, 000/- [(1,28,000-45,000)+(1,08,000-48,000)] shall be exempt from tax u/s 10(38) of the I.T. Act-1961 if it is covered by securities transactions tax.5. Short term capital gain of Rs. 68,500/- [i.e., 98,000+ 39,500 -28,000 - 41,000] shall be taxable @ 15% u/s 111A of the I.T. Act-1961.6. The tax treatment of house property differs significantly if aperson owns more than one house property. In this case, you may deemone property as self occupied house property and the second houseproperty shall be deemed to have been let out and will be taxable onnotional basis.For the benefit of public at large we are elaborating the taxtreatment of second house property which may be helpful to you alsoin determining the tax implications and planning your taxes as well.
TAX TREATMENT OF SECOND HOUSE PROPERTY
1. The income from house property is taxable on the basis of its“Annual Value”. The term “Annual value” is elaborated at point No. 6hereunder.
2. The tax implication / housing loan benefit for the second houseproperty is not similar/ same as applicable to the first houseproperty. The second house property has a different tax treatmentunder the Income Tax Act-1961.
3. One house used by the tax payer for his/her own residence is exemptfrom tax as its annual value is treated as Nil.
4. Where the assessee owns only one house property and it cannotactually be occupied by him because it is situated at a place otherthan a place where he is employed or carries on business orprofession, in such a case also the annual value of the property istaken as nil provided the property is not actually let out.
5. If taxpayers have two or more houses which are used for ownresidence, then assessee have the option to choose one of the house asself-occupied house, for which an assessee would like to get anexemption from tax and its annual value will be considered as Nil. Thesecond house or other houses shall be deemed to be have to been Rentedout [whether not actually rented out].
6. What is Annual Value of house property and how it is determined?The annual value means the amount for which the property mightreasonably be expected to be let out from year to year. However, ifthe actual rent received or receivable in respect of any let outproperty is higher, it shall be treated as its Annual Value. Theannual value is always taken to be NIL in case of one self-occupiedproperty.
7. How to calculate annual value/taxable value of property:Annual value of property is considered as higher of the following:(i) actual rent received a year; (ii) municipal value; (iii) fair rentof the property.As mentioned above, the assessee has the option to choose only onehouse as self-occupied property. Rest of property is assessable toincome tax on the basis of its annual value.
8. DeductionsFrom the annual value the following deductions are available under theIncome Tax Act: -a] Municipal Tax paid.b] 30% of the net annual value of the house property towards Repair &Maintenance charges (Deduction is fixed @ 30% whether assessee incursmore or less amount on repair and maintenance of the house).c] Actual Interest paid on housing loan whether house is actually letout or is deemed to be let-out.d] For self-occupied property, maximum interest on housing load isrestricted to Rs. 1,50,000 p.a., subject to certain otherstipulations.
9. Effectively, if second house is kept for own use, the tax ispayable on notional rent as the property is deemed to have been letout and is taxable on the basis elaborated above. In respect of suchdeemed let out house property, one can claim interest as deduction u/s24(b) without any monetary limit. However, for the second houseproperty, no deduction is available for repayment towards theprincipal portion of housing loan under section 80C as clause ( xviii)to section 80C of the I T Act reads as under: -"(xviii) for the purposes of purchase or construction of ‘ a’residential house property the income from .....".

Query 2]With reference to your tax talk dated 22.11.2010 & 01.11.2010, pleaseenlighten on the following subject:1. Can Jain have HUF file?2. Whether PPF A/c can be opened in the name of HUF? [SKJ]Opinion:1. Hindu law is applicable to Jain, Sikhs & Buddhist also &accordingly all this could have HUF File.2. A PPF account is not allowed to be opened by HUF w.e.f. 13.5.2005.However, all the accounts which were opened earlier will continue toearn interest till their maturity. It may be noted that the maximumamount of Rs.70,000/- can only be deposited by a person in a financialyear in a PPF account opened in his name and in the name(s) of aminor(s) & HUF, all taken together.


TAX TALK- 22.11.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“HOW CAN I CREATE HUF?”
Query 1]
Sir, I have some queries. My father wants to create his H.U.F.
1. How HUF can be created?
2. Whether all children and their children become member automatically? Or he can specify who will be member of his HUF?
3. If he can specifies the members then my father wants HUF with one son and one daughter and their children as members and mother wants both sons and both daughters and their children as members. Whether both can create their HUF? Please reply in tax talk column in Hitavada. [viralkotharingp@rediffmail.com]
Opinion:
The Hindu Undivided Family (HUF) has its roots in the ancient Hindu law. HUF is not a creation of contract. It is purely a creation of Hindu Law. HUF, which is short form of Hindu Undivided family or Joint Hindu Family, is a body consisting of persons lineally descendant from a common ancestor, including their wives and unmarried daughters, who are staying together jointly; joint in food, estate and worship. The daughter, on her marriage, ceases to be a member of her father’s HUF and becomes a member of her husband’s HUF. Birth of a son in a Hindu joint family automatically makes him a member of the HUF. Normally, it cannot be “created” by act of parties. Existence of property or multiple members is not a pre-requisite to create HUF.In view of above basic concept:a] There is no right/ choices of specifying who the members of HUF are & who are not.b] All children and their children normally becomes the member of HUF automaticallyb] Creating two HUF, one of father and the other one of Mother is not possible.Creating Income Tax File of HUF:
A family which does not own any property may still have the character of Hindu joint family. In normal course, the question of creating a HUF, in the strict sense of the term, does not arise. What is normally created is a nucleus to a HUF.
The initial nucleus or corpus of the HUF can generally come out of the following: a] Partition of a larger HUF.b] Receipt of gift.c] Passing of the property through a will. Etc
If someone have an ancestral property and earning some income from this property, then it is better to transfer this asset to HUF & treat the income as income of the HUF to have a better tax planning.
One may note that a gift received by the HUF in excess of Rs 50,000/- p.a. from stranger in aggregate will be deemed as the income of the HUF & will be taxed accordingly.
The income from property of HUF can be further invested in instruments such as shares, mutual funds, etc. and will be assessed under HUF. Any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF.

Query 2]
I would be grateful if you give further clarification on Tax Talk dated 01.11.2010. As opined therein, only income generated from funds of HUF is assessed as HUF income. I want to know if I start HUF and give my funds to my HUF as loan with interest, will income from such investment of funds will assessed as HUF income or not? [ssonu.aagrawal@rediffmail.com]
Opinion:
1. If any member of the HUF transfer his own assets to HUF without consideration (i.e., throw his assets to the common hotchpotch), income from such assets would be taxable in the hands of individual transferring the assets and not in the hands of HUF [Section 64(2)].
2. If you give interest bearing loans to your HUF, Income earned by the HUF out of the funds so advanced will be taxable as income of the HUF only and will not attract the clubbing provision of section 64(2).
Query 3]
A PPF account was opened in the name & style of "Ashok Manwani HUF" in the year 1997 and is still continued. I understand that with amendments in PPF rules, now PPF account can not be opened in HUF's name. How the HUF can invest in PPF and take benefit of section 80C? Can I continue the same account for next 5 years? [ashok51.manwani@yahoo.com]
Opinion:
1. A PPF account is not allowed to be opened by HUF w.e.f. 13.5.2005. However, all the accounts which were opened earlier will continue to earn interest till their maturity.
2. The maximum amount of Rs.70,000/- can be deposited by a person in a financial year in the following PPF account taken together: i) in his nameii) in the name(s) of a minor(s) iii) in the HUF A/c
3. No further extension of existing PPF A/c of HUF is possible.
4. (a) Subject to the maximum cap of Rs. 70,000/- per PPF A/c., HUF can claim the deduction u/s 80C by depositing in the PPF A/c of the members of the HUF. (b) Further, HUF can use other investment options u/s 80C (like Investment in ELSS, LIC etc) to claim deduction u/s 80C.


TAX TALK- 15.11.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TAX TREATMENT OF INDIAN DEPOSITORY RECEIPTS (IDR)…”
Query 1]
I have filed wrong (ITR-2), digitally signed, electronically for the F.Y. 2008-09. It was thereafter corrected by me by filing Revised Return. But Asst. Commissioner of Income Tax has called me under section 143(2) of the I.T. Act -1961 for hearing which may start in Feb-2011. My return has come in Scrutiny under 'CASS'.
My mistake was, I have filled the Challan amount of entire employee of our DDO instead of mentioning my T.D.S Amount, due to which refund amount of Rs. 45 Lacs is being shown in the scrutiny case. Please advise me how to proceed for this goof up? I am a PSU employee working in western coalfields limited, Majri area.
[s_c_swami@yahoo.com]
Opinion:
There appears to be genuine mistake in filing your Return of Income & in mentioning the T.D.S amount therein. Since your case is selected for scrutiny, you have to make the submission of the fact during the hearing of the case. You may further be required to produce additional details/documents to your Assessing Officer to substantiate your Income & Investments.

Query 2]
A] Sir, I got allotment of the Standard Chartered PLC (IDR) through IPO route. No STT appears to be chargeable on the sale of these securities via BSE/NSE. Further, these do not appear to be normal securities. Please let me know how the LTCG/ STCG and the income tax payable will be calculated on their sale through recognized Stock Exchanges? [k_kumar39@hotmail.com]
B] The shares of the STANCHART-IDR are listed on the BSE/NSE. Please enlighten whether the Dividend Income/Capital gains (short/long) incurred on these IDRs (Indian depositaries receipts) are taxable in the same way as is applicable in case of any other Indian company say RIL or BHEL etc? If it is otherwise, please tell how IDR (i.e. Dividend/Capital gains) are taxed in case of IDRs. [apteashok@gmail.com]
Opinion:
1. Indian Depository Receipts (i.e., IDR) are similar to American Depository Receipts (ADR) and Global Depository Receipts (GDR) and are derivative products that have shares as their underlying assets. The IDRs will be listed both on Bombay Stock Exchange and National Stock Exchange, and the investors will have the option to convert them into shares after one year.
2. Based on current provisions of Chapter VII of Finance (No.2) Act - 2004, pertaining to STT, IDRs is not subject to Securities Transactions Tax (STT). No STT is chargeable / payable on the trading of IDRs.
3. TAXIBILITY OF IDRs: a] As IDRs would be a listed security, Capital Gain on sale thereof will be considered long term if the IDRs is held for more than 12 months from date of purchase.b] Short Term Capital Gain arising from transfer of such IDRs shall be normally taxed as per the tax slab of the IDR holder. Tax rate of 15% as specified in section 111A shall not be applicable to the IDRs.c] Long Term Capital Gain arising from transfer of such IDRs, shall be taxed under section 112 of IT Act. Amount of tax shall be lower of the following:i) An amount calculated @ 10% of capital gain without availing the benefit of indexation, orii) An amount calculated @ 20% of capital gain after availing the benefit of indexation.
4. TAXIBILITY OF DIVIDEND: In case of IDR, No Dividend distribution tax is payable by the Issuer company and hence it will be not be exempt from tax in the hands of IDR holders. It will be taxable like any other income in the hands of investor of IDR.

Query 3]
Sir, Can you please elaborate about following points regarding Minimum Alternative Tax (MAT): -
1. Minimum Alternative Tax is governed by the Companies Act or Income Tax Act and under which section?
2. To whom it is applicable i.e., Public limited Co. or private ltd co. or partnership firms or individuals?
3. What is threshold limit i.e., if tax as per income tax act is less than tax on book profit, but to what extent?
4. What is rate of tax?
5. Can it be adjusted against advance tax paid (in four installments?)
[dineshsinghgaharwar@rediffmail.com]
Opinion:
1. MAT is governed by section 115JB of the Income Tax Act-1961.
2. It is applicable to a Company, may be a private limited company or a public limited company. It is not applicable to a partnership firm or to individuals.
3. There is no such threshold limit as such for MAT. MAT is applicable when income tax payable on total income of company computer under the Income Tax Act is less than 15% of the book profit.
4. Rate of tax for MAT is @ 18% of the book profits from the Assessment Year 2011-12.
5. MAT can be adjusted against the Advance tax paid.




TAX TALK- 08.11.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“COMPUTING LONG TERM CAPITAL GAIN…”
Query 1]
Sir,a) I had purchased a plot in the F.Y. 85-86 for Rs. 23000/- . The cost after Indexation comes to Rs. 122935/-.
b) In the F.Y. 2004-05, I spent Rs. 85,000/- for leveling and fencing. The amount after indexation comes to the 125885/-.c) In the current F.Y. the plot has been sold for Rs. 4,90,000/-.
d) The brokerage charges of Rs. 9800/- @ Rs.2% has been paid after sale.
e) In the current F.Y. I have Paid Rs. 2000/- to Government as Landrevenue (Receipt of previous payment of L.R. are not available andhence not considered)My queries are:-
1. Can the amount at (b), (d) and (e) be added to the originalcost (i.e. amount at (a)) and treat the amount so arrived at as thetotal cost of acquisition (It will come to Rs. 2,60,620/-)?
2. Since the LTCG is due to sale of a plot, can this amount beutilized for purchase of a plot for sale in future, to save the IncomeTax?
Kindly guide and oblige. [ak5032155@gmail.com]

Opinion:
Long term need to be calculated after deducting from the full value consideration the (a) the Indexed cost of Acquisition, (b) Indexed cost of Improvement. Further deduction is available towards the expenses incurred WHOLLY & EXCLUSIVELY in connection with the transfer.
You can deduct Rs. 1,22,935/- & Rs. 1,25,885/- being indexed cost of acquisition and indexed cost of improvement from the sale consideration. Further you can claim deduction towards the brokerage of Rs. 9,800/- paid by you. No deduction shall be admissible against the LR/ Corporation tax etc payment.

LTCG arising on sale of Plot can be claimed as exempt u/s 54F if the following conditions are satisfied: -
a) The transferor must be individual or a Hindu Undivided Family.
b) The capital gain should arise from the transfer of any long-term capital asset other than residential house property. (If capital gain arises from transfer of a residential house property, an exemption can be claimed u/s 54.)
c) The transferor must, within a period of one year before or two years after the date on which the transfer took place purchase, or within a period of three years after that date construct, a residential house.
d) The transferor does not own more than one house property, other than the new asset, on the date of transfer of the original asset.
e) The assessee shall not purchase any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset or construct any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.
f) If all above conditions are satisfied, transferor can claim entire LTCG as exempt provided entire amount of sale consideration is invested for new residential house property. If entire sale consideration is not invested then Exempt LTCG shall be Cost of New House * Capital Gain/ Net Sale consideration.
g) U/s 54F, it’s the investment of actual sale consideration that determines the claim of exemption.




TAX TALK- 01.11.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“WHICH INCOME COULD BELONG TO HUF?”
Query 1]
Sir, I would like to quit all my shares which I am holding during the next Bull Rally. All the shares are long term ones (i.e., having a holding period of more than one year). Whether any income tax liability on the profit made? I will not be holding any shares after sale. [np_anand7@rediffmail.com]
Opinion:
Long-term capital gain income arising on sale of shares on which securities transactions have been paid will be totally exempt from income tax u/s 10(38) of the Income Tax Act-1961.
Query 2]
I am an accountant & got certain queries which I shall be thankful if you can kindly enlighten on the following points:
1. Is it compulsory to file the income tax return for individual/HUF/ Company/ Charitable Trust & partnership firm even if they don’t have the taxable income? Whether having a PAN makes the return filing compulsory?
2. A person is working as an employee in one company & getting salary from that job. He will be starting his business also in the current year as a proprietary firm. Whether he will be required to file two separate income tax return (i.e., one for salary income or and the second one for business income)?
3. Whether HUF can also claim deduction u/s 80C towards LIC premium payment of the members of the HUF?
4. Whether an individual can transfer few of his assets like Bank FDR/ NSC/ Funds to HUF so that the income could be treated as the income of the HUF and not that of Individual? Also please guide as to which income could be belong to HUF or which income could be treated as the income of the HUF?
[Jayantibhai Thakkar]

Opinion:
1. Filing of income Tax Return- Whether Mandatory: a] For Individual/HUF/AOP:Individual/HUF/AOP are required to file the income tax return only if their Income before allowing deduction under chapter VIA (i.e., section 80C, 80D, 80G etc) and exemptions u/s 10A, 10B or 10BA exceeds the exemption limit. If it is below the exemption limit, filing the return is optional for such assesses. Merely having a PAN doesn’t make filing compulsory for this category of assessee. b] For Partnership Firms & Companies:Partnership Firms & Companies are compulsorily required to file the income tax return whether or not they have any taxable income.c] For Charitable Trust/Institutions:Charitable Trust/Institutions are required to file the income tax return only if their total Income exceeds the maximum amount which is not chargeable to tax without giving effect to the provision of section 11 & 12.It may be noted that even if the return is not required to be filed mandatorily in few cases mentioned above, even then an assessee may submit his return voluntarily. In case of assessee having loss under the head “Income from Business/Profession” or “Income from Capital Gain”, it is advisable to file the return before the due date of filing the return of income u/s 139(1) so as to have the benefit of carry forward of such loss for set off against the profit in subsequent years.
2. An individual having income from salary as well as income from business would be required to file only one return of income.
3. HUF can also claim deduction U/s 80C towards life insurance premium payment of the members of the family.
4. If any member of the HUF transfer his own assets to HUF (i.e., throw his assets to the common pool), income from such assets would be taxable in the hands of individual transferring the assets and not in the hands of HUF. In general, HUF can have following incomes: a] Income from the ancestral assets/properties belonging to the forefathers of the Individual or Income arising by investing the sale proceeds of such ancestral assets.b] Income received from the assets received by a married individual on partition of a bigger HUF. i.e., HUF of a Father or a Grandfather.c] Any income arising out of the investment of HUF funds (like interest earned on loans given by an HUF) or on the utilization of HUF assets (like rent earned on letting out HUF property). It is important that the income is earned using HUF funds or property only to be categorized as an HUF Income. If the income arises on account of the personal exertions of the karta or any other members and not as a result of investment of HUF funds, such income would GENERALLY be regarded as the individual income of the karta or that member.









TAX TALK- 25.10.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TAX CORNER OF SYSTEMATIC WITHDRAWALS PLANS”
Query 1]
I purchased a flat in Raipur in the year 2009. I filed IT return for F.Y.
2009-10 & F.Y. 2010-11 but did not claim exemption for Registry and stamp
Duty of Rs. 1,50,000/- as I was ignorant about the exemption/rebate of
this expenditures in Income Tax. I request you to please advise whether I can submit revised IT Return for the FY 2009-2010 in which I incurred this expenditure? I came to know only through your column published in Hitavada news paper. [bltiwari@gmail.com]
Opinion:
1. An assessee has an option to file the revised return u/s 139(5) of the Income Tax Act - 1961. Revised return can be filed any time within one year from the end of the relevant assessment year or before the completion of assessment whichever is earlier. The only condition is that the original return should have been filed within the due date of filing the return of income.
2. The F.Y. 2010-11 is the current running year, the return for which can be filed after 31.03.2011 only. Probably, you are mentioning Assessment year in the query and not the financial year. Also, the month in the year 2009 is also not mentioned in the query. If it is purchased in between April-2008 to March-2009 (i.e., A.Y. 2009-10), the revised return can be filed before 31.03.2011. If the same is purchased between April-2009 to March-2010 (i.e., A.Y. 2010-11), the revised return can be filed before 31.03.2012. You are advised to file the revised return by claiming above expenditure as deduction immediately before the completion of assessment.
3. It may be noted that the overall deduction u/s 80C is restricted to a maximum of Rs. 1 Lacs.

Query 2]
1. Sir, I have Rs. 10 Lacs. I want to invest this money in Mutual Funds. For living, I want to draw Rs. 20,000/- per month from the fund (via Systematic Withdrawal Plan). If I do so for say 10 years and after 10 years even after withdrawing monthly amount, if the fund value is say 15 lacks and if I withdraw this at that point; what will be the tax liability at that point? Will there be any tax implication on this 20,000/- per month withdrawal? I have Rs. 10,000/- per month as my other source of income. Kindly reply to my query. [shashikantpisar@gmail.com]
2. From tax saving perspective, whether SWP would be better than Dividend option of mutual fund? Please advise. [I.K. Ansari]
Opinion:
1. The tax treatment of systematic withdrawal plan depends on the way you take out the money. a] If you opt for the Dividend plan, then the amount of dividend would be exempt in the hands of receiver.b] If you opt for the growth plan, the withdrawals would have its tax impact depending upon the nature of fund (i.e., whether debt fund or equity fund) as under:i) Debt Fund:a] For Withdrawals (i.e., units redeemed) done within one year, the difference between the N.A.V of the units would be taxable as Short Term Capital Gain in the hands of Investor.a] For Withdrawals (i.e., units redeemed) done after one year, the difference between the N.A.V of the units would be taxable as Long Term Capital Gain in the hands of Investor. LTCG would be taxed at a rate which is lower of the following two: - 10% without indexation or - 20% with indexation benefit
ii) Equity Fund:a] For Withdrawals (i.e., units redeemed) done within one year, the difference between the N.A.V of the units would be taxable as Short Term Capital Gain in the hands of Investor. The amount would be taxable @ 15% u/s 111A of the I.T. Act-1961.a] For Withdrawals (i.e., units redeemed) done after one year, the difference between the N.A.V of the units would be treated as Long Term Capital Gain in the hands of Investor. Long term capital gain in such cases would be exempt from tax u/s 10(38).With above broad position of law for Taxing SWP, you can decide the taxability of withdrawals in your hands depending upon your plan/options your are exercising while investing.

2. In case of Debt Mutual Fund, in general, we find Systematic Withdrawals plan as a better option for taking out the money as compared to the Dividend Option.Reason: Though, Investor doesn’t have to pay any Income tax on the Dividend received from any mutual fund, mutual fund has to pay a Dividend Distribution Tax (DDT) on the Dividend paid from Debt based Fund. This DDT burden is passed on to the investor by compulsorily deducting the amount from the Fund’s NAV only. Effectively, the so called “TAX FREE” dividend comes to the investor after deduction of DDT. The advantage in SWP is the lower tax rate after a holding period of one year.




TAX TALK- 11.10.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“S.B. A/C INTEREST- FROM BANK - TAXABLE: FROM POST OFFICE - EXEMPT”
Query 1]
Sir, I have a question regarding a life insurance policy and others as under: -
1. I have read that if endowment policy is taken for 5 years & the yearly subscription is more than 20% ( example for Rs.1 Lacs policy, yearly amount is Rs. 21,000/-), in this case, we cannot get section 80C benefit on this. Is this true? If I get section 80C benefit on this, at the time of maturity the bonus and loyalty additions, if any, received are taxable?
2. If my total savings for all - insurance, HBA, PPF etc is more than Rs. 1 Lacs, then, whether for the amount above Rs. 1 Lacs received at a later date, I have to pay the tax at maturity (on the interest/bonus etc that I get on the additional amount above Rs. 1 Lacs invested)?
3. Is the SB account interest of 3.50 % per annum (of Nationalised banks) taxable and to be shown in income tax return? Is post office SB account interest of 3.50% per annum tax free?
4. I have read that the interest amount of Rs.1500/- per annum on FDs is tax free when investment is in the name of Minors. If I invest in the name of my both children, would I get exemption of Rs.3,000/- or the maximum tax free interest amount is restricted to total Rs.1,500/- ? [venkat.2804@rediffmail.com]
Opinion:
1. Premium of Life Insurance Policies: A] Deduction u/s 80C towards Life Insurance policies: Deduction can be claimed only in relation to so much of the premiums as is not in excess of 20% of the actual capital sum assured.B] Maturity proceeds of Life Insurance policies:Any sum received under life insurance policies is EXEMPT from tax u/s 10(10D), except the following: -a] Amount received under a Keyman Insurance policy ORb] Amount received under an insurance policy in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured. In short, the deduction u/s 80C is not available on the premium exceeding 20% of the capital sum assured & income by way of bonus/ loyalty additions are also not exempt u/s 10(10D) in such cases.
2. Even if your investment in the instruments (like PPF/ LIC/ ULIP etc) eligible for deduction u/s 80C exceeds Rs. 1 Lacs, It will NOT make the maturity proceeds TAXABLE, which is otherwise exempt under the Income Tax Act-1961n.
3. Saving Bank account Interest from a Bank (be it a Nationalised bank or a co-operative bank) is Taxable whereas saving bank account interest on account maintained with a post office is exempt from income tax u/s 10(15)(i).
4. The income of a minor child is required to be clubbed with the income of parent u/s 64(1A). However, wherever an income is clubbed as aforesaid, parent is entitled to have an exemption @ Rs. 1,500/- PER CHILD if the income clubbed exceeds Rs. 1,500/-. Effectively, if the FDR belongs to a minor child, interest would be exempt up to Rs. 1,500/- per Child u/s 10(32).

