TAXTALK

TAX TALK-14.03.2011-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“NOW GRATUITY IS EXEMPT UP TO RS. 10 LACS”

Query 1]
Sir, I am a teacher and my Gross Income in a year is Rs. 2,80,500/- (from 1st April 2010 to 31st March 20 11). My deduction from salary is only Rs. 9,360/-, total in a year, under Provident Fund A/c. But, I pay Rs. 15,665/- yearly as LIC premium against a policy which is in the name of my husband. In my Income Tax declaration, I have shown the details as under: -
a) Public Provident Fund Rs. 9,360/- (b) National Saving Certificate (NSC) Rs. 50,000/- and (c) LIC Premium Rs. 15,665/-.
My employer has told me that you can not show LIC Premium as saving since it is in your husband's name and you will not get any exemption. May I request you to clarify me what is the Rule? [Mrs Keya Dutta - susantakumardutta@yahoo.com]
Opinion:
You are eligible for deduction u/s 80C towards the life insurance premium paid by you on the life insurance policy of your husband. . If the school refuses or doesn’t consider the deduction while working out Tax Deduction at Source from your salary income, you can claim the same u/s 80C while filing your income tax return.

Query 2]
1. I have changed my job from one company to other company. On settling my account with old company, I am suppose to get Rs. 8 Lacs as Gratuity and Rs. 17 Lacs as PF accumulation. Please tell us this amount will be taxable? [kirti.jain@transrailltd.com]
2. Sir, I will be retiring in the Month of April-2011. I want to know the amount of gratuity exempt from income tax. Whether it is Rs. 3.50 Lacs or Rs. 10 Lacs? Please guide as I am conflicting opinions. [Anand L.]
Opinion:
1. TAXABILITYOF GRATUITY:
a. In the Case of Government Employee [Section 10(10)(i)]:Any death cum retirement gratuity received by an employee of the Central/State Government or Local Authority, is wholly exempt from tax.
b. 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. 10 Lacs [Previously it was 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. TAXABILITYOF CPF ACCUMULATION:
a. It is presumed that you were member of a Recognized Provident Fund plan.
b. In case of withdrawal from the accumulated PF, the following rules apply:
- If you have maintained the PF account for more than 5 years, there is absolutely no tax on the PF amount withdrawal.
- If you have maintained the PF account for less than 5 years, the amount of withdrawal is included in your income for that year, and is taxed as per the prevailing income tax slabs / brackets.



TAX TALK-07.03.2011-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“INCOME TAX- AT A CLICK NOW”
Query 1]
How can a NRI British citizen residing in London can apply for a PAN card from here itself? What are the documents required? Can you help me in thisregard? [gotmadan@yahoo.com]
Opinion:
Step by step instructions for getting PAN CARD from abroad are as under:
1. Log on to “ https://tin.tin.nsdl.com/pan/form49A.html
2. Scroll down to the lowest bottom of the page where you will see:'Apply for a new PAN Card'
3. Select Individual from the drop down menu bar.
4. Application for PAN Card Form No. 49A will open.
5. Fill in the form. Read Guidelines on filling form and Instructions on filling form if you wish. When filling in the address make sure it is the same overseas address that is shown on your bank statement.
6. Do not fill an Indian address.
7. Once the form is filled, review it to ensure everything is correctly filled and click “submit” button.
8. An acknowledgement will appear on the screen if form was submitted correctly.
9. Print out at least two copies of the acknowledgement. (One copy is for your record)
10. Paste your photo on one of the printouts of acknowledgement and sign in black ink.
11. Sign on all pages of the photocopies of your passport and your bank statement.
12. Mail all documents to NSDL, PAN unit along with a DD of Rs. 744/- payable at Mumbai, drawn in favor of 'NSDL - PAN', at the following address:'Income Tax PAN Services Unit, National Securities Depository Limited, 3rd floor, Sapphire Chambers, Near Baner Telephone Exchange, Baner, Pune - 411045'.
13. You can track the status of your application by using your acknowledgement number.

Query 2]
I am a senior citizen and filing my income tax return regularly since last 20 years. I may not be able to file my return this year as I will be going out of station. What can be done in such a situation? Please guide me in this matter. Can I send my return by Registered Post to my Assessing Officer? [shantukumarved@gmail.com]
Opinion:
You need not worry now. Filing income tax return is now just a click away. You can e-file your return of income from any corner of the globe by logging in “https://incometaxindiaefiling.gov.in”. If the return is e-filed by you without attaching a digital signature, then ensure to forward the hard copy of the acknowledgement duly signed by you at “Income Tax Department-CPC, Bag No. 1, Electronic city post office, Bangalore-560100”. Wish you a happy journey.