Query 2]
I intend to purchase a residential accommodation (flat) with my brother on sharing basis. We both are Government employees and both have an approx. take home salary of Rs.21,000/- each (Gross Rs. 32,000/- each). My queries are:
1. Whether we can get a single home loan, splitting the amount of loan between us equally?
2. Whether we both can claim tax deductions under relevant sections for the amount of loan so distributed?
3. Whether such tax deductions are allowed to both for second hand flat purchase also? I will be highly obliged if you can guide us in this matter. [shivanath_kota@rediffmail.com]
Opinion:
“Yes” for all the three parts of your query.
1. You can have a single home loan against the flat sought to be purchased. Unless there is anything contrary to prove otherwise, the loan would be treated in 50:50 ratios.
2. Both of you can claim tax deduction u/s 80C (towards principal repayment) & u/s 24(b) towards interest payment of housing loan so availed.
3. Tax benefit is available in respect of secondhand flat also & not restricted to first/ new flat only.







TAX TALK- 04.10.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“MEDICAL REIMBURSEMENT IS ELIGIBLE FOR TAX BENEFIT”
Query 1]
Sir, I am a Central Govt. Employee. My Father & mother both are diabetic patient. Since I am a Government employee, I am getting the medical reimbursement of my parents. I had already spent Rs. 50,000/- towards the medical treatment of my parents & same amount had been reimbursed by the company where I am working. My questions are
1. Is the amount which is credited in my bank account by my company towards the medical reimbursement is taxable? If yes, then how can we save this tax? Whether deduction is admissible u/s 80DDB?
2. Around Rs. 2,400/- per month is deducted from my salary toward my provident Fund & same amount is deposited by my company in my provident fund A/c. That is, total Rs. 4,800/- is being deposited in my Provident fund. Is this saving is taken into account in the one lake tax saving slab? [Sheikh Jameeluddin, Chandrapur]
Opinion:

1. (a) The deduction u/s 80DDB is available if the expenses for the medical treatment of specified disease or ailment is incurred by assessee on himself or on dependant. The specified disease for the purpose of section 80DDB is prescribed in Rule 11DD as under: 11DD. (1) For the purposes of section 80DDB, the following shall be the eligible diseases or ailments : (i) Neurological Diseases where the disability level has been certified to be of 40% and above,— (a) Dementia ; (b) Dystonia Musculorum Deformans ; (c) Motor Neuron Disease ; (d) Ataxia ; (e) Chorea ; (f) Hemiballismus ; (g) Aphasia ; (h) Parkinsons Disease ; (ii) Malignant Cancers; (iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ; (iv) Chronic Renal failure ; (v) Hematological disorders : (i) Hemophilia ; (ii) Thalassaemia.Diabetes is not covered under Rule 11DD and so deduction cannot be claimed u/s 80DD. (b) It may be noted that reimbursement of medical expenses by the employer to the employee up to Rs. 15,000/- is exempt from income tax. Amount received over and above Rs. 15,000/- shall be taxable as Salary Income.
2. The saving (both, employer & employee contribution) by way of deposit in the employee provident fund account is eligible for deduction u/s 80C. The same is to be included in the amount of Rs. 1 Lacs eligible for deduction.

Query 2]
Under the UTI scheme Unit Linked Insurance Plan 1971 I started investing from 1998 Rs. 7,500/- every year for 10 years. The ULIP ended in 2008 and in the year 2009 I received maturity amount of Rs. 1,04,000/- at existing NAV. The difference of profit (1,04,000/- - 75,000/- ) comes to Rs. 29,000/- My CA told me that I have to pay long term capital gain tax on it. Is this correct? I have learnt that the maturity proceeds of ULIP is exempted from any kind of tax. [dhananjay1989@gmail.com]
Opinion:
UTI- ULIP-1971 is not an equity-based mutual fund but UTI’s ULIP is a debt-based instrument. Therefore, the capital gains will have to be taken on year to year basis and the rate payable will be 10 per cent without indexation or 20% with indexation, whichever is more beneficial to the investor.

Query 3]
We have decided to take a house loan jointly in names of myself and my son who has already availed a house loan from Bank and claiming the deduction as per Income Tax Act. In the new house, the first name will be of my son. Now I want to know whether I can take the tax benefit against the proposed house Loan.
Please Advice in the matter. [mskakde@gmail.com]
Opinion:
Presuming that you have an actual share in the house property to be purchased in the joint name (i.e., your name is not included in the sale deed for the sake of convenience) AND the property accounting treatment is given in the books of accounts / Records for the purchase & borrowing transactions, i) you can claim deduction u/s 80C in respect of principal repayment & ii) u/s 24(b) in respect of interest payment. The deduction will be in the ratio of your share in the housing loan.

13.09.2010
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“CAPITAL GAIN EXEMPTION U/S 54….. ”
Query 1]
I have booked a flat jointly with my wife for Rs 40 Lacs & paid Rs. 4 Lacs as booking amt in May 10 .I have again paid Rs. 3 Lacs as part amount in July-2010.
I will sell a flat in my sole name in October-2010 for Rs. 22 Lacs & pay the amount for the new flat. Please inform whether I will be eligible for Capital Gain exemption under Sec 54 for the amounts paid in May & July-2010 or not? [sandhirdk@canbank.co.in]
Opinion:
a. To be eligible for Long Term Capital Gain (LTCG) Exemption U/s 54 of the I.T. Act-1961, assessee has to purchase a residential house property within a period of one year before or two years after the date of transfer (or construct a residential house within a period of three years from the date of the transfer of the original house).
b. In your case, if the above conditions of purchase within a period of two years from the date of transfer of original assets (i.e., from October-2010, as proposed) is satisfied, you will be eligible for exemption even in respect of amount of Rs. 4 Lacs & Rs. 3 Lacs paid by you in May & July-2010.

Query 2]
Sir, I am an LIC Agent by profession. I have a query regarding the recent tax reforms that has recently taken place. My question is whether presently the maturity proceeds or any kind of survival benefits from LIC policies are taxable in the hands of the customer or not? If yes, when it is going to be applied from which date? Kindly elaborate if it is yes? [aqualai@yahoo.com]

Opinion:
1. Presently, any sum received from life insurance policies, including a sum allocated by way of bonus on such policies, are exempt u/s 10(10D) of the I.T. Act, 1961. However, following payments received from life insurance companies are not exempt:- a) any sum received under an insurance policy issued on or after the 1st day of April, 2003 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assuredb) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDAc) Any sum received under a key-man insurance policy.
2. The new Direct Tax Code (DTC), proposed to be made applicable from 01.04.2012, is tabled in the parliament. The same has not yet been passed. We will cover the post DTC scenario in our column after it is passed by the Parliament.




Query 3]
I have a query regarding long term capital gain. Kindly clarify. The facts are as under: -
1. I had purchased a house for Rs. 8 Lacs in Nov-05.
2. I want to sell the same for Rs 30 Lacs & invest the same amount for purchasing other house.
3. Out of the sale proceeds of Rs. 30 Lacs, I will remit Rs. 7 Lacs to the bank as present outstanding loan amount on the said flat.
4. Out of the balance amount of Rs. 23 Lacs, I will keep Rs. 3 Lacs in Hand.
5.
Balance Rs. 20 Lacs will be used for purchase of new house property. The new property will be costing Rs. 30 Lacs. I will be utilizing Rs. 20 Lacs out of the proceeds of my earlier house & will avail housing loan of Rs. 10 Lacs for the balance.
Please guide me if there is any long term capital gain tax liability on me? [kunjsuresh@yahoo.co.in]
Opinion:

1. Cost Inflation Index for the relevant financial years are as under:
F.Y.

C.I.I
2010-11
711
2005-06
497
(It is presumed that you want to sell the house in the current F.Y. 2010-11 & figures are calculated on this presumption only.)

2. The indexed cost of acquisition in the given case shall be Rs. 11,44,467/- (8,00,000/-- *`711/497).
3. The Taxable Long term Capital Gain shall be Rs. 18,55,533/- [30,00,000/- (–) 11,44,467/-].
4. As you are purchasing a new house and investing the LTCG for purchase of new house property, you can claim an exemption u/s 54. You may further refer opinion expressed in response to query No. 1 wherein time frame within which investment is required is elaborated.
A Word of Caution
It may be noted that u/s 80C(5)(iii) if assessee sell the house before the expiry of five years from the end of the financial year in which the possession of the property is obtained then a) no deduction u/s 80C shall be admissible to such assessee in respect of the year in which transfer is effected ANDb) the aggregate amount of deductions allowed in earlier years shall be DEEMED to be the income of the assessee of the year in which the property is sold and shall be liable to be taxed accordingly.However, such sale does not in any way impact the deduction allowed for interest paid on the housing loan but its only reverses the deduction allowed on the principal portion.
Effectively, if you sell the house property before 31.03.2011, it may result in additional tax liability on account of additions to current year’s income of the deduction allowed u/s 80C in the earlier years towards principal repayment of housing loan.


TAX TALK- 06.09.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“ACCOUNTING FOR DEFFERED TAX….. ”
Query 1]
Sir, I have gone through Tax Talk dated 30.08.2010 regarding LTCG on sale of flat property.
In that query, only Rs. 5,89,866/-.was recommended for investment to get LTCG exemption u/s 54 Whereas on sale of plot, entire realization was recommended for investment for eligibility of entire amount of exemption u/s 54F. Kindly clarify by mail and oblige. [anil_mayurservices@rediffmail.com]Opinion:
Long term capital gain (LTCG) tax can be saved by claiming an exemption u/s 54 or U/s 54F. Both the sections offer exemption from LTCG, subject to various other stipulations, if the amount is invested for purchase of another residential house property.
Exemption u/s 54 is available if the LTCG has arisen as a result of transfer of long term RESIDENTIAL HOUSE PROPERTY. If the assets transferred is any property other than Residential House Property (e.g., Land/ Plot, Shop, Gold etc) then an exemption can be claimed u/s 54F (and not u/s 54).
For claiming an exemptiona) U/s 54, investment of LTCG is important. If full LTCG is invested, entire LTCG can be claimed as exempt. Else, only amount invested can be claimed as exempt.b) U/s 54F, investment of Net Sale Consideration is important. If net sale consideration is invested, entire LTCG can be claimed as exempt. Else, only proportionate amount of LTCG, as bearing the same ratio as the amount invested bears to the net sale consideration, can be claimed as exempt.
Query 2]Sir, Can you please furnish accounting entries of deferred taxes for the following transactions:
1. (a) Depreciation: Depreciation of Rs. 4,000/- as per Companies Act (40% WDV).(b) Depreciation: Rs. of Rs. 6,000/- as per IT Act (60% WDV)what will be the accounting entry for difference Rs.2,000/- and when it should be passed?
2. Entry for difference in timing due to Section 43-B of IT Act- 1961 like Bonus, PF, Interest & assuming that they are not paid till balance sheet date? Let us assume amount of Rs. 50,000 /- taken in books of accounts (Bonus, PF & Interest) for arriving at book profit. If say corporate tax is 30%, then what will be entry for deferred tax of Rs.15,000/- (50,000/- @ 30%)?
3. Also explain what will be the accounting entry in next F.Y. when such deduction is allowed on payment basis under income tax Act. [dineshsinghgaharwar@rediffmail.com]
Opinion:
1. Accounting for Deferred Tax on Income is governed by Accounting Standard-22 on “Accounting for Taxes on Income” issued by the Institute of Chartered Accountants of India. AS-22 is introduced to nullify the income tax impact on the expenditure claimed in the Profit & Loss account and corresponding allowability/ disallowability of such expenditure in the computation of total Income as per the Provision of Income Tax Act-1961.
As per the Said AS-22, for the difference in Depreciation under the Companies Act & under the Income Tax Act, no accounting entry is required to be passed for Rs. 2,000/-. However, closing accounting entry for deferred tax of Rs. 618/- (Rs. 2000/- * 30.90%) is required to be passed as follows:Profit & Loss A/c---Dr. Rs. 618/-Deferred Tax (Liability) A/c ---Cr. Rs. 618/-(Being accounting entry of deferred tax liability on the depreciation difference of Rs. 2000/- @ 30.90%)
Expenses like PF, Bonus etc disallowable u/s 43B are allowable in the year in which the payment for the same is done. a) If the payment of PF/Bonus & other expenses covered by section 43B is/can be done on or before the due date of filing the return of income then no accounting entry for deferred tax would be required.b) If the payment of PF/Bonus & other expenses covered by section 43B is not or cannot be done on or before the due date of filing the return of income then the following closing accounting entry for deferred tax would be required: -.Deferred Tax Asset A/c Dr. 15,450/-
To Profit & Loss Account Cr. 15,450/-
(Being deferred tax assets recognized for the timing difference of Rs.50,000/- disallowable u/s 43B of Income Tax Act @ 30.90%).
4. In any of the subsequent years, when such liability is paid, the aforesaid entry will be reversed.
Query 3]
Sir, I had purchased a row house at Wanadongri in Nagpur. The date of entering into a Registered Agreement to Sale is 01/06/2005 whereas the date of registering Sale Deed is 12/01/2006. I am enjoying a housing loan from HDFC. Outstanding amount of Housing Loan is Rs. 3.50 Lacs. I am availing tax rebate under 80C.
My queries are-
1. What are income tax implications, if I sell this property right now?
2. I am constructing another house on the plot owned by my wife, for which, she has availed bank loan. I am the Guarantor for the said Loan. Can I get capital gain exemption if I repay this loan from the sale proceed of row house? [subhosey@yahoo.co.in]
Opinion:
1. It may be noted that u/s 80C(5)(iii) if assessee sell the house before the expiry of fiver years from the end of the financial year in which the possession of the property is obtained then a) no deduction u/s 80C shall be admissible to such assessee in respect of the year in which transfer is effected ANDb) the aggregate amount of deductions allowed in earlier years shall be DEEMED to be the income of the assessee of the year in which the property is sold and shall be liable to be taxed accordingly.However, such sale does not in any way impact the deduction allowed for interest paid on the housing loan but its only reverses the deduction allowed on the principal portion. Effectively, if you sell the house property before 31.03.2011, it may result in additional tax liability on account of additions to current year’s income of the deduction allowed u/s 80C in the earlier years towards principal repayment of housing loan.
2. Repayment of the Housing loan taken by your wife for construction of house property which is owned by her only will not make you entitled for claiming an exemption u/s 54 even if you are Guarantor to that loan.








TAX TALK
BY CA. NARESH JAKHOTIA & CA. VINOD GANDHI
(Chartered Accountant)
“LONG TERM CAPITAL GAIN & EXEMPTION”
Query 1]
Sir, I have multiple queries which I request you to please clarify
1. A residential flat (property A) was bought by my wife as 1st and me as 2nd owner in May-1992 at a price of Rs. 1.60 Lacs. We are selling it by October- 2010 at price Rs. 11 Lacs. We have received Rs 1.60 Lacs at agreement and Rs. 9.40 Lacs are receivable.
2. We (wife as 1st and me as 2nd owner) are purchasing a new flat at Rs 20 Lacs with bank loan plus proceeds through property A (partly).
3. We have registered the agreement with full stamp duty of Rs 1.60 Lacs with which we have received from property A.
4. For purchase of new flat:-(a) Rs. 15 Lacs are paid to builder from bank loan and our savings. (b) Rs. 60,000/- for MSEB connections are to be paid apart from these.
5. From the balance amount of Rs. 9.40 Lacs receivable from property A, we will pay remaining Rs. 5 Lacs and Rs. 60,000/- to builder. Thereafter, Rs. 3.80 Lacs will remain with us.
6. My wife has purchased a open plot in 2006 at Rs. 85,000/- (property B) and sold in 2010-11 at Rs 4 Lacs & planning to buy furniture and house hold items from that.
7. My wife has constructed another house with bank loan which is outside city limits. She is absolute owner of that property.
My queries are as under: -
1. What would be LTCG tax on property A?
2. Can my wife or I get benefit of tax exemption since we are investing in new residential property from the proceeds of A? And what would be LTCG tax? When it would be deposited?
3. Are we both liable to pay LTCG tax?
4. What would be LTCG tax on property B?
5. Who can take the housing loan benefit for income tax u/s 80C & U/s 24(b)? Please clarify. [abhijitinvestments.84@rediffmail.com]
Opinion:
1. The property A (Flat) is in the name of your wife as 1st owner and yourself as 2nd owner. Unless there is anything contrary to prove otherwise, it will be presumeda) that you are co-owner in the flat & your name is not included merely for the sake of convenience and b) that the ownership of both of you is in the 50:50 Ratio.
2. The sale consideration in your case is Rs. 11 Lacs. However, if the value adopted by the Stamp duty authorities is higher than Rs. 11 Lacs, then capital gain shall be required to be calculated by taking such higher value.
3. Cost Inflation Index for the relevant financial years are as under:
F.Y.
C.I.I
2010-11
711
1992-93
223
4. The indexed cost of acquisition in the given case shall be Rs. 5,10,134/- (1,60,000/-- *711/223).
5. The Taxable Long term Capital Gain shall be Rs. 5,89,866/- [11,00,000/- (–) 5,10,134/-]. Out of total LTCG of Rs. 5,89,866/-, Rs. 2,94,933/- shall be assessable as LTCG in your hands & Rs. 2,94,933/- shall be assessable as LTCG in the hands of your wife.
6. As both of you are purchasing another residential house property, both of you can claim an exemption u/s 54 of the I.T. Act- 1961. For claiming full exemption u/s 54 & following conservative approach, both of you are required to invest the amount of Rs. 5,89,866/-. For balance, the loan can be availed. In your case, exact amount of loan sought to be availed and own contribution is not clearly mentioned but prima-facie it is appearing that contribution by both of you will be more than Rs. 5,89,866/- and hence entire amount of LTCG can be claimed exempt u/s 54.
7. The LTCG in the hands of your wife on sale of plot is as under: a) Month in which the plot is purchased in the year 2006 is not mentioned in the query. It is presumed that it is purchased in the F.Y. 2006-07. CII for F.Y. 2006-07 is “519 ”.b) Indexed cost of acquisition of the plot is Rs. 1,16,445/- (Rs. 86,000/- * 711/519) c) LTCG on sale of Plot Shall be Rs. 2,83,555/-. (Rs. 4,00,000/- 1,16,445/-). The LTCG is calculated by taking the sale consideration of Rs. 4 Lacs. However, if the value adopted by the Stamp duty authorities is higher than Rs. 4 Lacs, then LTCG would be required to be calculated by taking such higher value.d) Investment in furniture & household items will not offer any exemption from LTCG tax arising from sale of Plot.f) However, she can claim exemption u/s 54F by investing the Sale consideration in purchase of residential house property. If entire sale consideration is invested, entire LTCG can be claimed as exempt. If only part is invested, exemption will be available on proportionate basis.
8. With above detail elaboration, you can arrange the investment in the new house property in such a way that the entire LTCG is exempt in your hands as well in the hands of your wife. This can be done by specifically mentioning the ownership ratio, by properly & systematically documenting the loan & investment ratio in the books/records/ Balance-sheet, etc etc.
Your wife already owns a house property for which, it is presumed, she is claiming deduction u/s 80C & U/s 24(b). If this is so, no deduction u/s 80C shall be admissible towards principal repayment of the second house property. As far deduction u/s 24(b) towards interest payment is concerned, it may be claimed as deduction. You may please refer to our earlier column wherein the tax treatment/benefit/implication of the second house property was discussed at length. In your hands, deduction u/s 80C & U/s 24(b) can be claimed in the ratio of your share in the loan.

Query 2]Sir, I am a student of about 18 years old and is getting my monthly study expenses from my Father. I have recently obtained Income Tax PAN Card. Is it compulsory to file Income Tax Return every year? Please advice. [rnpatn@gmail.com]
Opinion:
Merely having a PAN card doesn’t make you liable for filing the income tax return. Study expenses provided to you by your father is not your income. For individual assessee, filing of income tax return by an individual is mandatory if his income exceeds the basic exemption limit.












TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SPELLING MISTAKE IN PAN CARD…”
Query 1]I have received my PAN card but there is a small spelling mistake in my name as mentioned in the card. If I apply for a correction will the number change? What is the procedure? [cvkrishnan_2001@yahoo.com]
Opinion:
1. You can get the new PAN Card with the same number.
2. For this, you have to make an application in “Request for New PAN Card or/and Changes or Correction in PAN data”
. The form can be downloaded from the websites of UTI Technology Services Ltd (UTITSL), National Securities Depository Ltd (NSDL), or the I-T department [www.utitsl.co.in, www.tin-nsdl.com or www.incometaxindia.gov.in]. If there is no change in the PAN Data, do not tick in the any of the boxes on the left margin of the form. You have to attach color stamp-sized photograph on the form.
3. The form can be submitted at PAN application centers of UTITSL and NSDL, the addresses of which are available at the above mentioned website.

Query 2]We have taken a house loan jointly in names of myself & my husband. The first name is of my husband. Now, I want to know whether I can take the tax benefit against the loan. Please advice.[anjali_d25@rediffmail.com]Opinion:
1.
Ownership of house property is one of the most important pre-conditions for availability of deduction u/s 24(b) towards interest on loan & u/s 80C toward principal repayment of housing loan.
2. Merely by becoming a co-applicant (without co-ownership) would not enable an assessee to get the deduction u/s 24(b) & u/s 80C.
3. If you are co-owner in the house property also, then you would be able to claim the deduction u/s 24(b) & u/s 80C even though your name may be second in the loan documents.

Query 3]
Sir, I had two jobs in the financial year 2009-10. In the previous financial year 2008-09, I have filed ITR-1 with my one job. Now for this financial year, what should I do? Please reply. [nitin_chem4@rediffmail.com]
Opinion:
You have to file the income tax return in the F.Y. 2009-10 by clubbing the salary income of both the jobs. You may be required to pay the tax before return filing if the tax liability arises while clubbing the salary income of both the jobs.

Query 4]
I had purchased a 2BHK property in Pune in September 2004. The market rate (Bazaar Bhav) of the flat at that time was Rs. 8,91,277/- while actual purchase price (Mobadla) was Rs 8,90,000/-. Due to spinal cord injury, I am suffering from paraplegia ( form of paralyses). To cover this health related expenses, I sold the flat recently in July 10, 2010 at a market rate of Rs. 24,72,905/-. The actual sale price is Rs. XX. I need to know how much is the capital gain on the transaction? How much tax I will have to pay on this capital gain? What are the options to save tax on the capital gain? [devraj.dasgupta@gmail.com]
Opinion:
A. For calculating capital gain, the Purchase price in your case shall be considered as Rs. 8,90,000/- (& not Rs. 8,91,277/-). You may add the purchase expenses (like stamp duty, Registration charges etc) paid for purchasing the flat.

B. For calculating capital gain, the sale consideration shall be taken at higher of the following:a) Actual sale consideration for sale ORb) Market valuation of the property for levy of stamp duty.
C. Cost Inflation Index for the relevant financial years are as under:
F.Y.
C.I.I

2004-05
480
2010-11
711
D. The indexed cost of acquisition shall be Rs. [A * 711 / 480]
E. The long term capital gain shall be Rs. [B-D]

F. Taxability of LTCG & Exemption:LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961. However, you can save LCTG tax by opting for an exemption u/s 54 or U/s 54EC, as under: - i) Exemption Under Section 54:Invest the amount of Long term Capital Gain on sale of house (i.e., amount arrived at “D” above) for purchase of another house property within a period of 2 years ( for construction- 3 years period is permissible) from the date of transfer of the house. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income of the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.ii) Exemption Under Section 54EC:Invest the amount of Long term Capital Gain (i.e., amount arrived at “D” above) in Specified bonds issued by the Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer.
Query 5]
I am a pensioner of 82 years of age. My yearly gross income as on 31/03/2011 is expected to be around Rs. 3,60,000/-. The present exemption limit for senior citizens is Rs. 2,40,000/-. Therefore, excess income over exemption limit will be taxable. To bring the gross income within the exemption limit, I want to deposit Rs. 70,000/- in P.P.F account of my married daughter and invest Rs. 50,000 in Senior Citizen Saving Scheme 2004 account to be opened in the name of my wife (age 76) jointly with me. Kindly give your opinion whether deposit and investment in the abovementioned two schemes will be eligible for deduction from my gross income to save income tax. Please advice under which section of Income Tax Act this deduction is permissible. [
virammore@gmail.com]
Opinion:
1. Investment in the PPF A/c of daughter (whether married or not) is eligible for deduction u/s 80C of the I.T.Act-1961. Deposit in the senior citizen saving scheme-2004 is also for eligible for deduction u/s 80C. However, amount invested over & above Rs. 1 Lacs is not eligible for deduction u/s 80C.
2. It is advisable to invest total of Rs.1 Lacs, instead of Rs. 1.20 Lacs, in the PPF A/c of your daughter and Senior citizen deposit scheme taken together.
3. You can claim an additional deduction of Rs. 20,000/- u/s 80CCF by subscribing a long-term infrastructure bonds as may be notified by the Central Government.
Presently, the Government has allowed LIC as well as bonds issued by Industrial Finance Corporation of India, Infrastructure Development Finance Company and any other non-banking finance company classified as an infrastructure finance company to be eligible for deduction u/s 80CCF.


TAX TALK- 09.08.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SAVING LONG TERM CAPITAL GAIN TAX…”
Query 1]I had bought a flat for Rs. 1,10,000/- in the Financial Year 1984-85 and now I am selling it for Rs. 22 Lacs. What will be my long term capital gains liability and how to save the liability by way of savings or investment in booking for a new flat or purchasing some flat outright? I am a senior citizen and filing my Income Tax returns regularly, every year. Please suggest. [n_premkumar@hotmail.com]
Opinion:
1. Cost Inflation index for the F.Y. 1984-85 is “125” whereas it is “711” for the current F.Y. 2010-11.
2. Indexed cost of acquisition of flat shall be Rs. 6,25,680/- [i.e., Rs. 1,10,000/- * 711/ 125 ]
3. The long term capital gain (LTCG) on sale of flat shall be Rs. 15,74,320/- [i.e., Rs. 22,00,000 (-) 6,25,680/-]. However, if the value of the flat, for the purpose stamp duty, is higher than Rs. 22 Lacs then LTCG would be required to be calculated by taking such higher value.
4. Taxability of LTCG & Exemption:LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961. However, you can save LCTG tax by opting for an exemption u/s 54 or U/s 54EC, as under: - i) Exemption Under Section 54:Invest the amount of Long term Capital Gain on sale of house for purchase of another house property within a period of 2 years ( for construction- 3 years period is permissible) from the date of transfer of the house. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income of the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.ii) Exemption Under Section 54EC:Invest the amount of Long term Capital Gain in Specified bonds issued by the Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer.
Query 2]
Part A:
Sir, I had retired from Bank services on 31.07.2009. While filing return for the F.Y. 2009-10, whether I will be entitled for basic exemption of Rs 1.60 Lacs or Rs. 2.40 Lacs as a senior citizen? While claiming interest income, can I claim interest on some of the fixed deposits as per Cash Method and interest on some of the fixed deposits as per mercantile method? Please guide. [shripadsambarkar@gmail.com]
Part B:
I have completed the age of 65 years on 13.02.2010. Whether I will be entitled for the basic exemption limit of Rs. 2.40 Lacs for the entire year or I need to claim proportionately the basic exemption limit of Rs. 1.60 Lacs & Rs. 2.40 Lacs on day basis? [K.A. Sawarkar]
Opinion:
Part A:
Senior citizen is entitled for the basic exemption limit of Rs. 2.40 Lacs for the F.Y. 2009-2010. A senior citizen is a person who has completed the age of 65 years at any time during the previous year. So, if you have attained the age of 65 years on or before 31.03.2010, you would be entitled for the basic exemption limit of Rs. 2.40 Lacs. You can offer the interest income on fixed deposit for taxation either on cash basis or on mercantile basis. Offering interest income on some Bank FD on cash basis & some on mercantile basis is not permissible.
Part B:
You have completed the age of 65 years during the F.Y. 2009-10. You will be entitled for the basic exemption limit of Rs. 2.40 Lacs for the full Financial Year 2009-10.

Query 3]
Sir, I wish to invest Long Term Capital Gain (LTGC) in the bonds issued by NHAI / REC U/s 54EC of I.T. Act-1961. Kindly advice the rate of interest offered in these bonds & what is the lock in period? Whether interest income is taxable or tax-free? [rdteen@gmail.com]Opinion:
1. The lock in period in respect of bonds issued by NHAI/REC & eligible for exemption u/s 54EC is of 3 years.
2. Presently, NHAI / REC bonds are available at interest rate of 6% p.a. The interest income is fully taxable in the hands of the investor.
.
Query 4]
I am an engineer by profession. I have been appointed as an Advisor in a power company w.e.f 1st June 2010. I request you to please tell me about the rebates available to me considering me as senior citizen and Advisor. I understand that a lot of rebates in income tax are permissible to me as an Advisor. My lump-sum remuneration is Rs.1,25,000/- per month. Please advise the records needed (petrol receipt etc) to claim rebate? [bltiwari@gmail.com]
Opinion:
1. The availability of deductions would vary significantly depending upon your status in the company you are working for.
2. If you are working as an independent consultant (not an employee) & If the amount is paid as consultancy fees/charges, then the income would be assessable as “Income from Business/ Profession” and you will be entitled for all the expenses incurred for earning that income. Few illustrative list of expenses that would be eligible for deduction in such case could be Petrol Expenses, Telephone/Mobile Expenses, Depreciation on vehicles/laptop/etc, Salary paid for assistants/staff hired, Repairs & Maintenance expenses, etc etc. You would be required to maintain all the bills/ vouchers / records to justify your claim towards expenses.
3. If you are working as an employee of the company & the fixed amount of Rs. 1.25 Lacs is paid by the company as “Salary”, the deductions could be restricted to few like conveyance allowances, medical reimbursement allowances, etc depending upon the upon the allowances/ reimbursement you are getting in the gross package of Rs. 1.25 Lacs/pm.




TAX TALK- 02.08.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“CAN I CLAIM DEDUCTION U/S 80DD & 80U SIMULTANEOUSLY?”
Query 1]
1. I am working in State Bank of India, Mouda Branch . I am suffering from locomotors disability with 50% disability. My wife is household lady not filling any return also suffering locomotors disability (50% disability). I shall be thankful if you can highlight the provision of section 80DD & 80U. Can I claim both the section in my return and get the deduction in Income tax? [Purushottam Daga]
2. Sir, can you highlight the difference between section 80DD & 80U? As read in the previous issues of Tax Talk, both is only in respect of disability. [Pankaj Raikwad]
3. Can you please enlighten the deduction admissible u/s 80DD? Can it be claimed in the F.Y. 2009-10, though it is not claimed in the earlier years? Do I need to keep the expenses Bills for claiming the deductions? [Lalit Agrawal]
Opinion:
Deduction U/s 80DD
Deduction under this section is available to an individual/HUF who incurs any expenditure for the medical treatment, training and rehabilitation of a disabled dependent or Deposits any amount in schemes like Life Insurance Corporation for the maintenance of a disabled dependant. A deduction admissible u/s 80DD is of Rs 50,000/- in normal course. Where the dependant is a person with a severe disability, a higher deduction of Rs 1,00,000/- is allowed. The term 'dependent', as mentioned above, refers to the spouse, children, parents and siblings of the assessee who are dependent on him for maintenance and who themselves haven't claimed a deduction for the disability in computing their total incomes u/s 80U. The dependant for the purpose of section 80DD has to be a “person with a disability”.
Deduction U/s 80U
Section 80U of the I.T. Act, 1961 allows a deduction to an individual who is resident and who at any time during the previous year is certified by a medical authority to be a person with disability. The deduction under this Section is a sum of Rs 50,000/- in normal cases and if the person is suffering from a severe disability (80% or more) then with effect from F.Y. 2009-10, a sum of Rs. 1,00,000/- is allowable as deductions.
Deduction U/s 80DD VS. U/S 80U
Section 800DD provides for deduction if the assessee has a dependent with disability whereas section 80U provides for deduction to the assessee himself who is a person with disability.
“Person with Disability” for the purpose of section 80DD & 80U means a person suffering from not less than 40% of any of the disability given below: i) blindnessii) low visioniii) leprosy-curediv) hearing impairmentv) locomotor disabilityvi) mental retardationvii) mental illnessviii) austimix) cerebral palsyx) multiple disability referred to in clauses (a), (c), & (h) of section 2 of the National Trust for welfare of persons with Austim Cerebral Palsy, Mental Retardation & Multiple Disabilities Act-1999.

1. Polio leads to locomotor disability & the disability is well covered within the meaning of the word “person with disability”. Both the deduction, i.e., deduction under section 80DD and deduction under section 80U, have their own characteristics & and the person can claim deduction under both these sections simultaneously.
2. Above deduction can be claimed in the F.Y. 2009-10 even if the same is not claimed in the earlier years. The deduction admissible is an ad-hoc deduction and as such no bills are required to be kept for claiming the deductions.
Readers may refer Tax Talk dated 26.07.2010, 05.07.2010 & 28.06.2010 wherein various the provision has been appropriately elaborated.

Query 2]
Sir, My grandmother who is aged 66 years is housewife & presently do not have any source of income. She had purchased a plot in the F.Y.1984 -85 for the consideration of Rs. 13,500/-. Now in the current financial year, she has sold it for Rs. 3.90 Lacs (whereas as per stamp duty the valuation worked out by sub registrar is Rs 4.86 Lacs).
Kindly let me know
1. What will be the long term capital gain and how much will be the tax payable?
2. Whether she is entitled for basic exemption of Rs. 2.40 Lacs being a senior citizen?
3. Besides Rs. 2.40 Lacs, as basic exemption, whether she can get relief up to Rs 1 Lacs more by investing in the scripts of small saving scheme as other tax payers get. Kindly Reply. [ak5032155@gmail.com]

Opinion:
1. Cost inflation Index for the F.Y. 1984-85 is 125 & for the F.Y. 2010-11 has been notified as “711”
2. The indexed cost of acquisition shall be Rs. 76,788/- [Rs. 13,500/- * 711/125].
3. Sale consideration, for calculating the capital gain shall be taken as Rs. 4,86,000/-.
4. Long term capital gain shall be Rs. 4,09,212/- [4,86,000/- less 76,788/- ]
5. Basic exemption limit can be utilized again the long term capital gain (LTCG). Effectively, as she does not have any other source of income, she is entitled to reduce the amount of basic exemption limit against the long term capital gain. Resultantly, her taxable LTCG would be Rs.1,69,212/- which is taxable @ 20% u/s 112 of the I.T. Act-1961.
6. She is not entitled to the deduction under chapter VI-A (i.e., Rs. 1 Lacs u/s 80C towards LIC/PPF/ NSC/ Post Office etc or Rs. 20,000/- u/s 80D towards Mediclaim, etc) from the amount of Long Term Capital Gain. However, she can invest the amount in the bonds issued by the NHAI/ REC & save tax u/s 54EC of the I.T.Act-1961.









TAX TALK- 26.07.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“NOT RECEIVING H.R.A.- ENJOY THE DEDUCTION TOWARDS RENT PAYMENT U/S 80GG ”
Query 1]
I have read about availability of Deduction u/s 80DD of the Income Tax Act-1961 in your previous column of Tax Talk. Sir, I need your help. My daughter is mentally challenged (down syndrome). Can I get deduction under 80 DD? My company’s accountant has confirmed the availability of deduction up to Rs.1,00,000/- subject to submission of medical bills for this benefit whereas some one told me to merely submit the medical certificate for the deduction .What is your opinion? I shall be thankful if you can highlight the provisions of section 80DD. Whether Bills are required for claiming the deductions? [prhatwar@yahoo.com]
Opinion:
Deduction under this section is available to an individual/HUF who Incurs any expenditure for the medical treatment, training and rehabilitation of a disabled dependant; or - Deposits any amount in schemes like Life Insurance Corporation for the maintenance of a disabled dependant. An annuity or a lump sum amount is paid to the dependant or to a nominee for the benefit of the dependant in the event of the death of the individual depositing the money, from the said scheme,
A deduction admissible u/s 80DD is of Rs 50,000/- in normal course. Where the dependant is a person with a severe disability, a higher deduction of Rs 1,00,000/- is allowed.
An individual has to get a copy of the certificate issued by the medical board constituted either by the Central government or a state government in the prescribed form.
The term 'dependent', as mentioned above, refers to the spouse, children, parents and siblings of the assessee who are dependant on him for maintenance and who themselves haven't claimed a deduction for the disability in computing their total incomes u/s 80U.
The dependant for the purpose of section 80DD has to be a “person with a disability”.
Disability" for the purpose of section 80DD have been assigned the same meaning as given in clause (i) of section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 [and includes "autism", "cerebral palsy" and "multiple disability" referred to in clauses (a), (c) and (h) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999]. So effectively only expenditure on dependent with specified disability is covered by section 80DD and not on all the disabilities.
Disability" under section 2(i), as mentioned above, means 40% & above of the following sufferings:
i. blindness;
ii. low vision;
iii. leprosy-cured;
iv. hearing impairment;
v. locomotor disability;
vi. mental retardation;
vii. mental illness; [“Mental retardation” means a conditions of arrested or incomplete development of mind of a person, which is specially characterized by subnormality of intelligence]
The deduction available is a fixed deduction and is irrespective of the amount actually incurred or deposited. As such, no bills/vouchers are required to claim deduction u/s 80DD.
Query 2]
I am working in company situated in MIDC, Butibori, Nagpur & have some queries related to claim of HRA exemption. Few of our employees have been appointed as Retainers in our company & we are paying them consolidated amount as salary against the Bill Raised by them for rendering the services. They are finalizing their IT returns for the previous year 2009-10.Some of them are living in Rented House & wants to claim the deduction against the rent paid by them. But as we are not paying any HRA as component of salary to them, they can not follow the normal procedure claiming the deduction prescribed U/s 10. Kindly advice us what are the rules to claim the HRA Deduction in such cases as IT Return is to be submitted before 31.07.10. [prasad.naib@gmail.com]
Opinion:An individual who is not in receipt of HRA from the employer can claim deduction of rent from its income u/s. 80GG of the Income Tax Act. Employees, in your case, may claim deduction u/s 80GG of the I.T.Act-1961.The condition precedent to claiming deduction under this section are that:
1. He has to complete the declaration in Form No. 10BA.
2. He or his minor child , spouse or HUF of which he is a member , should not be owner of a house at the place where he ordinarily resides or performs his duties ; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) ( i.e.income from self-occupied house property )Amount of deduction – The deduction admissible shall be the lower of the following: (i) house rent incurred in excess of 10% of “total income”; or (ii) Amount at 25% of “total income”; or (iii) Rs. 2000 per month
The term “Total income” means total income after allowing all deductions expect the one provided under this section itself.
Query 3]
I have made a Long Term Capital Gain from Sale of Equity Shares of a Private Ltd Co. during FY 2010-11. Kindly advise Rate of Tax on this LTCG without indexation. Also advise whether indexation is optional or otherwise. [dnj27@rediffmail.com]
Opinion:
Long term capital gain arising on transfer of shares of private limited company shall be taxable u/s 112 @ 20%. There is no concessional rate of capital gain tax if the indexation is not done in the present case.

Query 4]
I am an employee of a Government company. Please give details of schedule EI( details of exempt income) of ITR-2a) For interest income, what is the taxable limit?b) For dividend income, what is the taxable limit?c) For long term capital gains tax, How do I show my shares of a company bought for Rs 6000/- in 1993 & presently valued for nearly Rs. 1 Lacs. Till now, I have not shown any share income in returns form. [nilay_am@rediffmail.com]
Opinion:
1. There is no separate basic exemption limit applicable to interest income as such. In schedule ‘EI’ of ITR, income via interest from PPF/ Interest-free Bonds etc which is exempt from income tax u/s 10 are required to reported.
2. Dividend income on which Dividend Distribution tax is paid by the company is exempt u/s 10(34).
3. Mere appreciation in the value of shares held by you doesn’t make you liable for income tax payment. Also, the same is not required to be shown in the ITR-2.




TAX TALK- 19.07.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“DIABITIEC PATIENT - NO DEDUCTION U/S 80DDB”
Query 1]
Sir, Kindly suggest on treatment of prior period expenses under Income Tax Act, 1961. Whether the Deduction of prior period expenses is allowed under Income Tax Act? If so, under which section deduction can be claimed? [dineshsinghgaharwar@rediffmail.com]
Opinion:
1. There is no specific provision in the Income Tax Act allowing or disallowing the prior period expenses under the Income Tax Act-1961.
2. Section 30 to 36 of the Income tax Act-1961 enumerates the various items of expenditure which can be claimed as deduction from the income of the assessee.
3. There is a residuary section 37(1) under which the deduction can be claimed by the assessee. Section 37 (1) is the residuary provision which provides for the deduction of all expenditures laid out or expended wholly and exclusively for the purposes of the business or profession and not specifically or described in section 30 to 36 and not being in the nature of capital expenditure or personal expenditure of the assessee. Thus deduction under section 37(1) is a general deduction and as such all the expenses which are not deductible under the specific provisions are deductible under section 37(1).

Query 2]
Please refer to your reply to query made by Shri Shivdeo Gupta in Tax Talk column in the Hitavada dated 12-7-2010. You have mentioned in your opinion that investment under SSSC is eligible for deduction under section 80C and immediately below that the deposit made in Senior Citizen Savings Scheme is never eligible for deduction u/s 80C. I, being a senior citizen would like to have clarification from you on the above. Please elucidate. [satishtikekar@rediffmail.com]
Opinion:
1. Investment in an account under the senior citizens Savings Scheme Rules-2004 & Five year time deposits in an account under the post office Time Deposits Rules-1981 is eligible for deduction u/s 80C.
2. The Interest income from a) post office-MIS or b) Deposit made in the Senior citizen saving scheme is never eligible for deduction u/s 80C
3. The second point as mentioned in the reply to query 1(2) dated 12.07.2010 is about interest income which is not eligible for deduction u/s 80C.

Query 3]
I am a diabetic patient. My wife too is a diabetic patient. I have to spend about Rs. 2,000/- to Rs. 3,000/- per month towards regular treatment/ precaution. I am not getting any medical aid/ reimbursement. Please advise if can claim this expenditure while filing my income tax return? If yes, up to what extent & under which section of the Income Tax Act? [A. Ambadas, Amravati]
Opinion:
1. Deduction u/s 80DDB is available on expenses on medical treatment of diseases and ailments specified in Rule 11D of the Income Tax Rules, 1962.
2. Diabetes is not covered under Rule 11D and so deduction cannot be claimed u/s 80DDB.

Query 4]
Sir, Mr. X purchase the land on 1/6/2006 for Rs. 519000/- & complete the construction of house on 1/10/2007 for Rs 14,00,000/- & he sold house on 1/11/2009 for Rs 25,00,000/-.
In this case, indexation is allowed in the case of land only and not on construction? Why? What are the provision regarding indexation. [sayl.wat@gmail.com]

1. U/s 48 of the Income Tax Act-1961, while computing capital gain, Indexation benefit is available only on transfer of long term capital assets and not on transfer of short term capital assets.
2. In the Instant case, Plot and Building are two separate and distinct capital assets while computing capital gain.
3. Plot, in the given case, is a long term capital assets since it is held for a period of more than 36 months prior to its transfer. House structure constructed thereon is a short term capital assets as its holding period doesn’t exceed 36 months.
4. Mr. X need to bifurcate the sale consideration of Rs 25 Lacs in to two parts i.e., against plot and against House constructed thereon.





TAX TALK- 12.07.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“CLUBBING OF MINOR’S INCOME - WHEN NOT REQUIRED”
Query 1]
Kindly advice on the following query:
1. I got registered my house in HUDCO, Bhilai, Distt.: - Durg (C.G.) for which I made payment to State of Chhatisgarh as follows:-a. For Patta and lease amount for 10 yrs Rs.40,000/-b. Stamp Duty for registration Rs.1, 87,280/-.My query is how these are to be shown to claim rebate from my annual income in the Income tax returns to be submitted by 31st July 2010?
2. For the financial year 2008-09, it was announced by the FM that for the Senior citizens, the interest income from MIS of Post office and of Senior citizen saving scheme can be included in 80C for the rebate. There is a controversy about the availability of deduction u/s 80C on the interest income. Please clarify. I shall be obliged if advised as early as possible in view of the short time left in submission of returns. [shivdev_gupta@hotmail.com]
Opinion:
1. Payment made towards stamp duty, registration fee & other expenses etc for purchase of a house property is eligible for deduction u/s 80C(2)(xviii)(d) of the Income Tax Act-1961. It may be noted that overall deduction u/s 80C can not exceed the max cap of Rs.1 Lacs. It may be shown as in deduction u/s 80C (under chapter VIA) in the ITR forms (as may be applicable to you).
2. Investment in an account under the senior citizens Savings Scheme Rules-2004 & Five year time deposits in an account under the post office Time Deposits Rules-1981 is eligible for deduction u/s 80C. The Interest income from post office-MIS or from the deposit made in the Senior citizen saving scheme is never eligible for deduction u/s 80C.

Query 2]
1. My turnover in the financial year 2009-10 has exceeded Rs 40 Lacs. I have not deducted tax at source (TDS) on freight, sale commission & interest payment done by me during the F.Y. 2009-10. Whether the expenses are disallowable u/s 40(a)(ia) for non deduction of tax at source? Is there any remedy so as to rectify the mistake as it is practically impossible for me to recover the tax from the transporters/others to whom I have already paid the amount. In earlier years, I was filing my return declaring profit @ 5% of my turnover as I am engaged in retail trade business. Please suggest appropriate remedy.
2. What is the TDS rate on brokerage, Advertisement expenses, printing charges, interest & professional fees payment? [R. Kashikar]
Opinion:
1. For the Financial Year 2009-10, you are not required to comply with the T.D.S. Provisions. In your case, F.Y. 2009-10 is the first year of your turnover exceeding Rs 40 Lacs limit. For individual assessee, T.D.S. provision is applicable only if his turnover in the immediately preceding financial year (F.Y. 2008-09 in your case) exceeds Rs 40 Lacs. Your income was covered by Section 44AF in the F.Y. 2008-09 which means that your turnover was below Rs 40 Lacs in the immediately preceding financial year. You will be required to comply with the provision of T.D.S. from the F.Y. 2010-11. A consequence of non-compliance in the present case is not applicable. There is no question of disallowance u/s 40(a)(ia) in the present case.
2. For the benefit of all our readers, we are producing herewith the detail TDS Chart with basic threshold limit above which tax is deductible, rate of TDS, Section under which deductible, etc as under:




Nature of payments made to resident


Threshold

Individual / HUF Payee
Payee other than
Individual / HUF

If No / Invalid PAN
Sec.
Description
Upto 30.06.2010
From 01.07.2010
Rate
Rate
Rate
194A
Interest – Payable by Banks
10000
10000
10
10
20
Interest – Payable by Others
5000
5000
10
10
20
194B
Winning from Lotteries / Crossword Puzzle
5000
10000
30
30
30

194C
Payment to Contractors – Single Transaction
20000
30000
1
2
20
Payment to Contractors – Aggregate during FY
50000
75000
1
2
20
194D
Insurance Commission
5000
20000
10
10
20
194H
Commission / Brokerage
2500
5000
10
10
20
194I
Rent-Land/Building (including factory Building)
120000
180000
10
10
20
Rent – Plant / Machinery
120000
180000
2
2
20
194J
Professional Fees
20000
30000
10
10
20

Query 3]
The income of the minor child is required to be clubbed with the income of the parents. I read somewhere about the exception when the income is not required to be clubbed. Is it so? If yes, what are exceptions to the rule? Please quote the relevant section. [JP]
Opinion:
1. Section 64(1A) of the IT Act-1961 provides that in computing the total income of an individual all incomes accruing/arising to his minor children are to be included with the income of the individual barring certain exceptions. Exceptions when the income need not be clubbed are as mentioned in (2) & (3) below.
2. Entire income of a minor child who suffers from any disability, as specified in the section 80U, is not to be clubbed with the income of the parent.
3. The proviso to section 64(1A) provides that nothing contained in this sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any –(a) Manual work done by him; or(b) Activity involving application of his skill, talent or specialized knowledge and experience.


TAX TALK- 05.07.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“INCOME TAX BENEFIT TO PHYSICALLY HANDICAPPED PERSONS”
Query 1]
Sir, Kindly clarify my two confusions:
1. Instead of "Tution Fees" it is written "Education Fees" in my son's school fees receipt. Can I claim deduction u/s 80C?
2. My wife forgot to collect TDS certificate from the bank FDR of F.Y. 2008-09. Her income before deduction under section 80C to 80U was below taxable limit. Can she file IT return in the Assessment Year 2010-11 and claim the refund and whether she be penalised with Rs. 5000/-? [saju_sak@hotmail.com]
Opinion:
3. Payment towards Development fees or donation or payments of similar nature are not eligible for deduction u/s 80C.
4. Going by the liberal interpretation of the Statue, We are of the view that “Education Fees” is eligible for deduction u/s 80C.
5. Yes, she can file her return for the F.Y. 2008-09 on or before 31.03.2011 without attracting any penalty of Rs. 5,000/-

Query 2]
a] I am partly engaged in taking the tuition classes and earning earns Rs. 30,000/- pm. I have included it in my income from other sources while filing of income tax return, but I do not maintain any books of account for it. Now my question is should I maintain any books of account & what is the rule for maintaining a books of account as per income tax act. [JR]
b] Sir, I intend to start the business of my own after leaving my present job. I shall be thankful if you can guide whether I will be required to maintain the accounts book? [L.C.Jani]
Opinion:
As per section 44AA of the I.T. Act - 1961, every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or a technical consultancy or interior decoration or certain notified professions would be compulsorily required to keep & maintain such books of accounts & other documents as would enable the Assessing Officer to compute the total income under the I.T. Act. So far, film artists, authorized representatives, profession of company Secretary and profession of Information Technology have been notified by the Central Board of Direct Taxes as the professions for the purpose of section 44AA where they have to maintain books of account compulsorily irrespective of the income from the profession.

Other assessees have to compulsorily keep books of account if the income from business /profession exceeds Rs.1.20 lakhs or the gross receipt from the profession exceeds Rs.10 lakhs in any one of the 3 years immediately preceding the previous year. Where the business is newly set up and the income from business is likely to exceed Rs.1.20 lakhs or the gross receipts is likely to exceed Rs.10 lakhs during the relevant previous year, the assessee would be required to keep & maintain such books of account and other documents as would enable the Assessing Officer to compute the total income in accordance with the provisions of the I.T. Act.

Aforesaid professional persons like Doctors, Lawyers, C.As etc. have to maintain compulsorily the following books of accounts and other documents as per Rule 6F(2) namely:- (i) cash book ; (ii) a journal, if the accounts are maintained according to the mercantile system of accounting; (iii) ledger; (iv) carbon copies of bills whether machine numbered or otherwise serially numbered wherever such bills are received by the person and carbon copies of counterfoils of machine numbered or otherwise serially numbered issued by him for sums exceeding Rs.25; (v) original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure does not Rs.50, payment voucher prepared and signed by the person.
Besides the above books of account and the documents the person carrying on medical profession has to additionally maintain the following as per Rule 6F (3) (i): a daily case register in form No. 3C; (ii) an inventory under broad head as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purposes of his profession.
It is also required that the books of account and other documents would be kept & maintained for a period of 6 years from the end of the relevant assessment year.

Query 3]
Through "Hitavada", I came to know that a deduction of Rs. 1,00,000/- is allowable, u/s 80 U in one's income if the individual is having one of various permanent disabilities. My wife is filling her Income Tax returns regularly. She is having 90% of hearing impairment.
My queries are
1. Whether she is eligible for said deduction from her taxable income?
2. If yes, then which is the medical authority acceptable to the Income Tax Department for for certifying such disabilities? What is the form/format in which report is required to be obtained?
Kindly reply through tax talk column. [chandubadkas@rediffmail.com]

Opinion:
1. Hearing impairment is a disease covered under section 80U of the I.T. Act, 1961. As it is a severe disability (80% or more), she will be entitled for a deduction of Rs. 1 Lacs u/s 80U of the Income Tax Act-1961.
2. For deduction u/s 80U, taxpayer has to obtain a copy of the certificate issued by the Medical Authority. Medical Authority, for this purpose, means any hospital or institution specified by notification by the appropriate Government for the purpose of the Person with Disabilities (Equal Opportunities, Protection of Rights & Full Participation) Act-1995.
The standard format for obtaining the certificate is as under:


TAX TALK- 28.06.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“INCOME TAX BENEFIT TO PHYSICALLY HANDICAPPED PERSONS”
Query 1]
I am retiring on 30th June 2010 and my employers are deducting tax on gratuity amount over and above Rs. 3,50,000/- and asking me to get refund from I.T. Department
1. Whether the limit is Rs. 3.50 Lacs or more? Is it Rs. 10 Lacs in some case?
2. When Government New Direct Tax Code will be in force?
What is the rule regarding the exemption/taxability of gratuity. Please elaborate.
[slnayak_52@yahoo.com]
Opinion:
1. Gratuity is taxable on the following basis
a. In the Case of Government Employee [Section 10(10)(i)]:Any death cum retirement gratuity received by an employee f the Central/State Government or Local Authority, is wholly exempt from tax.
b. 2. In the Case of Employee covered by the Payment of Gratuity Act [Section 10(10)(ii)]:Any gratuity received by an employee covered by the Payment of Gratuity Act, 1972, is exempt from tax to the extent of(i) 15 days salary (7 days in the case of employees of seasonal establishments) based on the salary last drawn for every completed year of service or part thereof in excess of 6 months;(ii) Rs. 3,50,000 or(iii) gratuity actually received,whichever is less.Gratuity in excess of the aforesaid limits is taxable in the hands of the assessee.
c. In the case of any other Employee [Section 10(10)(iii)]:Any other gratuity [not covered by a & b above], received by an employee on retirement, death, termination, resignation or on his becoming incapacitated prior to retirement, is exempt from tax to the extent of the least of (i) Rs. 10 Lacs for employees retirement/ death etc on or after 24.05.2010 (Prior to 24.05.2010, the maximum amount eligible for deduction u/s 10(10)(iii) was Rs. 3.50 Lacs);(ii) half month salary for each completed year of service; or(iii) gratuity actually received. Gratuity in excess of the aforesaid limits is taxable in the hands of the employee on due or receipts basis.
2. The new Direct tax code in all probability is expected to be implemented from 01.04.2011 & will be applicable to from the financial year 2011-12.
Query 2]
Sir,
1. I am Physically Handicapped Maharashtra Govt. Employee. My disability is 40% by Polio. How can I get exemption from Income-Tax & what is the form I have to fill?
2. I have brought a plot at Nagpur on 20th March & I have Paid Rs. 71,500/- Rs Stamp Duty. Is there any exemption in the Financial year 2009-10 as our Salary Statement is from March 2009 to Feb 2010? [irabokare_mul@yahoo.in]
Opinion:
1. Section 80U of the I.T. Act, 1961 allows a deduction to an individual who is resident and who at any time during the previous year is certified by a medical authority to be a person with disability.“Person with Disability” means a person suffering from not less than 40% of any of the disability given below: i) blindnessii) low visioniii) leprosy-curediv) hearing impairmentv) locomotor disabilityvi) mental retardationvii) mental illnessviii) austimix) cerebral palsyx) multiple disability referred to in clauses (a), (c), & (h) of section 2 of the National Trust for welfare of persons with Austim Cerebral Palsy, Mental Retardation & Multiple Disabilities Act-1999.Polio leads to locomotor disability & accordingly you can claim deduction u/s 80U. The deduction under this Section is a sum of Rs 50,000/- in normal cases and if the person is suffering from a severe disability (80% or more) then with effect from F.Y. 2009-10, a sum of Rs. 1,00,000/- is allowable as deductions. Depending upon your other income during the year, you can either file the return in ITR-1 or ITR-2.
2. The deduction u/s 80C towards stamp duty & transfer expenses is available only if the same is incurred for purchase of house property and not otherwise. In your case, stamp duty paid for purchase of plot shall not be eligible for deduction u/s 80C.
Query 3]
I am working in Semi-government organization. I have received medical reimbursement from my office for the medical treatment expenditure done on disease related to bone marrow disorder. My office has given Rs. 15,000/- relief and deducted income tax on balance amount. Please let me know medial reimbursement taken for above disease is taxable or otherwise. If exempt, please quote relevant Section & clause /Rule of I.T. Act to file return form.
[vijaybpimpale@yahoo.in]
3. Only reimbursement of medical expenses up to Rs. 15,000/- is exempt from income tax. Amount received over and above Rs. 15,000/- is taxable under the head “Income from Salary”. However, you may examine if the deduction is admissible u/s 80DDB or u/s 80U of the I.T. Act-1961
4. Deduction u/s 80DDB :The deduction u/s 80DDB is available if the expenses for the medical treatment of specified disease or ailment is incurred by assessee on himself or on dependant. The specified disease for the purpose of section 80DDB is prescribed in Rule 11DD as under: 11DD. (1) For the purposes of section 80DDB, the following shall be the eligible diseases or ailments : (i) Neurological Diseases where the disability level has been certified to be of 40% and above,— (a) Dementia ; (b) Dystonia Musculorum Deformans ; (c) Motor Neuron Disease ; (d) Ataxia ; (e) Chorea ; (f) Hemiballismus ; (g) Aphasia ; (h) Parkinsons Disease ; (ii) Malignant Cancers; (iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ; (iv) Chronic Renal failure ; (v) Hematological disorders : (i) Hemophilia ; (ii) Thalassaemia.The amount of deduction allowable under section 80DDB is the expenditure actually incurred or Rs. 40,000/- (Rs. 60,000/- for senior citizen ) whichever is lower.




TAX TALK- 14.06.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TIMING OF INVESTMENT TO SAVE LONG TERM CAPITAL GAIN TAX”
Query 1]
I have heard that any surplus invested in section 80C above 1 Lacs can be transferred to once spouse showing it as advance and settling it by paying the amount by a/c payee cheque.Sir, I have made following investment in section 80C:
1. PPF Rs. 50,000/-
2. ULIP Rs. 34,752/-
3. PF Rs. 24,125/-
4. LIC Rs. 11,123/-
Total Rs. 1.20 Lacs
I want to know if I can transfer ULIP or LIC to my wife or my parents A/c? [ssonu.aagrawal@rediffmail.com]

Opinion:
1. Deduction u/s 80C is available if the payment of LIC/PPF/ ULIP is done by the individual assessee even if the a) PPF account belongs to the spouse/child of the individual orb) LIC/ULIP is in the name of the spouse/child of the individual assessee.
2. Deduction u/s 80C is available on payment basis. In your case, if your parents or your wife makes the payment towards your PPF/ULIP/LIC then they will be eligible for deduction u/s 80C. As a tax planning tool, they can make the payment of Rs. 20,000/-.

Query 2]
My son-in-law was abroad as NRI in Central Africa between 1999 to 2009 during which period, he sent remittances to his father, by converting dollars into Indian rupees. He has since returned to India in January 2009. The amount totaling Rs. 22 Lacs is now being returned to him without any Interest, by his father by way of Crossed Bank Cheques. He has full details of remittances sent to India as NRI.
1. Is there any Tax liability on this refund of amount by the father to son?
2. What can be the future Tax planning?
3. Can the amount be deposited in Bank FD’s? Presently he has no other source of Income.
Please guide. [ak_manwani@yahoo.com]
Opinion:
1. There is no income tax liability on returning back of the amount of Rs. 22 Lacs as mentioned.
2. Future tax planning depends upon the number of factors like usage of the funds, other likely income of the receiver, family members & there income source etc & cannot be answered in isolation.
3. The amount can be deposited in the bank FDR and income therefrom will be taxable as the income of the your son-in-laws

Query 3] I have some query regarding long term capital gain. If one want to save LTCG tax, he has to invest in Infrastructure bonds or has to invest entire sale consideration in a Commercial property or has to invest in residential property full sale consideration less stamp duty, any expenditure related to development of land etc.Now, suppose he wait for some opportunity of investment in the property up to current financial year i.e. up to the date of submitting of return, but he could not find proper property and decide to pay tax (@ 20%): -
1. Does he has to pay any penalty? If any, what will be the rate?
2. If he does not open separate account for keeping sale consideration up to the date of investment, is there any penalty?
3. Is there any time limit to pay tax for LTCG?
4. If such time limit crosses, what is the penalty?
Please clarify. [desai1962@gmail.com]
Opinion:
Tax on long term capital gain can be saved: a) U/s 54EC by depositing the amount of LTCG in the notified bonds issued by National Highway Authority of India (NHAI) or in the notified bonds issued by Rural Electrification corporation (REC). To save LTCG tax u/s 54EC, one need to invest the Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets from which LTCG has arisen.b) U/s 54 if the LTCG arises from the sale of any house property. To save tax, assessee has to invest the LTCG for purchase of a residential house property (not commercial property as mentioned in the query) within a prescribed period. If the amount is not utilized for purchase of a residential house property till due date of filing the return of income, it should be deposited in the capital gain deposit account scheme to claim an exemption u/s 54.c) U/s 54F if the LTCG arises from the transfer of any long term capital assets other than residential house property. Subject to various other terms / stipulations, assessee has to invest the sale consideration for purchase of a residential house property (not commercial property as mentioned in the query) within a prescribed period. If the amount is not utilized for purchase of a residential house property till due date of filing the return of income, it should be deposited in the capital gain deposit account scheme to claim an exemption u/s 54F.From above it may be noted that, for exemption u/s 54EC, the amount need to be deposited within a period of 6 months from the date of Sale. For exemption u/s 54/ 54F, the amount either need to be invested for purchase of house property or need to be separately kept in the capital gain deposit account scheme. From the date of sale to the date prior to the due of filing the return of income, the assessee is free to use the amount as per his wish.
With above in mind, the point-wise reply to your queries is as under:
1. No penalty is payable if the assessee opts to pay tax instead of opting for exemptions under above referred sections. Only interest u/s 234A/B/C shall be payable, wherever applicable.
2. Assessee is free to use the amount till it is utilized for investment eligible for exemption u/s 54EC/54/54F. There is no stipulation to separately earmarked/ parked the fund immediately on its receipt itself. Pending the prescribed investment, the assessee is free to use the fund as per his discretions.
3. Total LTCG tax is required to be paid on or before the due date of filing the income tax return. If the assessee is sure of not opting for exemption u/s 54EC/54F/54 then it is advisable to pay the same in advance to avoid interest leviable u/s 234B/234C of the I.T. Act- 1961.
4. The assessee shall be liable to pay interest for delay in payment of LTCG tax.
Query 4]
Kindly let me know how and under which head, the income/loss from trading in commodity futures and currency futures, when the transactions are squared off and no deliveries are involved, is to be accounted for in income tax return? As you are already aware, no STT is charged on such transactions. [k_kumar39@hotmail.com]
Opinion:
Income from trading in commodity/currency futures should be treated as “Income from Business/ Profession” in the Income Tax return.








TAX TALK- 07.06.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“FOREIGN REMITTANCES & SUBMISSION OF FORM NO. 15CA/ 15CB”
Query 1]
Please clarify for F.Y. 2009-10:
1. Whether standard deduction benefit is available for pension received by the employee from PSU. I am getting Rs. 17,000/- as pension/year. How much deduction is available? Please indicate section.
2. Whether indexation benefit is available to Debt Mutual Fund where no STT is deducted?[dhanyakumar1936@gmail.com]
Opinion:
1. Pension received by the employee is taxable under the head “Income from Salary”. No standard deduction benefit is available on the pension received by the employee from PSU as section 16(i) has been omitted by the Finance Act-2005.
2. Indexation benefit is available to the Debt Mutual Funds if it fulfills the conditions of being the Long Term Capital Assets.

Query 2]
Sir, I am working with a Nationalized Bank as a Specialist officer & handling corporate taxation of the Bank. I am having few doubts with reference to the Tax Talk dated 26th April 2010 in the Hitavada regarding obtaining of PAN by the non residents. Our customers are facing some problems in obtaining Form No. 15CA & 15CB in case of Forex remittances. I want to know whether such forms are required to be obtained in case of Imports also or only in the cases where Tax (TDS) is required to be deducted? I also want to know what should be the accounting treatment for the withholding tax. Whether it should be debited to P& L A/c? Is there any return to be filed for that purpose? [ps@mahabank.co.in]
Opinion:
1. Section 195(1) of the Income Tax Act-1961 reads as under:”Any person responsible for paying to a non-residents, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”) shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheques or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate in force: ….”
2. Legally & technically speaking, any sum paid/payable to Non Residents & not chargeable to tax in India under the Income Tax Act-1961 should not attract T.D.S u/s 195. Generally, payments towards imports of goods/ personal remittances are outside the purview of deduction under section 195.
3. RBI had earlier mandated that no remittances (except certain personal remittances) shall be made to non-residents unless a remitter obtains a No Objection Certificate from the Income Tax Department. Later on the procedure of obtaining NOC from the department was done away with the new procedure of furnishing the undertaking in Form No. 15CA by the remitter coupled with submission of certificate in Form No. 15CB from the Chartered Accountant. Effectively, by virtue of RBI instructions, remittance requires furnishing of the said undertaking/ certificate. The purpose is obvious i.e., to collect the taxes at the stage when the remittance is made as it may not be possible to recover the tax a later stage from non residents.
4. Deductor as a mediator between the deductee and the Government. There is no question of debiting the tax withheld to the P & L A/c. Till the tax is withheld, it is to be shown as liability only in the books of Deductor. No return is required to be filed for the tax withheld.

Query 3]
1. The due date of payment of TDS deducted on 31st March has been extended to 30th September but the due date for filing of e-TDS return is 15th June. So we are facing the problem in making the e TDS return as most of the TDS deducted is yet to be paid and the customers whose tax is deducted by us are demanding form No. 16A which can not be issued till e-TDS return is filed and acknowledgment number is received. What will be the treatment of the TDS if it is paid after filing of the return?
2. As per the notification issued by the CBDT, PAN is compulsory for all the deductees otherwise TDS is required to be deducted @20%. We are following the rule and deducting tax @ 20%. But while filing e TDS return, PAN of 90% of the deductees are compulsory otherwise return is rejected. So what should be done in such cases? [priyamvada]
Opinion:
1. It has been provided that no disallowances of expenditure u/s 40(a)(ia) shall be there if the tax is paid on or before the due date of filing the return of income. The due date of the payment of Tax deducted at Source (TDS) is not extended as mentioned. As far as tax deducted within due date & issuance of Form No. 16A thereof is concerned, you can immediately file the e-TDS return mentioning the deductees details as well as challan paid thereof. Subsequently, you can file correction return adding in it the details of the new TDS Payment Challan as well as new deductees details. This can serve all your purposes. The prescribed file format of the correction return is available at www.tin-nsdl.com.
2. You have to compulsorily quote the PAN of a) 95% deductees in case of e-TDS return for salaried deductees (Form No. 24Q) & b) 85% deductees in case of e-TDS return for non-salaried deductees (Form No. 26Q)The rule has not yet been amended so as to give the new provision where tax is deducted @ 20% in accordance with the new provision. However, you can file the e-TDS return with details of the deductees having valid PAN without incorporating the details of the deductees without PAN & in whose case tax is deducted @ 20%. It is not necessary that the Challan payment should always tally with the aggregate of Deductees tax deduction figure. Till your challan exceeds the aggregate of Deductees tax, return will be accepted. For ease of understanding, refer below example: a) Suppose a challan payment of Rs.1,00,000/- has been made for non-salary TDS against 100 deductees each with TDS of Rs.1,000/-. Under the existing procedure the deductor will have to quote at least 85% PAN failing which his return will be rejected. b) If there are only 50 deductees whose PAN is available and the deductor attempts to file a return with details of 100 deductees with PAN of only 50 deductees, the return will automatically be rejected at present. c) However, if the deductor files a return with challan amount of Rs. 1,00,000/- and with details of 50 deductees with PAN (with deductee total of Rs.50,000/-), the return will be accepted. It means the deductor can furnish the details relating to such deductees whose PANs are available. d) The deductor can later file correction returns with other details of remaining deductees with the same challan details, i.e., the challan amount should be the amount deposited (in this case Rs. 1,00,000/-). e) The return will be accepted so long as the TDS total of incremental deductees is less than or equal to the balance of Rs.50, 000/-.


TAX TALK- 31.05.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“FILING e-TDS RETURN WITH INSUFFICIENT PAN”

Query 1]
Sir, while filing quarterly e-TDS return: If total number of persons from whom TDS is deducted are 10 & if we don't have PAN for 3 persons, can we still file the TDS return? If yes, does system will accepts the said return? How much non availability of PAN is allowed while filing e-TDS Returns? Is there any percentage for it while filling e-TDS return? [dineshsinghgaharwar@rediffmail.com]
Opinion:
3. You have to compulsorily quote the PAN of a) 95% deductees in case of e-TDS return for salaried deductees (Form No. 24Q) & b) 85% deductees in case of e-TDS return for non-salaried deductees (Form No. 26Q)In your case, PAN of at least 9 persons is required while validly filing e-TDS return if it pertains to TDS other than salary.
4. However, you can file your e-TDS return for the deductees who have valid PANs and subsequently file correction return (or say revised return) for remaining deductees whose PANs were not available with you while furnishing regular return. You are required to file a correction return in a prescribed file format available at www.tin-nsdl.com.
5. The amount deposited vide that particular challan should be mentioned in the original as well as correction return.
6. For ease of understanding, refer below example: a) Suppose a challan payment of Rs.1,00,000/- has been made for non-salary TDS against 100 deductees each with TDS of Rs.1,000/-. Under the existing procedure the deductor will have to quote at least 85% PAN failing which his return will be rejected. b) If there are only 50 deductees whose PAN is available and the deductor attempts to file a return with details of 100 deductees with PAN of only 50 deductees, the return will automatically be rejected at present. c) However, if the deductor files a return with challan amount of Rs. 1,00,000/- and with details of 50 deductees with PAN (with deductee total of Rs.50,000/-), the return will be accepted. It means the deductor can furnish the details relating to such deductees whose PANs are available. d) The deductor can later file correction returns with other details of remaining deductees with the same challan details, i.e., the challan amount should be the amount deposited (in this case Rs. 1,00,000/-). e) The return will be accepted so long as the TDS total of incremental deductees is less than or equal to the balance of Rs.50, 000/-.

Query 2]
My wife is a private tuition teacher and her income in around Rs. 1.10 Lacs p.a. She is also an investor and trader in the stock market and her income during the Financial Year 2009-10 from trading of securities is around Rs. 50,000 /-. Total income from private tuitions and gains from the stock market are around Rs. 1.60 Lacs during the F.Y. 2009-10. Whether she has to pay any Short Term Capital Gains tax on the income she realized from trading of securities, i.e., Rs. 50,000 /- ? Please clarify. [SRK Rao]
Opinion:
As her income is below the basic exemption limit, she is not required to pay any income tax, not even on Short term capital gain (STCG) of Rs. 50,000/-.

Query 3]
1. I have taken the Loans against Property from HDFC Bank in the F.Y. 2009-10. The amount is used to cover up my old share market loss. I am a salaried income tax payee. Please let me know whether interest and principal repayment would qualify for income tax benefit? It may be noted that I have not taken any income tax benefit when I had purchased this property in the F.Y. 2001-02. My salary during the F.Y. 2010-11 would be around Rs. 8.15 Lacs.
2. Whether School fees of Rs. 45,000/- (approx) to be paid by me in the current F.Y. 2010-11 will be eligible for deduction u/s 80C or there is a max cap of Rs. 12,000/- (or Rs. 6,000/-) on such payment?
3. I read in the earlier issues of TT that Deduction of Rs. 1,500/- is available whenever a minor’s income is clubbed with the income of the parents. Is it restricted to two childs only or can be claimed for the third child as well? Please guide by quoting relevant sections.
Opinion:
1. Deduction towards interest on borrowed capital is available u/s 24(b) in respect of loan taken for purchase/ construction/ renovation/ repairs / reconstruction of the house property whereas deduction towards principal repayment of the loan is available u/s 80C only in respect of loan taken for purchase/ construction of the house property. In your case, the deduction u/s 24(b) or u/s 80C shall not be available as the loan is not taken for the above purposes.
2. Subject to overall maximum cap of Rs. 1 Lacs u/s 80C of the Income Tax Act-1961, entire tuition fees paid for education of children is eligible as deduction.
3. Rs. 1,500/- is eligible as deduction u/s 10(32) whenever a minor’s income is clubbed with the income of the parents. The deduction is available from the income of all the minor child and there is no restrictions on the number of child in respect of this deduction of Rs. 1,500/- can be claimed.




TAX TALK- 24.05.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“INCOME TAX REFUND NOT RECEIVED….”

Query 1]
I had filed my IT returns for the Assessment Year 2009-10 electronically on 31-07-09, but still I have not received TDS refund. Kindly advice. [drkhoria@rediffmail.com]
Opinion:
1. Income Tax Returns are processed by the department on First In First Out basis. Issue of Refund depend upon the earlier return pending with the concerned authorities and is subject to any defects/deficiencies that may be contained in the returns submitted. The exact status regarding your refund can be known from the concern authorities where you have filed your income tax return.
2. You may write a letter to your Assessing Officer giving details of your return of income with a request to expedite your refund. Then, follow it up with personal visit with the Assessing Officer.
Query 2]
Please clarify the following. I am receiving pension of Rs. 1.80 Lacs per year & have interest income of Rs. 60,000/- from deposits jointly placed in the name of my wife & myself. Her name is first in the FDR & also in the S.B. A/c. Investment is done from my retirement benefits. My wife is a housewife & don’t have income. She is not filing any income tax returns. Please clarify whether I need to include this entire interest income as my taxable income or only half the amount is to be included being joint deposit holder? [shirishkumardeshpande@gmail.com]
Opinion:
Where an asset is transferred by an individual to his or her spouse, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live part, any income from such asset will be deemed to be the income of the transferor –[Section 64(1)(iv) of the I.T. Act, 1961]
Effectively, entire interest income from FDR done by you from your retirement benefits will be clubbed with your income & will be taxable in your hands only even though the FDR is placed in the name of your wife (irrespective of her first name in the Bank FDR).

Query 3]
My wife is housewife & don’t have any earning source. She have a Demat A/c (First holder) & I am second holder. She is trading share market in future lot & incurred loss of huge amount of Rs. 1.50 Lacs (approx). I am a salaried employee in private industry & filing return regularly since last 4 years. My questions are
1. Whether she will pay any tax to income tax Department?
2. Any return form to be required? If yes, which form?
3. Any benefit to me for applying the tax file? [suresh_talmale@rediffmail.com]
Opinion:
If the amount invested by your wife is out of the fund belonging to you, the income/loss will be treated as your income/loss and will accordingly be taxable in your hands only by virtue of provision incorporated in Section 64(1)(iv) of the I.T. Act, 1961 & elaborated in query No. 2 above. In this case, she would not be required to file her income tax return as the income/loss would be assessable in your hands only.
If however the amount is invested out of her own funds (and not out of the fund transferred by you), the income/loss would be treated as her own income/loss and would be assessable in her hands only. In this case, as her income is below the basic exemption limit, she would be neither required to pay any income tax nor she would be required to compulsorily file the income-tax return. However, in such case it is advisable to file the return (in ITR-4 return form) on or before the due date of filing the same so as to be able to carry forward such loss for set off against the income in subsequent years.

Query 4]
I am working as a Teacher in a CBSE Brand school & as agreed during appointment in the school, I am getting 100% rebate on the school fees of my 2 children. However, the amount of fees is added with my gross salary as perquisite which has resulted in increased TDS on salary income. Is this correct? I shall be thankful if you can kindly elaborate / quote the legal provision to this effect? Further, I am not allowed the deduction available under section 80C. Why is it so? It is told to me that that since I am not paying the fees myself, I am not eligible for deduction under section 80C. Whether it is so? When the fee is added to my salary, then logically I should be able to get the deduction on the same as well. Please guide. [Mrs. Gayatri K.]
Opinion:
Section 17(2)(iii) clearly provides that the value of any benefit or amenity granted or provided free of cost or at concessional rate shall be taken as perquisite. Income Tax Rule 3(5) states as under: “The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered: Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value of such benefit per child does not exceed Rs. 1,000 p.m”. Therefore, the treatment by your Employer of the free education value as perquisite which is taxable in your hand is justified.
Deduction u/s 80C:We agree with your submission. We are of the opinion that you are eligible for deduction u/s 80C for the amount of tuition fees paid by your employer and treated as perquisite. Even though, the employer is unwilling to consider the claim u/s 80C while working out T.D.S, we suggest you to claim it while filing your income tax return.









TAX TALK- 10.05.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SALE OF SHARES OF UNLISTED COMPANY & EXEMPTION U/S 54F”

Query 1]
By oversight, we have recovered less Profession Tax (in M.P.) from employees in the F.Y.2009-10. We have deposited the amount in the State Treasury but the same is recovered from the employees in Apr-2010 (i.e., from Salary of F.Y.2010-11). My query is whether the employee will get deduction u/s 16(1) in Income Tax calculations in the F.Y.2010-11? [Aniruddha.Kolte@Raymond.in]
Opinion:
Deduction from Salary towards profession tax is available u/s 16(iii) of the I.T.Act-1961. The deduction is available on payment basis. The employee, in the given case, would be paying the profession tax in the F.Y.2010-11. Resultantly, the same shall be deductible u/s 16(iii) in the F.Y. 2010-11 only.

Query 3]
Can you kindly guide me on the following issues :
1. If someone purchases equity shares of a private limited company in March-09 and then sale those shares in April-2010 then whether it is LTCG? If yes, whether one can claim exemption u\s 54F?
2. Both sale and purchase of shares of the above private limited company are by way of purchase from existing shareholders and then sale to new shareholders directly. [AJ]
Opinion:
1. Shares would be categorized as Long term capital gain if it is sold after a holding period of more than 12 months.
2. There is no distinction between shares of private limited company or a public company or shares of a listed company vis a vis shares of unlisted companies while classifying the same as long term or short term assets.
3. Individual / HUF assessee can claim exemption u/s 54F on LTCG arising on sale of shares.

Query 4]
1. I am a senior citizen and retired Government servant.
2. The Govt. of Maharashtra has decided to pay the arrears of pension of 39 months i.e. from 01.01.2006 to 31.03.2009, worked out as per 6th pay commission in five annual installments after deducting the amount given as advance in F.Y.2008-2009. Accordingly 1st installment was paid in F.Y.2009-2010 & 2nd installment will be paid in the current financial year.
3. If the total amount (i.e., the amount of advance & two installments) is divided by 39, the break up of each financial year will be available. Even the amount so worked out is included in the total income of respective financial year, the amount is quite less than the exemption limit & hence no tax liability arises in my hands.
4. I am of the opinion that while working out the tax liability of current financial year, the whole amount of second installment will be excluded from the total income. Kindly confirm & oblige.
5. Kindly also intimate as to whether the return is to be filed even if the total income worked out as above is less than the exemption limit. If so, where this relief is to be shown in ITR? [M.Y.Khan, Amravati. -faraaz.fast@gmail.com]
Opinion:
A. The arrears of salary, though pertaining to earlier years, if received in the current year shall be includible in the income of the current year for levy of income tax.
To avoid the hardship caused by reason of taxability of income in the year of receipt vis a vis the year to which arrears pertains, relief is provided by section 89(1) read with Rule 21A(2). The adverse affect of income tax will almost (or significantly) be neutralized by availing the relief provided by section 89(1).
For mass benefit, we are producing the mode of computing relief u/s 89 read with Rule 21A(2). The relief can be calculated by adhering to the point-wise steps as mentioned below: 1. Calculate the tax payable on the total income, including the arrears of salary, of the relevant previous year in which the same is received.2. Calculate the tax payable on the total income, excluding the arrears of salary, of the relevant previous year in which the additional salary is received.3. Find out the difference between the tax at (1) and (2).4. Compute the tax on the total income after including the arrears of salary in the previous year to which such salary relates.5. Compute the tax on the total income after excluding the arrears of salary in the previous year to which such salary relates.6. Find out the difference between tax at (4) and (5).7. The excess of tax computed at (3) over tax computed at (6) is the amount of relief admissible under section 89. No relief is, however, admissible if tax computed at (3) is less than tax computed at (6).In such a case, the assessee-employee need not apply for relief.If the arrears of salary relates to more than one previous year, salary would be spread over the previous year to which it pertain in the manner explained above. 8. The required particular for relief u/s 89 is required to be furnished in Form No. 10E.

D. Whether filing the income tax return is compulsory: Filing the income tax return shall be mandatory if the income (before deduction under Chapter VIA i.e, deduction towards LIC, PPF, Mediclaim, Donation etc) exceeds the basic exemption limit. The return form for the F.Y. 2010-11 will be notified subsequently & the form shall have required columns to disclose tax relief admissible u/s 89.
Query 4]
Sir, kindly clarify my two confusions:
1. Instead of "Tuition Fees", it is written as "Education Fees" in my son's school fees receipt. Can I claim deduction u/s 80C?
2. My wife forgot to collect TDS certificate from the bank agent on FDR of F.Y. 2008-09. Her income, before deduction under section 80C to 80U, is below taxable limit. Can she file her IT return in the Year 2010-11 and claim the refund? Whether she will be penalized with fine of Rs. 5000/-? [ saju_sak@hotmail.com]
Opinion:
1. Payment towards Development fees or donation or payments of similar nature are not eligible for deduction u/s 80C.
2. Going by the liberal interpretation of the Statue, We are of the view that “Education Fees” is eligible for deduction u/s 80C.
3. Yes, she can file her return for the F.Y. 2008-09 on or before 31.03.2011 without attracting any penalty of Rs. 5,000/-



TAX TALK- 03.05.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“FORM NO. 15G VS. FORM NO. 15H?
Query 1]
Sir, I work in Manufacturing Co In MIDC Area in Nagpur. It would be of great help if you give clear cut clarification regarding the TDS matters. I have following queries.
1. As per instruction of CBDT circulars, from 01.04.10 if any transporter gives PAN /PAN Card then no TDS is to be deducted. If the transporter doesn’t furnish PAN, TDS is to be done@ 20%. But I read in some articles that this new rule is not for transporters only but also for others categories of tax payment. Is this really true?
2. What rules are to be followed for deducting TDS while making payments of Labour Suppliers, Contractors & Other Consulting Firms considering points mentioned in (1) above?
3. What to do while deducting TDS of salaried individuals on monthly basis? Is this rule applicable for Individuals as they also posses PAN?
4. Should we intimate our clients regarding this rule as they are deducting TDS while making payments to us? [prasad.naib@gmail.com]
Opinion:
1. In order to strengthen the PAN mechanism, a new section 206AA has been inserted with effect from April 1, 2010 which provides as under: a) Every person whose receipt are subject to deduction of tax at source (i.e. the deductee) shall furnish its PAN to the deductor. It will be compulsory from 01.04.2010.b) If such person does not furnishes PAN to the deductor, the Deductor shall be required to deduct tax at source at higher of the following rates-i) At the rate prescribed in the Act.ii) At rate in force, i.e. the rate mentioned in Finance Act.iii) At the rate of 20%.
2. New Provision & Payment to Transport Operator:a) In the case of payment to transport operator, tax will not be deductible under section 194C if the transport operator furnishes his PAN to the deductor.b) If PAN is not furnished the rate will be @ 20%.
3. New Provision & Payment to Labour contractor/ Supplier: a) In the case of payment to labour contractor, tax will be deductible @ 2% u/s 194C if the contractor furnishes his PAN to the deductor.b) If PAN is not furnished, the TDS Rate shall @ 20%.
4. New Provision & Payment to Consulting Firm:a) In the case of payment to consultants, tax will be deductible @ 10% u/s 194J if the deductee furnishes his PAN to the deductor.b) If PAN is not furnished, the TDS Rate shall @ 20%.
5. New Provision & Salary Payment:Section 206AA will be applicable even in respect of salary payment as well. So, if employee fails to submit the PAN, TDS may be required to be done at a higher rate.
6. To ensure that the deductor know about the correct PAN of the deductee, there is a provision for mandatory quoting of PAN of the deductee by both the deductor and the deductee in all the corresponding bills and voucher exchanged between them. So ensure to quote your PAN in all the correspondents with the clients you are dealing with.
Query 2]
A senior citizen is having Pension Rs.240000/- and interest income of Rs.36000/- investment in PPF is Rs.70000/-. Is he eligible to file Form No.15H to the Bank since tax on his estimated total income will be Nil. Please distinguish Form No. 15G vis a vis Form No. 15H? [PS]
Opinion:
1. Form No. 15G is a declaration form for non senior citizens whereas Form No. 15H is for a senior citizen.
2. In order to be eligible to furnish Form 15G, the non-senior citizen investor needs to fulfill the following two conditions:a) The final tax on his estimated total income computed as per the provisions of the Income Tax Act should be nil, andb) The aggregate of the interest etc. received during the financial year should not exceed the basic exemption slab, which is Rs. 1.60 Lacs for male, Rs 1.90 Lacs for female assessee and Rs. 2.40 Lacs for senior citizens for the F.Y. 2010-11.If both these conditions are satisfied, Form 15G may be furnished and the entire interest income is received without tax deduction.
3. In order to be eligible to furnish Form 15H, the senior citizen needs to fulfill just the first condition, i.e., the final tax on the assessee’s estimated total income should be nil. The second condition (as mentioned in (b) above) imposed for Form 15G is not applicable.
4. In view of this, we are of the view that the senior citizens can file Form No. 15H so as to get the income without deduction of tax at source.
Query 3]
I had purchased a house building with ready possession in the March-2006 by availing a housing loan from ICICI Bank. I have been regularly paying the EMI from April-2006 to the bank. I now propose to sell this property in the current financial year (FY 2010-11)
I have following queries:
1. Please advise whether the income would be short term capital gains or long term capital gains?
2. I already have one property in my name, can I buy a second property to waive of the tax?
3. Alternative, can I buy land in my home town? [Lalit Jadhav, Amravati]
Opinion:
1. You will be selling the property after a total holding period of more than 3 years. The Capital gain would be Long Term Capital Gain.
2. You can save Long term capital gain on sale of House property by opting an exemption u/s 54 or u/s 54EC. i) Exemption Under Section 54:Invest the amount of Long term Capital Gain on sale of house for purchase of another house property within a period of 2 years ( for construction- 3 years period is permissible) from the date of transfer of the house. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income of the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.ii) Exemption Under Section 54EC:Invest the amount of Long term Capital Gain in Specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer.ii) You can buy the land in your home town for saving tax. In that case, you have to construct the house within a period of 3 years from the date of transfer of existing house. Land cost will also be considered for the purpose of exemption u/s 54.
3. Words of caution: It may be noted that as Per section 80C, if a person is claiming House loan repayment benefit under section 80C and has sold the House within 5 years from the date of purchase of the house then all the benefit availed under this section (80C) will be reversed and will be included in the taxable income of the year in which house is sold.In your case you have purchased house in March ,2006 and if you sale it before March-2011 (i.e., before the expiry of the five years from the purchase of the house) then the tax benefit (if any ) u/s 80C availed by you in the Financial year 2006-07,2007-08,2008-09 & 2009-10 will be reversed in Financial year 2010-11. Plan your transactions keeping this in Mind.




TAX TALK- 26.04.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“WHETHER EXEMPTION U/S 54 & U/S 54EC CAN BE CLAIMED SIMULTANEOUSLY?
Query 1]
Whether the Non resident is compulsorily required to obtain Permanent Account Number (PAN) in India as a result of new changes in the Indian Income Tax Act? What is the law incorporated in section 206AA? What are its implications on Resident / Non Resident? Please elaborate. [RT]
Opinion:
1. In order to strengthen the PAN mechanism Section 206AA was introduced by Finance Act (No.2) 2009.
2. These provisions will come into force from April 1, 2010.
3. The section provides that any person whose receipts are subject to deduction of tax at source shall be required to mandatorily quote his PAN to the person responsible for deducting TDS. In case the deductee fails to intimate the PAN to the deductor, then the deductor shall be required to deduct TDS at following rates:a). Rates prescribed in the Income-tax Act or in the Finance Act, orb). At the rate of 20%.Whichever is higher.
4. In other words, if the person fails to intimate the PAN to the deductor, TDS will be at a minimum rate of 20%.
5. The above provisions will be applicable to all assesses. The intent of the legislature is clear from the Memorandum to the Finance Bill, which specifically provides that these provisions will also apply to the NON-RESIDENTS.
6. The aforesaid legal position has again been reiterated by CBDT through its Press Note dated 20th January, 2010 which states:“A new provision relating to tax deduction at source (TDS) under the Income Tax Act 1961 will become applicable with effect from 1st April, 2010. Tax at higher of the prescribed rate or 20% will be deducted on all transactions liable to TDS, where the Permanent Account Number (PAN) of the deductee is not available. The law will also apply to all non-residents in respect of payments / remittances liable to TDS. As per the new provisions, certificate for deduction at lower rate or no deduction shall not be given by the assessing officer under section 197, or declaration by deductee under section 197A for non-deduction of TDS on payments shall not be valid, unless the application bears PAN of the applicant / deductee”.
7. The issue is particularly important to non-residents because in most of the cases their income is taxable @10% whereas in the absence of PAN, tax will be deducted @20%.The problem may be looked at from another angle. Taxability of non-residents in India is subject to the provisions contained in the Double Taxation Avoidance Agreement (DTAA) entered into by Government of India with other countries. After introduction of Section 206AA, a question arises whether the tax required to be withheld will be as per the rate mentioned in the DTAA or as per Section 206AA?
8. In this respect, the decision of the Honorable Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft, [310 ITR 320] is worth consideration. In the said case, it was held that by an unilateral amendment in the domestic law, it is not possible to tax income which otherwise was not subject to tax under the tax treaty. Since Section 206AA has been inserted by a unilateral amendment, it cannot override the rates prescribed in the tax treaty.
9. Nevertheless, there is a possibility that after section 206AA comes into force, i.e. w.e.f. 01.04.2010, the income of non-residents could be subjected to higher rate of TDS @20% if PAN is not available. In such cases, in order to claim refund of excess TDS deposited, the non-residents will have to file their return of income in India. This will be a cumbersome procedure.
10. The procedure for obtaining PAN is simple, inexpensive and quick. Non-residents can apply through the local embassy / consulate of India. Applications can also be filed, paid for or tracked online through the Internet. Non-residents are advised to obtain Permanent Account Number (PAN) before receiving any income from India.

Query 2]
I have sold house property in April-2010 for Rs. 68 Lacs. It was purchased by me only in 1984 for Rs. 7.12 Lacs. I want to invest Rs. 30 Lacs for purchase of Row House and to claim exemption u/s 54 of the I.T. Act-1961. Balance Rs. 38 Lacs, I wish to invest in the REC/ NHAI bonds to save long term capital gain Tax u/s 54EC as mentioned in the Tax Talk dated 05.04.2010. My query is whether I can claim both exemption u/s 54 & u/s 54EC simultaneously or not? Someone told me that exemption under only one section can be claimed and simultaneous exemption is not possible. I shall be thankful if can kindly elaborate the legal provision with citations thereon. [Akshay Jain, Amravati]
Opinion:
1. To save LTCG tax u/s 54 or U/s 54EC, Investment of Long term capital gain is just sufficient (& need not be the entire sale consideration). So, investment of entire Rs. 68 lacs is not necessary for exemption u/s 54 or U/s 54EC.
2. Both these exemption provisions are not mutually exclusive provisions , that is, there is nothing specific in the provisions u/s 54 or 54EC which states that one can not avail of both the exemption simultaneous.
3. Further wording of provisions of section 54EC itself shows that the law makers have enacted the provisions as additional incentives. That is the reason , the provision contains word ” whole or any part of it , which means that it was not necessary that full amount of capital gains should have been used for buying the “Specified Assets”. Relevant extract of section 54EC is as under: -“54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the While or Any Part of the capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,…….”
4. If the Law makers had the intention of not giving the simultaneous exemption u/s 54 & 54EC, it could have been written in the provision itself similar to the provision in Section 54EC which mentions that investment in specified asset will not be taken in to account for rebate u/s80C or 88 if the same is considered for the exemption u/s 54 EC.
5. With above analysis, we are of the opinion that there is no such restriction about claiming of exemption u/s 54 (or 54F) simultaneously with section 54EC.
TAX TALK- 19.04.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TRANSFER OF SHARES FROM ONE DEMAT ACCOUNT TO OTHER- WHETHER ANY INCOME TAX IMPLICATION?
Query 1]
Sir, I am Central Government Employee. In the financial year 2009-10, in the month February-10, Income tax was deducted (through TDS) on my full year salary. However, in the month of March-2010, I purchased house for Rs 15 Lacs. Out of Rs. 15 Lacs, I have availed a bank loan of Rs. 13 Lacs. For purchase of house, I had paid Rs. 82,500/- as a stamp duty & Rs. 15,000/- as registration fees. Now my queries are
1. Can I get income tax rebate on stamp duty & registration fees?
2. If yes, how much rebate can I claim?
3. How can I claim refund of income tax paid as a T.D.S by my employer? [vg2977@yahoo.co.in]
Opinion:
1. Yes, you can get deduction towards stamp duty and registration charges paid for purchase of house.
2. The deduction towards registration expenses & stamp duty for purchase of house is available u/s 80C of the Income Tax Act-1961. The maximum amount of deduction admissible u/s 80C is Rs. 1 Lacs. It may be noted that the investment in LIC/ PFF/ NSC etc is also covered in section 80C. The total deduction u/s 80C cannot exceed Rs. 1 Lacs.
3. Though above deduction is not considered while issuing Form No. 16 to you or while working out the T.D.S in your case, the same can be claimed at the time of filing income tax return. You should claim the above deduction in the income tax return to be filed by you for the F.Y. 2009-10.
Query 2]
I am a salaried Govt. Servant paying tax in 30% slab. Excluding salary income, I earned profit/interest in FY 09-10 as below: -
1. Bank interest from F.D. Rs. 7,000/-
2. Interest on Tax saving Bonds - Rs. 1,200/-
3. Short term capital gain from share Investment – Rs. 22,000/-
What will be my tax liability towards above 3 sources separately? I have not filed return since Form 16 is not received from employer.
[sskorpade@gmail.com]
Opinion:
1. Your income from bank FDR & on Tax saving bonds of Rs. 8,200/- will be taxable straightway @ 30% since your salary income is in 30% tax bracket.
2. Short term capital gain (STCG) in your case is appearing to be a capital gain income & accordingly will be taxable @ 15% u/s 111A of the Income Tax Act-1961.
3. In addition to the basic rate of tax mentioned in (1) & (2) above, education cess @ 2% & secondary & higher education cess @ 1% shall further be payable.

Query 3]
I was maintaining two Demat accounts so far. But now I have opened a new Demat account with a third DP and transferred all my shares in the two earlier Demat accounts to this third new Demat account. Now I feel the need of the following clarifications for accounting & tax purposes:
1. As the transfers have been made in the nature of paper transfers, no sale or purchase of share has taken place. Then what will be the value of shares at the time of credit into the new Demat account? Will it not be the same as earlier at the time of acquisition into the old Demat accounts?
2. What will be the date of acquisition of the shares to be shown in the new Demat account after their transfer into it? This will be relevant to arrive at the long/short term capital gains at the time of sale of the shares from the new Demat account.
3. If the date of transfer of shares into the new Demat account is to be reckoned as the new date of acquisition of shares, what happens to the period of holding the shares in the old Demat accounts and how the entries will be made in the long/short term capital gains account?
4. I presume that since I continued to be the holder of the shares from the date of original acquisition till the date I sell the same in the share market, I should be entitled to the benefit of full period of holding the shares in my name, irrespective of the Demat account in which these are held. If this presumption is correct, how will the accounting entries be made in respect of purchase and sale of shares in their life-cycle of holding in my name?
Kindly give your esteemed opinion and guidance on the points raised by me. [k_kumar39@hotmail.com]
Opinion:
1. The transfer of shares from one Demat account to another Demat account neither effect the cost of acquisition/purchase, nor affect the date of acquisition of those shares.
2. For the purpose of classification as to short term / long term, the original date of acquisition of shares shall be considered and not the date on which the shares are transferred in the new Demat Account.
3. Similarly, the capital gain shall be calculated by taking the original cost of acquisition of shares when it was purchased in the old Demat A/c.

Query 4]
Sir, I have lost my PAN Card. I don’t have a Xerox copy of my PAN Card. I am worried over it. Whether I have to get apply for new PAN? If yes, then what will happen to earlier returns filed by me using old PAN? I shall be thankful if you can kindly guide as to the procedure to get new PAN Card? [YK]
Opinion:
1. You can get the new PAN Card with the same number.
2. For this, you have to make an application in “Request for New PAN Card or/and Changes or Correction in PAN data”. The form can be downloaded from the websites of UTI Technology Services Ltd (UTITSL), National Securities Depository Ltd (NSDL), or the I-T department [www.utitsl.co.in, www.tin-nsdl.com or incometaxindia.gov.in]. If there is no change in the PAN Data, do not tick in the any of the boxes on the left margin of the form. Attach color stamp-sized photograph.
3. The form can be submitted at PAN application centers of UTITSL and NSDL, the addresses of which are available at the above mentioned website.
4. In case you don’t have the Permanent account Number, you can retrieve the number of the lost card from the link https://incometaxindiaefiling.gov.in/portal/knowpan.do wherein you only need to fill your full name & the date of birth to get your lost card number.
5. As a precautionary measure & to avoid possible misuse of the PAN Card, ensure to file the FIR for loss of PAN Card in the police station.


TAX TALK- 12.04.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SECTION 269SS PROHIBITS ACCEPTANCE OF LOAN OF RS. 20,000/-OR MORE IN CASH”
Query 1]
I am working with a private group in power sector with Head Office in Delhi and posted at regional office in Nagpur. I am getting monthly salary of Rs. 60,000/-p.m. and extra 5 months salary towards perks. Presently I am staying in self purchased duplex house (Year 2008 ) in jurisdiction of Koradi Grampanchayat for which I am paying monthly EMI of Rs. 15,000/-p.m. towards IDBI Bank housing loan and yearly interest works out to be Rs. 98,000/p.a. My company is also paying monthly HRA @ 15% of the salary over & above the salary. Kindly explain which exemptions and up to what amount can be availed while assessing the tax liability. [vchawrashe@rediffmail.com]
Opinion:
No Exemption is available towards House Rent Allowance (HRA) where an employee lives in his own house, or in a house for which he doesn’t pay any rent [Section 10(13A) of the Income Tax Act-1961 read with Rule 2A of the Income Tax Rule].
Query 2]
I am a central government employee. In the FY 2009-10 I have received Rs. 94,264/- as VI CPC arrears. From FY 2008-09, I am claiming rebate of Rs.50, 000/- on the strength of certificate issued on 18/02/2009 in favor of my 18 years mentally challenged Daughter. Previously i.e. in FY 2005-06, FY 2006-07 & FY 2007-08, I had never taken the advantage of the mental disability of my daughter as the income tax payable was nullified due to my savings under Chapter VI-A of section 80C, 80CCC etc.
My query is whether I can take the advantage of mentally challenged certificate in the previous financial years by filling in form No 10E? Kindly guide or give remedial measures to save tax around Rs.25, 000/-. [npdhopte@gmail.com]
Opinion:
1. Section 89 read with Rule 21A & 21AA governs the claim of relief in respect of Arrears of salary.
2. Going by the strict legal interpretation of the said provision, the claim in respect of deduction not claimed earlier at the time of filing the original return of income is not admissible while subsequently working out relief u/s 89 read with Rule 21AA.
3. However, there is a ray of hope by virtue of the decision of the Madras Tribunal in R.J. Basu Vs. ITO (1991) 94 CTR (Trib)(Mad) 296. According to the Tribunal’s Decision, when salary arrears are apportioned over the relevant previous years, the total income of the relevant years would be revised and hence, all consequential effects like changes in standard deductions under section 16(1) and changes in admissible relief in respect of savings effected out of such arrears, etc, should be given. It was rightly held therein that the exercise of giving relief is not complete without actually revising total income of the relevant previous years and giving effect to savings, etc.
4. We are of the view that Section 89(1) is a beneficial provision & the assessee should be given the tax relief in situations mentioned hereinabove.
Query 3]
1. I was working with a private company on a yearly composite package of Rs. 4.32 Lacs. I am also carrying on business of stationery as well wherein I have incurred a loss of Rs. 0.80 Lacs in the F.Y. 2009-10. Can I net off the loss against salary income? Please quote the relevant section which allows / disallows such adjustment.
2. My turnover for the year ended on 31.03.2010 (F.Y. 2009-10) is Rs. 51.65 Lacs. I read in the newspaper that the limit of Rs. 40 Lacs for getting the books audited is increased to Rs. 60 Lacs. Is it applicable for the F.Y. 2009-10 or applicable from the F.Y. 2010-11?
3. Is there any bar on taking any loan exceeding Rs 20,000/- in cash? If yes, whether it is per occasion or per day? Any exception like loan from wife/relatives, close friends etc? What are the consequences if someone contravenes? What is the logic behind such provisions? Please elaborate. [Ashit J]
Opinion: -
1. Your income from business is assessable under the head “Income from Business” whereas Salary income is assessable under the head “Income from salary”. Loss under the head “Income from Business” cannot be set off against income under the head “Income from Salary”. Section 71(2A) in the Income Tax Act- 1961 bars such adjustment. However, such loss can be carried forward for set off against business income in subsequent years.
2. The new enhanced limit of Rs. 60 Lacs, for assessee engaged in business, for getting the books of accounts audited u/s 44AB of the Income Tax Act-1961 is applicable from the F.Y. 2010-11 onwards.
3. Yes, there are restrictions on acceptance of the loan and deposit above Rs. 20,000/- in cash. Section 269SS debars person from taking or accepting loan from any other person (including relatives or friends etc) otherwise than by an account payee cheques or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan & deposit is Rs. 20,000/- or more. The prohibition also applies in cases where the amount of such loan or deposit , together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken is Rs. 20,000/- or more. Thus, only cash loan of an amount below Rs. 20,000/- can be taken from any particular person. This means that if you have already accepted cash loans say of Rs. 15,000/- on some particular date (in a year) then next time (on any date or in any year) if you accept loan of Rs. 5,000/- or more than it will be considered as violation of section 269SS. However, you may accept any amount below Rs. 5,000/- so that the aggregate amount of such cash loan is less than Rs. 20,000/-. The exception is provided in respect of the following from whom the loan or deposit of an amount exceeding Rs. 20,000/- could be accepted in cash :-i) Government;ii) any banking company, post office saving bank or any co-operative bank;iii) any corporation established by a Central, State or Provincial Act;iv) any Government company as defined in section 617 pf the Companies Act,1956;v) such other institution, association or body or class of institutions association or bodies which the Central Government may notify.It has been further provided under the above section that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under Income Tax Act, 1961.No exception is provided in respect of loan taken from relatives / friends. Under Section 271D, a penalty can be imposed for violation of section 269SS. The quantum of penalty is a sum equal to the amount of the loans or deposit so taken or accepted.The basic object behind incorporation of section 269SS in the Income Tax Act is to ensure that the taxpayers do not give the false explanation of the unaccounted money unearthed during search and seizures. During search and seizures, unaccounted money is found and the taxpayer often used to make the presentation that he had borrowed or received deposits from his relatives or friends and it was very easy for the so-called lender also to adjust the records later to justify the contentions of the taxpayer. To curb this menace, section 269SS was introduced in the Act.However, Section 273B provides that no penalty under section 271D shall be imposed if the taxpayer proves that there was reasonable cause for failure to take a loan otherwise than by account payee cheques or account payee demand draft. If there was a genuine and bona fide transaction and if the assessee can satisfactorily prove the reasons for violation of section 269SS, then the Income Tax Officials are vested with the discretionary power of not imposing the penalty. The supreme court in Hindustan Steel V. State of Orissa(1972)83 ITR 26 held that the penalty will not be ordinarily imposed unless the assessee acted deliberately in defiance of law or guilty of conduct, dishonest or acted in conscious disregard to its obligation. The Supreme Court in Asst. Director of Income Tax Vs. Kum. A.B. Shanthi (2002)255 ITR258 upheld the constitutional validity of the provision.

TAX TALK- 05.04.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TAXABILITY OF INCOME FROM F & O, INTRA-DAY & DELIVERY BASED SHARE TRANSACTION”
Query 1]
Sir, I opened PPF A/c in my son's name when he was dependent on me. The account is still continuing. He is no longer dependent on me. But I am still making annual subscription to keep it alive. Do I get any Income-tax relief on my Income Tax? Will it make any difference if he is still dependent on me? How does it compare with the life insurance premium paid by me on my son's L I C policy? [CVK]
Opinion:
1. You can claim deduction U/s 80C towards the contribution done by you in the PPF A/c of your son subject to overall maximum cap of Rs. 1 Lacs. The deduction shall be available even if the son is not dependant on you.
2. Even the life insurance premium of your son paid by you enables you to claim deduction u/s 80C subject to same overall max cap of Rs. 1 Lacs.
Query 2]
I am a retired senior citizen and have been submitting NIL return regularly. Please guide me in the event of following issues:
I have received my 1/4th share amount of Rs. 15,75,000/- in June 09 from the sale proceed of an old house of my Grand Grand-Father gifted to him in 1895. Above mentioned amount is there in the savings account of my Bank.
Please guide:
1. If I purchase any land or property of the same amount, will it be fully exempted from income tax?
2. Is there any other type of investments possible to get total exemption from tax?
3. If I do not purchase land or property and do not make any investment, one of my friend has told me that it is exempted under law if I get the valuation of the sold house as of 1981 by a Govt. registered surveyor to arrive at the amount of tax payable by me. Please guide me suitably. [P.C. Mishra, Raipur]
Opinion:
1. The income element involved in Rs. 15.75 Lacs is taxable as Long term Capital Gain in your hand. Long term capital gain shall be calculated by deducting cost of acquisition (after indexation) & cost of improvement (after indexation)from the amount of full value consideration (i.e. Rs. 15.75 Lacs or 1/4th of the value adopted by the Registrar of stamp duty for levy of stamp duty, whichever is higher).
2. You can save tax on long term capital gain (LTCG) as under: i) Exemption Under Section 54EC:Invest the amount of Long term Capital Gain in Specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer.ii) Exemption Under Section 54:Invest the amount of Long term Capital Gain on sale of house for purchase of another house property within a period of 2 years ( for construction- 3 years period is permissible) from the date of transfer of the house. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income of the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.
3. The valuation from the Government approved valuer doesn’t ensure that the amount received shall be exempt under the Income Tax Act-1961. Long term capital gain can be calculated by taking the market value of the property as on 01.04.1981. You can take the help of the Govt. Approved valuer to assess the market value of the property as on 01.04.1981.

Query 3]
Sir, I am 59 years old retired person (Semi Govt. employee). I don’t have pension income. I have invested Rs. 5 Lacs in NSE & BSE. I trade in cash, F & O and Intra-day.
a) In cash market (intra-day), I have Rs. 25,000/- profit & Rs. 35,000/- Loss. The Net Loss is Rs. 10,000/-.
b) In short term delivery trading, I have Rs. 15,000/- Loss & Rs. 40,000/- profit. The Net profit is of Rs. 25,000/-
c) In F & O, I have incurred loss of Rs. 70,000/-.
I have some question regarding above transactions: -
1. How I should file my return? How should I show all this in return? What documents should I need to attach with the income tax return?
2. Can I club all profit and loss (i.e.., Intra-day, short tem & F &O) in one head? Or I need to file under different head of income?
3. Can I carry forward loss to the next years?
4. In different case, if the total income from share market is Rs. 2,00,000/- & loss of Rs. 40,000/-, then do I need to pay short term gain tax?
5. Whether the standard limit for no tax is also available for short term capital gain also? [Tejas Jain, Akola]
Opinion:
a. Intra-day transaction in shares is considered as a speculative transaction & income therefrom is taxable under the head “Income from Business”. Loss from intra-day transactions is considered as a speculative Loss and cannot be set off against any other income except speculative profit.
b. Income from delivery based transactions could either be categorized under the head “Income from Business” or under the head “Income from Capital Gain” depending upon various factors. The prominent factors that play an important role in determining whether it is a business assets or capital assets are: (a) Volume/Nature of transactions. (b) Intention/Logic behind investments. (c) Holding period of shares (d) Investment of own funds or a borrowed fund. (e) Other business activities of the assessee. etc
c. Transaction in Future & Options is no more considered as a speculative transaction. Profit / Loss from F & O is normally taxable under the head “Income from Business”.
With above, point-wise reply to your query is as under:
1. You may be required to file the return of income using ITR-4. You need to show the above income in ITR-4 by classifying the same under respective heads of income as mentioned above in (a) to (c). No documents are required to be attached with the return of income. You have to keep the documents/records with yourself.
2. Income from Intra-day and F & O can be clubbed together under the head “Income from Business”. However, if there is a loss from Intra-day transactions, it cannot be set off against income from F & O. Speculation loss can be set off against speculative profit only. Income from delivery based share transactions, as mentioned above, could either be Business Income or could be Capital gain income. If the transaction is treated as business, the loss can be adjusted against profit in F & O or against intra day profit. If however delivery based share activity is considered as investment based activity, transactions will result in capital gain and loss in such transaction cannot be set off against business income.
3. Loss can be carried forward for set off against profit in subsequent years. For this, ensure to file the return of income on or before the Due Date.
4. Taking delivery based net share profit of Rs. 1.60 Lacs, Intra Day profit of Rs. 25,000/-, Loss in F & O of Rs. 70,000/-, no tax liability will be there whether delivery based transaction in share is considered as business or investment activity.
5. The basic exemption limit is available against Short Term capital gain as well.











TAX TALK- 29.03.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)

“EXEMPTION TOWARDS HOUSE RENT ALLOWANCE (HRA) ”
Query 1]
Sir, my basic pay during financial year 2009-10 is Rs. 2,78,200/- and Dearness allowances is Rs. 61,224/-. I have received Rs. 55,656/- for House Rent Allowance. I have paid Rs.30,000/- as actual rent for occupying the rented house. I will be thankful if you guide me about on how much amount I can get rebate/exemption/deduction? What are the conditions/method for such claim? [bang_anil@yahoo.in]
Opinion:
Exemption in respect of House Rent Allowance is regulated by Section 10(13A) read with Rule 2A of the Income Tax Rules, 1962. The least of following is exempt from tax:
a. An amount equal to 50% of salary, where the residential house is situated at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of salary where residential house is situated at any other place;
b. House rent allowance received by the employee in respect of the period during which the rental accommodation is occupied by the employee during the previous year; or
c. The excess of rent paid over 10% of salary.
Following points need to be taken in to consideration while calculating the amount of HRA admissible as exemption u/s 10(13A):
1. “Salary” for the purpose of computation of exemptions u/s 10(13A) means Basic Salary and includes Dearness Allowance if terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per the terms of contract of employment AND EXCLUDES ALL OTHER ALLOWANCE & PERQUISITE.
2. Exemption is not available where an employee lives in his own house, or in a house for which he doesn’t pay any rent.
As actual rent payment of Rs. 30,000/- doesn’t exceed 10% of the salary, you are not entitled for exemption u/s 10(13A) towards House Rent Allowance received from your employer.

Query 2]
Sir, I am a Senior citizen having pension of Rs. 8,300/- p.m. & Fixed Deposit with bank of Rs. 8.30 Lacs which is based on Either or Survivor mode having different maturity dates viz. 2012 / 2015 / 2015 & 2018. I am also having a self occupied flat with ownership rights. I have taken a loan of Rs. 3.94 Lacs on my FD (Demand Loan) in the month of Jan'10. I wish to avail Tax exemption by filling form 15H which I used to do earlier. What will be the tax liability / implication assuming all the criteria mentioned above. Presently, I do not have a Pan Card presently nor I have applied for it till date. I do not have any LIC policies, nor any tax saving instruments.
Please advice & also let me know the source of saving the tax considering all FD's, pension & Flat ownership. Whether I will have to apply for the PAN Card? [suvidhaa@rediffmail.com]
Opinion:
1. The basic exemption limit for senior citizen for the F.Y. 2008-09 is Rs. 2.25 Lacs whereas it is Rs. 2.40 Lacs for the F.Y. 2009-10 & F.Y. 2010-11.
2. Given the investment & income data and assuming the Interest income on FD even @ 12%, your income is appearing to be less than the basic exemption limit applicable to the senior citizen. Resultantly, your income tax liability is Nil in the F.Y. 2009-10 as well as in the F.Y. 2010-11.
3. You can get the interest on FDR without deduction of tax at source (T.D.S) during the F.Y. 2009-10 by filing the Declaration Form-15H.
4. However, for the F.Y. 2010-11, Permanent Account Number is mandatorily required to be quoted in the declaration form for getting income without deduction of tax at source. For getting the interest income from bank, you have to apply for the PAN & also required to quote the same in the Declaration Form for non deduction of tax at source.

Query 3]
My wife is getting a house as gift from her mother. Should we get it by gift or via will? What is the procedure? If my mother-in-law desires to gift the house, Gift deed is required? Is it required to be registered compulsorily? What is tax liability? Kindly elaborate and oblige.
[K.S. Popat]
Opinion:
1. There is no income tax / gift tax liability in the hands of your wife on receiving the property from her mother, either through Gift Deed or via Will.
2. Whether to receive the property by gift or will is a question dependent on various other factors & cannot be answered in isolation.
3. For Gift of immoveable property, Registration is compulsory under the Registration Act.
4. For WILL, even though registration is not compulsory, it is always advisable to get it registered.













TAX TALK- 22.03.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)

“EXEMPTION UNDER SECTION 54F IS UNAFFECTED BY SECTION 50C”

Query 1]
Sir, my query is in the context of views expressed in Query No. 3 of “Tax Talk” dated 15.03.2010 titled “Sale of shop by transfer of share & computation of capital gain”
I am a CA student & a bit confused over the view expressed in the query. Kindly correct me if I am wrong. I have reservation with the point (g) which stated as under:
“U\s 54F, it’s the investment of actual sale consideration that determines the claim of exemption. Effectively, if you invest the entire sale consideration of Rs.23 Lacs for the purchase of residential house property, you can claim LTCG as exempt”.If I am not wrong, for computing the sale consideration, we take the full value of consideration as per section 48 of the Income Tax Act. Section 50C provides for deeming full value consideration. Section 50C is amended by the Finance Act-2009 also.
The amended version provides that where the consideration received or accruing as a result of transfer of land and\or building is less than the value adopted as assessed or assessable by an authority of State Government for the purpose of payment of stamp duty in respect of such transfer, value so adopted or assessed or assessable shall be deemed to be the full value of consideration received or accruing as a result of such transfer for computing capital gain.
Effectively, considering the above mentioned explanation, full value of consideration in the said case shall be Rs.39 Lacs. As there are no transfer expenses, the resultant figure of net sale consideration remains same at Rs. 39 Lacs.
If by going through the relevant sections of the act, the net sale consideration comes to Rs. 39 Lacs, Then why should the actual sale consideration of Rs. 23 Lacs for claiming exemption u\s 54F be considered & why not Rs. 39 Lacs?
In short, I am of the view that assessee shall be required to invest the sale consideration as adopted by the stamp authority; unless he doesn’t appeal it before the stamp act or claims before assessing officer the value adopted is higher than actual value of consideration. It would be very kind of you to correct me if I am going wrong. [abhishek_puri1@yahoo.com]
Opinion:
1. Thanks for nicely responding back the issue. We are happy to see the readers like you.
2. With reference to exemption from Long term Capital Gain, Section 54F provides that:(a) If the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;(b) if the cost of the new assets is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45.
3. The meaning of the word “Net Consideration” is given in the explanation to section 54F as under: ”net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of transfer of the capital assets as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
4. Section 50C provides for deeming the full value consideration u/s 48 as stamp duty value for the purpose of calculation of LTCG if it is higher than the actual sale consideration.
5. The modus operandi of calculating exemption u/s 54F remains unaffected by introduction / incorporation of section 50C in the I.T.Act-1961.

Query 2]
Please clarify, If the house property is in the name of wife, whether the husband can claim the benefit of accrued interest for computation of income under the head “Income from House Property” on the ground that the loan is taken by husband and the bank had issued interest certificate in the name of Husband.[sans592000@yahoo.co.in]
Opinion: -
Ownership of the property is the pre-requisite for claiming deduction u/s 24(b) towards housing loan Interest. Merely availability of husbands name on the loan document/ Interest certificate doesn’t confer the privilege of deduction u/s 24(b) of the Income Tax Act-1961.

Query 3]
I have earned a Long Term Capital Gain of approx Rs. 10,00,000/- by selling a flat at Rs 15,00,000/- in 2010 which was bought by me in 2001 at Rs 5,00,000/-. If I invest this capital gain of Rs 10 Lacs in a new house property, I can claim full exemption of LTCG. However ,if instead of investing these Rs. 10 Lacs, I purchase a new house property say at Rs. 12 Lacs and get it financed by availing housing loan (loan amount more than Rs. 10 Lacs), can I still get the LTCG exemption on Rs. 10 Lacs. Please guide. [hinglas@rediffmail.com]
Opinion: -
In view of the recent decision of the Mumbai Tribunal in Milan Sharad Ruparel Vs. Asst. CIT (2009) 28 (II) ITCL 362, we are of the considered opinion that you would not be able to claim exemption u/s 54 to the fullest extent of Rs. 10 Lacs if the borrowed capital is used for purchase of new residential house property.







TAX TALK- 15.03.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SALE OF SHOP BY TRANSFER OF SHARE & COMPUTATION OF CAPITAL GAIN”

Query 1]
I am a Central Government Employee & as per the newly introduced Children Education Scheme getting Rs. 12, 000/- per child on producing receipts of payment against tuition fee, dress, books, shoes etc. My query is whether I can get exemption for the same from salary income besides Rs. 1 Lacs for savings? There is certain ambiguity amongst various organizations. So please guide. [manojkm66@gmail.com]
Opinion:
The amount is taxable. No exemption is available on such sum. However, payment of tuition fees of a child is eligible for deduction u/s 80C subject to overall limit of Rs 1 Lacs.

Query 2]
I am an Assistant Professor in Indira Gandhi Krishi Vishwa - vidyalaya (IGKV), Raipur. My annual salary is around Rs. 2.60 Lacs. In this financial year I got two additional amount as under: -Source-I: -I sold small property of my own for Rs. 6.11 Lacs, now deposited in the savings passbook.
Source-II: - I got Rs. 85,000/- as payment of my GPF from my previous service (Resigned from that post to join the present post.)My query is whether the above source of income/amount is taxable as per Rules & in what way I should file/declare / quote the same in income tax return.
Opinion: -
1. Income from sale of property is taxable under the head “Income from Capital Gain”. If the property is sold after holding period of 3 years, the income would be termed as “Long term Capital Gain” (LTCG) and the same shall be calculated by taking indexation benefit. The income would be taxed at a special rate of 20%. Subject to certain stipulations, you can save LTCG Tax by investing the amount for purchase of another residential house property or by investing in the bonds issued by National Highway Authorities of India (NHAI) or Rural Electrification Corporation (REC). The same shall be required to be shown as “Income from Capital gain” in “schedule CG” in Income Tax return Form ITR-2.
2. The amount received out of withdrawals from recognized PF account of previous employment shall be exempt from tax provided it is received after rendering continuous service of 5 years. If so exempt, the same can be declared as exempt income in “Schedule EI” in ITR-2.

Query 3]
I am owner of a shop in Nagpur. It was purchased by me in 1994. The building is owned by a co-operative society and the shop is purchased by transferring the share in my name. At the time of sale, I need to transfer that share in favor of intending buyer by executing Transfer Deed (& not sale deed). The market valuation as per stamp duty valuation as per Registrar’s reckoner is about Rs. 39 Lacs whereas actually I will be selling it for Rs. 23 Lacs. Whether I will be liable to pay the capital gain tax on the basis of Rs. 39 Lacs or on the basis of Rs. 23 Lacs? One of the shop owner has paid the tax on the basis of actual sale consideration (& not stamp duty valuation) in 2004 only. After sale, If I invest in residential house property, how much do I need to invest i.e., Rs. 39 Lacs, Rs. 23 Lacs or Long term capital gain? What are the conditions for claiming income tax exemption? Please guide & elaborate as there is lot of confusion in the opinions. [JA]
Opinion:
1. In your case, the long term capital gain tax would be required to be computed by taking the Sale consideration at Rs. 39 Lacs.
Section 50C of the I.T. Act- 1961 provides for calculation of Capital gain on the basis of Stamp duty valuation adopted by the Registrar. Originally when the provision was introduced, only the word “assessed” was there in section 50C. With effect from 01.10.2009, a new word “or assessable” is also added to section 50C as a result of which you would be required to calculate Long Term capital Gain (LTCG) on the basis of Rs. 39 Lacs.
LTCG arising on sale of shop can be claimed as exempt u/s 54F if the following conditions are satisfied: -
a) The transferor must be individual or a Hindu Undivided Family.
b) The capital gain should arise from the transfer of any long-term capital asset other than residential house property. (If capital gain arises from transfer of a residential house property, an exemption can be claimed u/s 54.)
c) The transferor must, within a period of one year before or two years after the date on which the transfer took place purchase, or within a period of three years after that date construct, a residential house.
d) The transferor does not own more than one house property, other than the new asset, on the date of transfer of the original asset.
e) The assessee shall not purchase any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset or construct any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.
f) If all above conditions are satisfied, transferor can claim entire LTCG as exempt provided entire amount of sale consideration is invested for new residential house property. If entire sale consideration is not invested then Exempt LTCG shall be Cost of New House * Capital Gain/ Net Sale consideration.
g) U/s 54F, it’s the investment of actual sale consideration that determines the claim of exemption. Effectively, if you invest the entire sale consideration of Rs. 23 Lacs for purchase of residential house property, you can claim LTCG as exempt.




TAX TALK- 08.03.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SECOND HOUSE PROPERTY & INCOME TAX IMPLICATION”
Query 1]
Sir, Presently I own a house and repayment of entire loan amount is already over. I now wish to purchase a second house. My wife is also working. I want to register the house in joint name so that both, I and my spouse can also enjoy the housing loan rebate. Kindly advise how both of us can avail tax benefit? Whether sale deed is to be executed on 50:50 basis. In such event whether both interest and installment can also be claimed separately by both of us independently on the basis of our share in the property. Kindly Advise about the income tax implications/ benefit on the second house property. [murli_radha@rediffmail.com]
Opinion:
1. The income from house property is taxable on the basis of its “Annual Value”. The term “Annual value” is elaborated at point No. 6 hereunder.
2. The tax implication / housing loan benefit for the second house property is not similar/ same as applicable to the first house property. The second house property has a different tax treatment under the Income Tax Act-1961.
3. One house used by the tax payer for his/her own residence is exempt from tax as its annual value is treated as Nil.
4. Where the assessee owns only one house property and it cannot actually be occupied by him because it is situated at a place other than a place where he is employed or carries on business or profession, in such a case also the annual value of the property is taken as nil provided the property is not actually let out.
5. If taxpayers have two or more houses which are used for own residence, then assessee have the option to choose one of the house as self-occupied house, for which an assessee would like to get an exemption from tax and its annual value will be considered as Nil. The second house or other houses shall be deemed to be have to been Rented out [whether not actually rented out].
6. What is Annual Value of house property and how it is determined?The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property is higher, it shall be treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property.
7. How to calculate annual value/taxable value of property: Annual value of property is considered as higher of the following:(i) actual rent received a year; (ii) municipal value; (iii) fair rent of the property.As mentioned above, the assessee has the option to choose only one house as self-occupied property. Rest of property is assessable to income tax on the basis of its annual value.
8. Deductions From the annual value the following deductions are available under the Income Tax Act: -a] Municipal Tax paid.b] 30% of the net annual value of the house property towards Repair & Maintenance charges (Deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).c] Actual Interest paid on housing loan whether house is actually let out or is deemed to be let-out. d] For self-occupied property, maximum interest on housing load is restricted to Rs. 1,50,000 p.a., subject to certain other stipulations.
9. Effectively, if second house is kept for own use, the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above. In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit. However, for the second house property, no deduction is available for repayment towards the principal portion of housing loan under section 80C as clause ( xviii) to section 80C of the I T Act reads as under: - "(xviii) for the purposes of purchase or construction of ‘ a’ residential house property the income from .....".
10. With above Rules & Calculation in mind, you have to decide whether: a) it is worthwhile to purchase the property with your name as a co-owner orb) simply purchase the property in the name of your wife only.
Query 2]
Sir, Kindly let me know
1. Whether the amount received as survival benefit on LIC Money Back Policy is taxable? Whether it should be included in the income from other sources? Please elaborate.
2. Whether the dividend received from the Central Government Employees thrift and credit society is taxable or exempt from income tax? Whether it should be included in the income from other sources? [adpapuwar@gmail.com]
Opinion:
1. Under Section 10(10D) of Income tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax. However, this rule does not apply to following amounts:a) sum received under Section 80DD(3), or b) any sum received under a Keyman Insurance Policy, or c) any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured.
2. Dividend received from the credit society is taxable and has to be included under the head “Income from Other sources”.

Query 3]
Sir, please clarify the following points.
1. Whether the interest credited to PPF account every financial year is eligible for claiming deduction under section 80C?
2. I am residing in one portion of my house and the other portion was given on rent. I am paying house tax. Can I show the income from house property after the standard deduction of 30% from (rent received – tax paid to local authorities)?
3. I am depositing the amount (online) to the SBI A/C of my son as a gift from my salary. What are the implications of gift tax? Kindly elaborate. [M.Rama Krishana]
Opinion:
1. Interest credited to the PPF A/c. is not eligible for deduction u/s 80C.
2. Municipal tax paid by you needs to be divided basis in two parts. One pertaining to your self occupation and the other towards the part of the house that is let out. The same can be done on the basis of area in occupation or on any other reasonable, logical & justifiable basis. 30% deduction towards Repairs & Maintenance can be claimed on [Annual value (i.e., rent) Less municipal tax as apportioned above towards part of the property that is let out].
3. No Income tax implication is there, on gift by you to your son.







TAX TALK- 01.03.2010-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TAXABILITY OF VARIOUS RETIREMENT BENEFITS”
Query 1]
I am a retired officer from central Government office on 31.12.2009 and have received gratuity, commutation of pension, encashment of leave, insurance and Provident Fund.
My queries are as under: -
1. Whether the amount received as above is taxable and do I have to submit the return in March-2010?
2. If I deposit the said amount in my name in the bank/ post office as FD or in the saving A/c, whether the interest received will be taxable?
3. If I deposit the amount is split in the name of my sons, wife or any other relatives, whether the income on interest will be taxable in my name or against the individual name? [Z.H. Zaidi]
Opinion:
1. TREATMENT OF RETIREMENT BENEFITS: -A] Gratuity: In the case of Government employee, grauity amount is exempt from income tax u/s 10(10)(i) of the Income Tax Act- 1961.B] Commutation of Pension: a] Commuted pension received by a employee who has joined the Central Government before 01.01.2004 is fully exempt from tax u/s 10(10A)(i).b] The provision in respect of employee who has joined the Central Government on or after 01.01.2004 are covered by the New Pension scheme. The prominent feature of the new pension scheme is as under: i) New pension scheme is applicable to new entrants to Government service or any other employer. As per the scheme, it is mandatory for persons entering the service on or after 01.01.2004, to contribute 10% of salary every month toward their pension A/c. A matching contribution is required to be made by the employer to the said A/c. ii) Contribution by the employer to the notified pension scheme is first included under the head “Salaries” in the hands of employee.iii) Such contribution is deductible (to the extent of 10% of the salary of the employee) u/s 80CCD. iv) Employee contribution to the notified pension scheme (to the extent of 10% of the salary of the employee) is also deductible u/s 80CCD.v) When pension is received out of the aforesaid amount, it will be chargeable to tax in the hands of the recipient.vi) No deduction will be allowed u/s 80C in respect of amount on which deduction has been claimed u/s 80CCD. Also, the aggregate amount of deduction u/s 80C + 80CCC + 80CCD cannot exceed Rs. 1 Lacs.C] Leave Salary: In the case of Central/ State Government employee, any amount received as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of retirement/ superannuation is exempt from tax u/s 10(10AA)(i)D] Insurance:Under Section 10(10D) of Income tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax. However, this rule does not apply to following amounts:a) sum received under Section 80DD(3), or b) any sum received under a Keyman Insurance Policy, or c) any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured. E] Provident Fund: Lump sum payment received from Statutory Provident Fund received by the Government employee is fully exempt from income tax.
2. If you deposit the above amount in your name in the bank/ post office as FD or in the saving A/c, Interest thereon shall be taxable.

3. Deposit of amount in different Name & Tax Implications: a] in the Name of Major Son or Relatives (except spouse or Daughter-in Law): i) If the intention of your deposit in the name of different family members is to make YOUR OWN INVESTMENT without diluting the ownership of the Funds, then the income from the amount so deposited will be treated as your income only and will be taxable in his hands only.ii) If, however, the intention is to gift the said fund to the respective account holder at the time of deposit, then the income therefrom shall be treated as the income of the name bearer on the depository receipts (and will not be treated as your income). b] in the Name of Minor Son or Wife or Daughter-in-law: The interest income of the fund so deposited shall be taxable in your hand only by virtue of clubbing provision of section 64(1A) / 64(1)(iv) / 64(1)(vi) of the Income Tax Act-1961.
Query 2]
My mother has purchased a plot in Nagpur for Rs 30,000/- in the year 1998. She has paid a development fees of Rs. 32,000/- to NIT. Another Rs. 29,000/- she has spent for NOC, Mutation and 7/12 etc. So the total Expenditure incurred was Rs. 91,000/-. In July-2009, she sold it for Rs 2,50,000/-.
Can you please help me out with the queries below:
1. What is the capital gain?
2. If we want to get an exemption u/s 54F, what is the procedure?
3. My mother is a house wife and has no source of income nor is she holding any residential house property. As she doesn't has a PAN card she is unable to buy any Capital Gain Bonds or open an account in Capital Gain Deposit Account Scheme?
4. Does she need to fill IT return? [Krishanu]
Opinion :
1. The gain in your case will be Long Term Capital Gain (LTCG). It shall be calculated by deducting Indexed Cost of acquisition and Indexed Cost of Improvement from the amount of Sale consideration.
2. The sale consideration in your case is Rs. 2.50 Lacs. However, if the value adopted by the Stamp duty authorities is higher than Rs. 2.50 Lacs, then capital gain shall be required to be calculated by taking such higher value.
3. Cost of Acquisition is Rs. 91, 000/-. It is presumed that development and other expenses are incurred in 1998 itself. The month in which the purchase is done is not mentioned in the query. It is presumed that the same is done on or after 01.04. 1998.
4. Cost Inflation Index for the relevant financial years are as under:
F.Y.
C.I.I
2009-2010
632
1998-1999
351

5. The indexed cost of acquisition in the given case shall be Rs. 1,63,851/- (91,000/- *632/351).
6. The Long term Capital Gain taxable in the hands of your mother shall be Rs. 86,149/- [2,50,000/- (–) 1,63,851/-].
Since your mother a) does not have any other source of income and b) the amount of LTCG is less than the basic exemption limit available to Women assessee,Entire LTCG would be tax free.





TAX TALK- 22.02.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“T.DS. @ 20% IF PAN NOT QOUTED - APPLICABLE EVEN ON SUBMISSION OF FORM NO. 15G ”
Query 1]
We request to seek your opinion on the following points:-
Finance Act- 2009 has substituted new Section 206AA in the Income Tax Act -1961. This section provide quoting of PAN in TDS Certificates / Returns by all deductees failing which the Deductor will be liable to deduct tax at source @ 20%. The provision of Section 197A for the furnishing Declaration 15G or 15H will be also meaningless in absence of furnishing the PAN.
In lieu of the above provision, we want to know the following:-
Whether this provision relates to each and every category of TDS items stipulated in the Act or not or only to Section 194C & Section 194-I are covered under new provision?
The TDS under the IT Act is to be done on the basis of prescribed rates which crosses the fixed limit of incomes in each category. As per law, the TDS is to be done by the payer on payment of certain sum or income or amounts, which are covered by chapter XVII B and which crosses the fixed specified limit.
Since the new Section 206AA has been made operative w.e.f. 01.4.2010 only, but in lieu of point No. 2 when any person pays or credit any sum or income or amount within F.Y. 2009-10 even on the last date of the year i.e., 31.3.2010 & deduct the TDS amount on 31.3.2010 but pays the same in the next year during stipulated time as allowed in the Act, then whether TDS rate would be 20%? Kindly confirm me with your expert opinion in lieu of the above clause 3, whether the new provision will apply to the old period of receipt or credit of any sum or income. Please quote any judicial verdict on this score if any. It will be of great importance to a large number of personals, if your elaborate opinion is placed for the benefit of assesses. [makharia75@yahoo.co.in]
Opinion:
In order to strengthen the PAN mechanism, a new section 206AA has been inserted with effect from April 1, 2010. For common benefit, the highlight of the new section 206AA are give below –a) Every person whose receipt are subject to deduction of tax at source (i.e. the deductee) shall furnish its PAN to the deductor. It will be compulsory from 01.04.2010.b) If such person does not furnishes PAN to the deductor, the Deductor shall be required to deduct tax at source at higher of the following rates-i) At the rate prescribed in the Act.ii) At rate in force, i.e. the rate mentioned in Finance Act.iii) At the rate of 20%.c) The provision that TDS would be deductible at the above- mentioned rates, will also apply in cases where the deductee files a declaration under section 197A in form No 15G but he does not provide his PAN .d) No certificate under section 197 will be granted by the Assessing Officer unless the application contains Permanent Account Number of the Applicant.e) These provisions also apply to Non Resident where TDS is deductible on payments or credit made to them.f) To ensure that the deductor know about the correct PAN of the deductee, there is a provision for mandatory quoting of PAN of the deductee by both the deductor and the deductee in all the corresponding bills and voucher exchanged between them.g) In the case of payment to a transport operator tax will not be deductible under section 194C if the transport operator furnish his PAN to the deductor. If PAN is not furnished the rate will be 1% for an individual/HUF transporter & 2% for the other transporter during 01.10.2009 and 31.03.2010 and 20% after 31.03.2010.
The provision applies to all categories of tax payment which attracts T.D.S. (including payment u/s 194C / 194-I).
Tax is deductible at source AT THE TIME i) of payment or ii) at the time of credit in the books of accounts,whichever is earlier. In case tax is deducted on or before 31.03.2010 [by reason of clause 3 (ii) as mentioned above], section 206AA will not be applicable even though the payment is made after 31.03.2010.

Query 2]
1) Sir, In The Tax-Talk column of Hitavada dated 25.01.2010, you had said that as regards to LTCG from sale of house property, the "Sale consideration is to be taken as higher of the sale price as mentioned in the sale deed or the value adopted by the Registrar for the purpose of levy of stamp duty". Will this same provision apply also for determining the cost of acquisition of the house property?In the case of the house property that I intend to sell, in the Sale Deed that was executed at the time of registration (purchase) of the house in my name, the purchase value adopted for determining the Stamp Duty (expressed as the "Market Price" in the Sale Deed) was higher by Rs. Three Lacs than the price I paid for the house. If the higher value (by Rs Three Lacs) can be taken for calculating the LTCG, it would be to my advantage in calculating the tax due on it, or in determining the amount that is to be invested to avoid tax. Could you please tell me if I can do that?
2) There is another query on which I request clarification. Actual payment for the house was made fully in 1994 but the registration in my name was done only in 2005. I have receipts signed by the previous owner in 1994 to prove the payment but not a Sale Deed because the registration was done only in 2005. If I can calculate the LTCG on the basis of the cost of acquisition as in 1994, the indexed cost when I sell the house will be higher (because the denominator will be of a lower value) and LTCG will be lower. Can I claim the higher indexed cost of acquisition on the proof of the Payment Receipts? [R.Varadarajan]
Opinion:
1. The cost of acquisition, for computing, capital gain is the price for which the property is purchased and not value adopted by the Registrar of stamp duty at the time of purchase. Section 50C deems the value adopted by the Registrar of stamp duty (if it is higher than the actual sale Price) as the sale consideration. Section 50C has applicability only for seller and not for buyer. No consequent deeming provision is there for adopting the same as purchase price in the hands of buyer.
2. Indexation benefit is available from the financial year in which the property is purchased /owned by the assessee. You have already made the payment for purchase of the property in 1994. In addition to payment, if it can be proved that the possession/ legal right is handed over to you in 1994 itself, than the same can be considered as the year of purchase for indexation benefit. In normal course, not necessarily always, sale deed is considered as the year of purchase of property for indexation benefit.



TAX TALK- 15.02.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)

“PRINCIPLE OF MUTUALITY & MUTUAL ASSOCIATION”
Query 1]
I wish to know that whether HUF can take commission against supply of goods? Also please clarify whether business income through sales can be done in HUF? Kindly clear the Income Tax view on the same. [VM]
Opinion:
KIND OF INCOME TREATED AS HUF’s INCOME: -Any income that arises out of the investment of HUF funds (like interest earned on loans given by an HUF) or on the utilization of HUF assets (like rent earned on letting out HUF property) would be regarded as HUF income. It is important that the income is earned using HUF funds or property only. If the income arises on account of the personal exertions of the karta or any other members, and not merely as a result of investment of HUF funds, such income would GENERALLY be regarded as the individual income of the karta or the member.
Subject to above, HUF can have the commission income from supply of goods and can also have other business income through goods trading.

Query 2]
Sir, please give your opinion on the following matter:
1. Definition of the term “RELATIVE” under Sec. 56 includesa] Brother & Sister Of Individual at S.No. (ii) andb] Spouse of the person referred in clause (ii) to (iv) at S. No. (vii)
2. My brother in law (Sister’s husband) want to make gift above Rs. 50,000/-. Please confirm whether the following persons are “Relative” for the purpose of Section 56(2)(vii) of the Income Tax Act-1961 so as to receive the gift amount as tax free: -a] Myself b] My Wifec] My Mother d] My Children (Minor] [unitrade2@rediffmail.com]
Opinion:
1. Gift exceeding Rs 50,000/- in a year is taxable in the hands of recipient (Donee) U/s 56(2) (vii) of the I.T. Act, 1961.However, gift shall not be taxable if it is received from the Relative.
2. The term Relative, for the purpose of Section 56(2(vii) means- (i) spouse of the individual;(ii) brother or sister of the individual;(iii) brother or sister of the spouse of the individual;(iv) brother or sister of either of the parents of the individual;(v) any lineal ascendant or descendant of the individual;(vi) any lineal ascendant or descendant of the spouse of the individual;(vii) spouse of the person referred to in clauses (ii) to (vi).
3. The definition of the term “Relative” needs to be interpreted from the recipient’s angel.
4. With above, reply to your query with explanation thereof is as under: -
Receiver
Whether Relative
Where included in point No. (2) above?
You
Yes
Clause (ii) read with clause (vii)
Your Wife
Yes
Clause (iii) read with clause (vii)
Your Mother
Yes
Clause (v) read with clause (vii)
Your Minor Child
Yes
Clause (iv) read with clause (vii)

Query 2]
1. To avoid future problems in collecting the monthly maintenance charges we, Apartment Holders Association, had collected a sum of Rs. 30 Lacs and deposited the same in Time Deposit with the Bank. The interest is solely utilized for meeting the maintenance expenditure. Our Maintenance expense is exceeding the interest income on this FDR with Bank.
2. Please elaborate whether the income on bank FDR is taxable or not? If yes, whether it will be still taxable as our outgo (expenditure) is exceeding the Interest income? Please elaborate about the taxability issue.
3. The bank has started deducting tax on the interest paid. Is there any provision that could rescue the association from such TDS?
4. Alternatively can we claim the maintenance expenses as outgo from the interest income and then claim refund from the Department by filing the return? [Parthonagpur@gmail.com]
Opinion:
1. The income of the association, if arises, shall not be taxable on the principle of Mutuality. The attributes of mutual concern not liable for tax on the principle of mutuality has been set out in the case of a club in Chelmsford Club v CIT, (2000) 243 ITR 89 (SC) as depending on three conditions the existence of which establish the doctrine of mutuality. Such conditions are:i) The identity of the contributors to the fund and the recipients from that fund;ii) The treatment of the company, though incorporated as a mere entity for the convenience of the members, in other words, as an instrument obedient to their mandate; andiii) The impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.
2. The association can submit Form No. 15G to the bank for non deduction of tax at source as the income of the association is tax free [Section 197A (1A)].
3. If the bank reject your Form No. 15G by taking different views in interpreting section 197A(1B) and continues deducting tax at source, you may get the refund of T.D.S. from the Income Tax Department by filing the income tax return of the Association.



TAX TALK- 08.02.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)

“INCOME TAX BENEFIT TO HOSPITALS”

Query 1]
The CBDT has recently issued Circular No. 7/2009 on 22 October 2009, withdrawing its following circulars: • Circular No. 23 dt. 23 July 1969,
• Circular No. 163 dt. 29 May 1975; and
• Circular No. 786 dt. 7 February 2000.
Please let me know whether TDS is required to be deducted on payments made out of India to commission agents who don't have any office or branch in India nor any connection. Such commission agents are also not resident in India and are also not required to visit India. Please elaborate the above circulars as withdrawn and also give your expert comments. [RK]
Opinion:
The CBDT has mentioned in the circular No. 7/2009 that the withdrawal is done on account of the misinterpretation done by some taxpayers, seeking to claim relief, which was not in accordance with the provisions of the Indian Income Tax Act (Act) or the intention behind these circulars.
The Circular No. 23 was issued by the CBDT to provide clarifications regarding taxability of foreign companies and non-residents, engaged in specified business activities. It provided that no tax shall be payable by non-residents in India, where they are engaged only in principal-to-principal (P2P) sale of goods from abroad to Indian importer(s), or to their Indian subsidiary on an arm’s length basis, or in case of similar P2P sale of plant and machinery to Indian importers on installment basis. It also provided for non-taxability of certain other incomes such as commission received by foreign agents (of Indian exporters) operating in their own country, where the same is remitted directly outside India. Another important aspect clarified by this circular (and subsequently, by Circular No. 163) was as regards the exemption of foreign companies having a procurement office or agency in India, where their operations were limited to purchase of goods in India for the purpose of export.
Circular 23 emphasized that the Act does not seek to tax the entire profits of a non-resident, where it carried out only a part of its business activities in India - and only that portion of the profits of a non resident is liable to tax in India, which can be reasonably attributed to the Indian operations of its business.
Yet another clarification was issued vide Circular No. 786, regarding taxability of export commission earned by non-resident agents. It was explained that where the services of such an agent are rendered outside India, its commission income (in respect of export of goods from India) cannot be taxed in India.
It is important to note that such withdrawal does not necessarily mean that non-residents would be liable to tax in India, in situations described in these circulars. Even so, in the absence of these circulars, taxability of non-resident taxpayer needs to be evaluated independently having regard to the provisions of the Act, provisions of tax treaties and relevant judicial precedents. Given the facts and circumstances of the case as mentioned in the query, we doubt the applicability of T.D.S provision u/s 195.
However, taxpayers are advised to independently evaluate and assess the impact of the withdrawal of the above circulars on their transactions.

Query 2]
Is there any income tax exemption for Hospital with certain minimum bed size or in certain areas? If so, please elaborate and guide about the same. [AS]
Opinion:
With a view to encouraging investment in hospitals in non-metro cities, sub-section (11C) has been inserted in section 80-IB with effect from the Assessment Year 2009-10.
The said section provides income tax benefit is in the form of 100% deduction of the profit for a period of 5 Assessment Years, beginning with the initial assessment year (i.e., the assessment year relevant to the previous year in which the business of hospital starts functioning).
The various conditions/ stipulations that need to be complied for availing income tax benefit are as under-
1. The hospital should be located anywhere in India, other than excluded area. The excluded area shall mean (i.e., the hospital should not be located in) an area comprising the urban agglomerations of Greater Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangalore and Ahmedabad, the districts of Faridabad, Gurgaon, Ghaziabad, Gautam Budh Nagar and Gandhinagar and the city of Secunderabad. The area comprising and urban agglomeration shall be the area include in such urban agglomeration on the basis of the 2001 census.
2. The hospital should be constructed any time during April 1, 2008 and March 31, 2013. For this purpose, a hospital shall be deemed to have been constructed on the date on which a completion certificate in respect of such construction is issued by the local authority concerned.
3. The hospital should start functioning at any during April 1, 2008 and March 31, 2013.
4. The hospital should have at least 100 beds for patients.
5. The construction of the hospital is in accordance with the regulation or bye-laws of the local authority.
6. The taxpayer is required to get its account audited and have to get an audit report in prescribed form certifying that deduction has been correctly claimed.
7. Return of income should be submitted on or before the due date of submission of return of income given by section 139(1). If return is not submitted or return is submitted belatedly, deduction under this section is not available.
8. Deduction should be claimed in the return of income. If the assessee fails to make a claim in his return of income of this deduction, the same will not be allowed.






TAX TALK- 01.02.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)

“ARREARS SALARY IS ELIGIBLE FOR TAX RELIEF U/S 89”

Query 1]
I am income tax payee and filling returns regularly with the help of Form No. 16 provided by the employer. For the current session, F.Y. 2009-10, I am having income in the form of interest received from matured National saving certificates. My question is whether income in the form interest received from NSC maturity will be added to the salary income received from my employer and will be taxable? [arrokade@rediffmail.com]
Opinion:
The interest on N.S.C. shall be taxable at the time of maturity if it is not offered for taxation on accrual basis in earlier years.
It appears that you have not offered the NSC Interest for taxation on accrual basis in earlier years during the continuance of NSC. Resultantly, the same will be taxable at the time of maturity along with your other income.
Query 2]
I am a salaried person having taxable income. My spouse is also salaried, having taxable income. My father, a Retired Govt. employee, is depositing certain amount in the R.D. Account of myself, my spouse and my minor child in monthly post Office A/c’s since last ten years. The amount is deposited from his monthly pension. RD’s will mature in the F.Y. 2010-11. How the interest earned will be taxed? Will it be taxed in my father's A/c? If not, will it be taxed on individual's A/c’s in whose names RD’s are drawn? With which A/c, interest on minor's RD will be clubbed? Can I include interest on RD in my name in my HUF a/c? Please Clarify.
[Raju Mahajan]
Opinion:
If the intention of your father behind depositing the amount in RD account of different family members is to make HIS OWN INVESTMENT without diluting the ownership of the investment, then the income from this RD Account will be treated as his income only and accordingly will be taxable in his hands.
If, however, the intention is to gift the said amount to the respective account holder at the time of deposit, thena) The interest income out of the R.D. A/c. in your account is taxable in your hand.b) The interest income from R.D. A/c of your son will be clubbed with your income u/s 64(1A) of the I.T. Act-1961.c) The interest income from R.D. A/c of your wife will be taxable in the hands of your father by virtue of clubbing provision u/s 64(1)(vi) of the I.T. Act-1961.
If the gift is done by your father with a specific direction that the amount will be for your family, then the income from the gifted amount will be taxable as Income of HUF.

Query 3]
What is the due date for filing IT return for FY 2009-2010? What is the last date for depositing Income Tax for FY 2009-2010? In case of TDS, who is supposed to intimate UTN to assessee/IT department? What will be the implication if the UTN is not mentioned in the IT return by the assessee even if the assessee has attached TDS certificate with IT return wherein only TAN is mentioned by the employer? Is mentioning of UTN in the IT return by the assessee mandatory? [sisir_misra@yahoo.com]
Opinion:
Due Date of Filing: The due date of filing the income tax return for the F.Y. 2009-10 for individual assessee (who is not required to get the books of account audited u/s 44AB or who is not a partner in a firm required to get the accounts audited u/s 44AB provision) shall be 31st July 2010.
Due Date of Payment: Income tax is also required to be paid before the due date of filing the income tax return. However, if the tax liability of individuals is Rs. 10,000/- or more, income tax is required to be paid, in Advance, in three quarterly installment. It may be noted that the due date of the third installment of advance tax for individual assessee is 15th March.
Quoting of UTN:Quoting of Unique Transactions Number (UTN) in the T.D.S certificate for the F.Y. 2009-10 is not required now. You may file the return attaching the T.D.S. certificate even though UTN is not mentioned therein.
Query 4]
Sir, please advise me whether relief from salary paid in arrear is admissible? If so, how it can be computed & reflected in return? Is there any form available to submit the return for claiming relief from the salary received in arrear? Please guide me in this regard. [Braj Kishore Singh]
Opinion:
Section 89: The relief is available in respect of salary received in arrears. Section 89 read with Rule 21A(2) provide relief wherever employee-assessee receives the “Arrears of salary” .
Computation of relief Under Section 89:The relief on salary received in arrears is computed in the manner laid down in rule 21A(2)as under:1. Calculate the tax payable on the total income, including the arrears of salary, of the relevant previous year in which the same is received.2. Calculate the tax payable on the total income, excluding the arrears of salary, of the relevant previous year in which the additional salary is received.3. Find out the difference between the tax at (1) and (2).4. Compute the tax on the total income after including the arrears of salary in the previous year to which such salary relates.5. Compute the tax on the total income after excluding the arrears of salary in the previous year to which such salary relates.6. Find out the difference between tax at (4) and (5).7. The excess of tax computed at (3) over tax computed at (6) is the amount of relief admissible under section 89. No relief is, however, admissible if tax computed at (3) is less than tax computed at (6).In such a case, the assessee-employee need not apply for relief.If the arrears of salary relates to more than one previous year, salary would be spread over the previous year to which it pertain in the manner explained above.
How to be reflected in the Return:The same can be reflected in the relevant ITR, at Part-B-TTI, as tax relief admissible u/s 89 in ITR-2 or at Point No. 10 in ITR-1.
The required particular for relief u/s 89 is required to be furnished in Form No. 10E.



TAX TALK- 04.01.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“GIFT IN KIND IS NOW TAXABLE…..”
Query 1]
Whether the property purchased after 01.10.2009 for a value less than the market value is taxable now in the hands of recipient? Is there any amendment in section 56(2) or so? Whether cash gift is taxable only or even the property gift is also taxable now? Please kindly elaborate the changes in section 56(2) by the Last Budget? [L.L]
Opinion:
EARLIER PROVISION:
Previously till 30.09.2009, as per section 56(2)(vi) of the Income Tax Act- 1961, the sum of money received without consideration only was taxable. Gift in kind was outside the taxable net.
AMENDED PROVISION:
In order to bring the receipts in kind in to the tax net, the Finance (No. 2) Act -2009 has carried out the following amendment effective from 01.10.2009: -
a) Scope of section 56(2)(vi), as mentioned above, has been restricted to the gift received before 01.10.2009.
b) A new clause (vii) has been inserted in sub-section 56 (2) so as to bring the following receipts within the tax net: i) Any sum of money exceeding Rs. 50,000/- in aggregate without consideration.ii) Any immoveable property received without consideration, if the stamp duty value of such property exceeds Rs. 50,000/-iii) Any immoveable property received for a consideration where such consideration is less than the stamp duty value of the property by an amount exceeding Rs. 50,000/-iv) Any property other than immoveable property received without consideration, if the fair market value of such property exceeds Rs. 50,000/-v) Any property other than immoveable property received for a consideration where such consideration is less than the fair market value of the property by an amount exceeding Rs. 50,000/-.
c) The new clause is applicable to the Individual and HUF only, as earlier.
d) Consequent to above amendment, a new sub-section (4) has been added to section 49 providing for adopting the value as referred to in b(ii) to b(v) as the cost of acquisition for computing of capital gain.

UNCHANGED PROVISION :
As earlier, new 56(2)vii) is not applicable in respect of gift received by an Individual/HUF A) From Any relative; orB) on the occasion of the marriage of the individual; orC) Under a will or by way of inheritance; orD) In contemplation of death of the payer; orE) from specified local authorities; or F) from prescribed university/ education insituition/ hospital etcG) from any trust/institution registered u/s 12AA.The definition of Relative has also remained unchanged so as to mean & include:
i. Spouse of the Individual
ii. Brother or sister of individual
iii. Brother or sister of the spouse of the individual
iv. Brother or sister of either of the parents of the individual
v. any lineal ascendant or descendant of the individual
vi. any lineal ascendant or descendant of the spouse of the individual
vii. Spouse of the person referred to in clause (ii) to (vi).
With above, the reply to your query is as under:
In case of immoveable property, if the purchase price is less than the stamp duty valuation, the difference will be taxable as income.
Cash/cheque gift is taxable, same as earlier if not falling in any of the mode given in (A) to (G) above.
The gift in kind (like immoveable property, jewellery etc) is taxable now w.e.f. 01.10.2009 if not falling in any of the mode given in (A) to (G) above
Query 2]
I am a PSU Employee. My father owns a self acquired house property. He now wishes to sell the same to me. For purchase, I want to take a home loan. Will I be able to get the tax benefits on the EMI paid on the loan so availed for the said property? [J. N. Jain]
Opinion:
The principal repayment of the housing loan will be eligible for deduction under Section 80C in your hands. Similarly, the interest payable on the housing loan will qualify for deduction under Section 24(b). The mere fact that you purchased the property from your father will not be an impediment to your claim for deductions.

Also available at http://nareshjakhotia.blogspot.com/






TAX TALK- 18.01.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)

“SALARY TAXED IN USA – WHETHER TAXABLE IN INDIA? ”

Query 1]
I am a retired officer of state bank of India. My queries are as under –
1. I have 3 R.D. A/c’s and a fixed Deposit for 2 years with post office at Chhindwara. Whether the interest earned on them are taxable? Whether investment in R.D. Account is eligible for deduction u/s 80C?
2. I have saving bank A/c’s with SBI & ICICI bank. Whether the interest earned on these accounts are taxable?
3. I have also Demat A/c with ICICI bank Chhindwara. I occasionally buy and sale shares of Cos. through this A/C whether income earned and dividends received against them are taxable Kindly guide me [H.S. Sahu]
Opinion:
1. Interest on R.D. Account with post office is taxable under the head “Income from other sources”. No deduction u/s 80C is available towards Investment in R.D. A/c. of post office.
2. Interest on saving bank account is also taxable under the head “Income from other sources”.
3. Income on sale / purchase of shares shall be taxable under the head “Income from Capital gain” if the shares are sold within 12 months of its purchase. Shares sold after holding it for a period of more than 12 months shall be exempt u/s 10(38). Dividend earned on shares of a company is exempt u/s 10(34).


Query 2]
My son was in USA for some period and came back before completion of six months of job. He was getting salary in US Dollar on which tax was deducted by the US Government. The balance amount is brought back to India. Please clarify, with relevant sections, whether income tax is payable on this amount in India? [vdpankey@yahoo.co.in]
Opinion:
1. As per section 5 of the I.T. Act-1961, incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income. In respect of salary income, it shall be taxable in India only if it is received by “Resident” assessee.
2. An individual shall be considered a Resident of India if he fulfills any one of the following conditions:A] Condition 1- He should be in India for 182 days or more during the relevant previous year. OR B] Condition 2- He should be in India for 60 days or more during the during the relevant previous year AND - He should be in India for 365 days or more in 4 years immediately preceding the relevant previous year.Exceptions: (i) An Indian Citizen leaves India during the previous year as a crew member of a ship or for the purpose of employment outside India. (ii) An Indian Citizen or a Person of Indian Origin visits India during the previous year, in which case he shall be a Resident of India only if he is in India for 182 days or more.
3. If the income of your son is taxable in India as a result of residential status, then he can claim relief u/s 90 of the I.T. Act-1961 in respect of tax paid in USA.

Query 3]
Our case for A.Y. 2007-08 was selected for scrutiny, & the Assessment order is passed by the Income Tax Officer by making certain additions in the Scrap sales on ad-hoc basis and also by disallowing traveling, Mobile and Office expenditure as personal expenditure. We have paid the taxes as a result. But, we have received another notice for penalty u/s 271(1)(c). Please elaborate about the penalty u/s 271(1)(c)? Whether that is applicable in our case? [KGC]
Opinion:
1. Under the provision of Income Tax Act-1961, there are number of sections prescribing for imposition of penalty for non compliance with the provision of the Act. Section 271 (1) (c) lays down provision for penalty where there is concealment of income or inaccurate particulars of income are furnished. The section provides that if the assessing officer / CIT / CIT (A) in the course of any proceeding under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty in addition to tax, if any payable by him, a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of particulars of his income or furnishing of inaccurate particulars of such income.
2. It has been held in Union of India Vs. Rajasthan Spg.& wvg. Mills (2009) 180 Taxman 609 that mere non payment or short payent of tax would inevitably lead to imposition of penalty.
3. No penalty is leviable u/s 271 (1)(c) if a) it is determined on estimate basis or b) without bringing any material on record which would substantiate that there was failure on assessee’s part to return correct income due to fraud or willful neglect or furnishing inaccurate particulars of income orc) without any evidence to show that the assessee has willfully concealed income.
4. The following citations may be relied upon: i) CIT Vs. Sangrur Vanaspati Mills Ltd (2008) 303 ITR 53 (P & H)ii) CIT Vs. Iqbal Singh & Co. (2009) 180 Taxman 355 (P & H)iii) Sri Bhagwan Prasad Vs. Asstt. CIT (2008) 20 (II) ITCL 383 (Ranchi-Trib).



Also available at http://nareshjakhotia.blogspot.com/





TAX TALK- 18.01.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)

“SALARY TAXED IN USA – WHETHER TAXABLE IN INDIA? ”

Query 1]
I am a retired officer of state bank of India. My queries are as under –
4. I have 3 R.D. A/c’s and a fixed Deposit for 2 years with post office at Chhindwara. Whether the interest earned on them are taxable? Whether investment in R.D. Account is eligible for deduction u/s 80C?
5. I have saving bank A/c’s with SBI & ICICI bank. Whether the interest earned on these accounts are taxable?
6. I have also Demat A/c with ICICI bank Chhindwara. I occasionally buy and sale shares of Cos. through this A/C whether income earned and dividends received against them are taxable Kindly guide me [H.S. Sahu]
Opinion:
4. Interest on R.D. Account with post office is taxable under the head “Income from other sources”. No deduction u/s 80C is available towards Investment in R.D. A/c. of post office.
5. Interest on saving bank account is also taxable under the head “Income from other sources”.
6. Income on sale / purchase of shares shall be taxable under the head “Income from Capital gain” if the shares are sold within 12 months of its purchase. Shares sold after holding it for a period of more than 12 months shall be exempt u/s 10(38). Dividend earned on shares of a company is exempt u/s 10(34).


Query 2]
My son was in USA for some period and came back before completion of six months of job. He was getting salary in US Dollar on which tax was deducted by the US Government. The balance amount is brought back to India. Please clarify, with relevant sections, whether income tax is payable on this amount in India? [vdpankey@yahoo.co.in]
Opinion:
4. As per section 5 of the I.T. Act-1961, incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income. In respect of salary income, it shall be taxable in India only if it is received by “Resident” assessee.
5. An individual shall be considered a Resident of India if he fulfills any one of the following conditions:A] Condition 1- He should be in India for 182 days or more during the relevant previous year. OR B] Condition 2- He should be in India for 60 days or more during the during the relevant previous year AND - He should be in India for 365 days or more in 4 years immediately preceding the relevant previous year.Exceptions: (i) An Indian Citizen leaves India during the previous year as a crew member of a ship or for the purpose of employment outside India. (ii) An Indian Citizen or a Person of Indian Origin visits India during the previous year, in which case he shall be a Resident of India only if he is in India for 182 days or more.
6. If the income of your son is taxable in India as a result of residential status, then he can claim relief u/s 90 of the I.T. Act-1961 in respect of tax paid in USA.

Query 3]
Our case for A.Y. 2007-08 was selected for scrutiny, & the Assessment order is passed by the Income Tax Officer by making certain additions in the Scrap sales on ad-hoc basis and also by disallowing traveling, Mobile and Office expenditure as personal expenditure. We have paid the taxes as a result. But, we have received another notice for penalty u/s 271(1)(c). Please elaborate about the penalty u/s 271(1)(c)? Whether that is applicable in our case? [KGC]
Opinion:
5. Under the provision of Income Tax Act-1961, there are number of sections prescribing for imposition of penalty for non compliance with the provision of the Act. Section 271 (1) (c) lays down provision for penalty where there is concealment of income or inaccurate particulars of income are furnished. The section provides that if the assessing officer / CIT / CIT (A) in the course of any proceeding under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty in addition to tax, if any payable by him, a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of particulars of his income or furnishing of inaccurate particulars of such income.
6. It has been held in Union of India Vs. Rajasthan Spg.& wvg. Mills (2009) 180 Taxman 609 that mere non payment or short payent of tax would inevitably lead to imposition of penalty.
7. No penalty is leviable u/s 271 (1)(c) if a) it is determined on estimate basis or b) without bringing any material on record which would substantiate that there was failure on assessee’s part to return correct income due to fraud or willful neglect or furnishing inaccurate particulars of income orc) without any evidence to show that the assessee has willfully concealed income.
8. The following citations may be relied upon: i) CIT Vs. Sangrur Vanaspati Mills Ltd (2008) 303 ITR 53 (P & H)ii) CIT Vs. Iqbal Singh & Co. (2009) 180 Taxman 355 (P & H)iii) Sri Bhagwan Prasad Vs. Asstt. CIT (2008) 20 (II) ITCL 383 (Ranchi-Trib).



TAX TALK- 25.01.2010-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)

“TAX SAVING INVESTMENTS IN THE NEW DIRECT TAX CODE ”
Query 1]
I had applied for Permanent Account Number (PAN) 6 years back. I got the number as ARGPS 5586E. However the PAN Card is yet not received by me. Please guide as to the procedure for getting the Pan Card with the same PAN number. [Chandra Shekhar Soni]
Opinion :
You can make an application in Form “Request for New PAN Card Or/And Changes or Correction in Pan Data” quoting your existing Permanent Account Number in the form.
The form can be downloaded from the website of NSDL at www.tin.nsdl.com or UTI at www.utitsl.co.in or from the website of income tax department at www.incometaxindia.gov.in. The form is also available at IT PAN Service centers and TIN Facilitation centers.

Query 2]
On 1st March, 2004, I had purchased a commercial property worth Rs. 3,44,000/- plus stamp duty of Rs. 33,380/-. I have sold this property on 11th Jan, 2010 for Rs. 6,21,000/-. Please advise me on the following points:
The amount of capital gain on sale and the amount of income tax payable thereon?
In order to save tax, the amount of capital gain needs to be deposited in which bonds? What is the time frame for such deposit?
Where I could get application forms for the bonds?
I am a retired person and if my net taxable income after availing deductions under Sec 80C and 80D is below taxable limit or taxable at the lowest slab of 10%, whether the LT capital gains on this sale would also be TAXFREE or would it be taxable at the lower rate of 10%?
Please give Cost Inflation Index for the current year and also for Year 2004.
[apteashok@gmail.com]
OPINION:
The Long Term Capital Gain (LTCG) is required to be calculated after deducting Indexed Cost of Acquisition i.e. purchase price plus stamp duty from the amount of sale consideration
In your case, the LTCG is as under: - a) Cost of Acquisition = Rs. 3,77,380/- [3,44,000/- + 33,380/-]b) Year of Acquisition = 2003-2004c) Cost Inflation index for the F.Y. 2003-04 = 463d) Sale consideration = Rs. 6,21,000/-(Sale consideration is to be taken as higher of the sale price as mentioned in the sale deed or the value adopted by the Registrar for the purpose of levy of stamp duty) e) Year of Sale/Transfer = 2009-2010f) Cost Inflation index for the F.Y. 2009-10 = 632g) Indexed cost of Acquisition is Rs. 5,15,127/- (3,77,380/- * 632/463)h) Long term capital gain = Rs. 6,21,000/- – 5,15,127/- = 1,05,873/-.
LTCG tax can be saved u/s. 54EC if it is deposited in the bonds issued by;
National Highway Authority of India, or
Rural Electrification Corporation Ltd.

LTCG need to be invested within 6 months from the date of transfer of the property.
The LTCG is taxable u/s 112 at a special rate of 20% even though your other taxable income may be in the tax bracket of 10%. However, if your other income is below the basic exemption limit, the unutilized basic exemption limit (i.e., the basic exemption limit less other taxable income) can be reduced from the amount of LTCG and the balance LTCG shall be taxable @ 20%.
The application form for subscription is available at www.recindia.nic.in or at www.nhai.org .

Query 3]
As per new Direct Tax Code, limit of savings has been increased from present limit of Rs. 1,00,000/- to Rs. 3,00,000/-. What types of savings/ expenditure will fall under this category?
Are there any other tax saving incentives (like 80G, 80D etc) other than Rs 3,00,000/-?
Will long term capital gain arising out of sale of shares/ mutual funds/ house property/ land property be taxed separately at a special rate or such capital gain will be included in the gross total income and taxed as per tax slab?
What are the provision regarding wealth tax in the New Direct Tax code? [Col(Retd) S K Misra]
Opinion:
1. Specified saving/Investment/ Expenditure for the purpose of claiming deduction of Rs. 3 Lacs under the New Direct Tax Code (DTC) are: a) Approved Provided Fund.b) Approved Superannuation Fund. c) Life Insurer, & d) New Pension System Trust.f) Tuition fees paid in respect of Children Education.
2. Apart from deduction of Rs. 3 Lacs as mentioned above, the new Direct Tax code proposes other deductions as well like deduction in respect of loan taken for higher education, deduction in respect of health insurance premium, deduction in respect of medical treatment, etc.
The distinction between the long term and short term capital gain has been done away with in the New Direct Tax code. The capital gain is proposed to be taxed at a regular rate as per income slab in the New DTC & not at a special rate.
The broad provision with respect to wealth tax in the new Direct Tax code is as under: a) Wealth-tax will be payable by an individual, HUF and private discretionary trusts.b) Wealth-tax will be levied on net wealth on the valuation date i.e. the last day of the financial year.c) Net wealth will be defined as assets chargeable to wealth-tax as reduced by the debt owed in respect of such assets.d) Assets chargeable to wealth-tax will mean all assets, including financial assets and deemed assets, as reduced by exempted assets.e)The exempted assets will be restricted to the following: -
(i) Assets used as stock-in-trade.
(ii) Any one house or part of a house or a plot of land belonging to an individual or a Hindu undivided family which is acquired or constructed before 1st day of April, 2000;
(iii) The interest of the person in the coparcenary property of any Hindu undivided family of which he is member;
(iv)The value of any one building used for the residence by a former ruler of a princely state.
(v) Jewellery in possession of a former ruler of a princely state, not being his personal property, which has been recognised as a heirloom by the Central Government before 1st April, 1957 or by the Board after that date.
(vi)Any property held by the personal under trust, or other legal obligation, for carrying out any permitted welfare activity in India.
f) The valuation of financial assets will be at cost or market price, whichever is lower.g) The net wealth of an individual or HUF in excess of rupees fifty crore will be chargeable to wealth-tax at the rate of 0.25 per cent.e) The threshold limit of rupees fifty crore will not apply to a private discretionary trust.