Query 3]
I have taken house loan from SBI jointly with my Brother. Till this year, we both were claiming tax rebate in 50:50 ratio. This year, my company refused to give rebate to both & suggested to take rebate for any one as we both are working in same company. Whether this is correct? Kindly suggest. [shirao1968@gmail.com]
Opinion:
Deduction u/s 24(b) towards interest on borrowed capital & u/s 80C towards principal repayment of housing loan is available to the owner of the house property. If both of you jointly OWNS the house property then deduction u/s 24(b) & u/s 80C cannot be denied. If the company refuses or doesn’t consider the deduction while working out Tax Deducted at Source from your salary income, you can claim the said deduction u/s 24(b) or u/s 80C while filing your income tax return.


Query 4]
My mother has a fixed deposit in SBI. TDS is being deducted on the interest Income earned on such FD. My mother is having no other income. Bank is asking for form 15G/15H for avoiding TDS. I want to know how I can get these forms? [harshwardhanagrawal@rediffmail.com]
Opinion:
You can get the forms by logging in at “http://incometaxindia.gov.in/allforms.asp




TAX TALK- 28.02.2011-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“WHETHER DEDUCTION U/S 80C IS AVAILABLE EVEN IF THE PAYER IS NOT A PROPOSER OF LIC POLICY?”
Query 1]
Section 80C of the Income Tax Act-1961 allows payment of Life Insurance Premium paid by an individual for the policy in his name or in the name of his/her spouse or children. Is it necessary under Income Tax Act that, to be eligible for this deduction, the person making the payment of the premium should be the Proposer of the life policy? I have not proposed the policy of my child, my wife is the proposer but I am making the payment, would it be acceptable to IT Authorities? If the authorities reject such a claim, what defense I would have? Please examine and share the views. [CA. SP]
Opinion:
1. Deduction u/s 80C is available to an individual &HUF.
2. For life insurance payment, deduction is available a] to an individual if it is paid to keep in force the insurance on the life of Assessee himself or the Spouse or any child of the individual,b] to the HUF if it is paid to keep in force the insurance on the life of any of the member.
3. The payer need not necessarily be the proposer so as to be eligible for deduction u/s 80C.
4. The claim cannot be rejected on the grounds of payer being a non-proposer. If rejected, Appeal would be the option available with the Assessee.

Query 2]
Sir, the factors such as purchase/sale value, Brokerage, Taxes etc. are involved in the trading of shares/ future options. Please issue the guidelines for computation of short/long term gain or loss considering the above factors. Please advice
[rameshsabnani44@gmail.com]
Opinion:
1. The Profit/Loss arising from the transactions in shares could either be treated as Business Income or could yield Capital gain Income. Income from Future & Option is normally taxable as “Income from Business& Profession”.
2. The treatment of the Brokerage, Service Tax & Securities Transactions Tax (STT), would be as under:a] If the Income is to be treated as Business Income:If profit on share trading is offered as business income, then all the expenses, i.e., brokerage, service tax, T.O. Charges, Stamp Charges,. STT etc are allowed as business expenditure. b] If the Income is to be treated as Capital Gain Income:Brokerage, Service tax, T.O charges & stamp charges paid at the time of purchase of shares will be added to your cost of acquisition and those paid at the time of sale will be deductible from sale consideration. It may be noted that STT cannot be added as your cost of acquisition and is not deductible while selling the shares.

Query 3]Is there any provision under the Income Tax Act -1961 so as to enable the Assessee to get back the refund of excess T.D.S.? [CA. AR]
Opinion:
Income Tax Act prior to Asst Year 2010-11 had no express provision of processing of TDS returns, as it has for income tax return. There was also no express provision under I T Act for refund of excess TDS deposited till A.Y. 2010-11.
However, section 200A of the I T Act introduced from 01/04/2010 has brought in very much required amendment. It not only sets in motion a process of prima-facie Assessment of TDS retun (read statement) .
The provision is as under:
200A. (1) Where a statement of tax deduction at source has been made by a person deducting any sum (hereafter referred to in this section as deductor) under section 200, such statement shall be processed in the following manner, namely:—
(a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely:—
(i) any arithmetical error in the statement; or
(ii) an incorrect claim, apparent from any information in the statement;
(b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;
(c) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of amount computed under clause (b) against any amount paid under section 200 and section 201, and any amount paid otherwise by way of tax or interest;
(d) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (c); and
(e) the amount of refund due to the deductor in pursuance of the determination under clause (c) shall be granted to the deductor :
Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed.
TAX TALK- 21.02.2011-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“LOSS FROM F & O IS NOT A SPECULATIVE LOSS”
Query 1]
I stay in my own house & pay Rs. 400/- p.m to the society for maintenance of common facilities, Corporation tax of Rs. 2,100/- p a and NIT Ground Rent of Rs. 2,111/- p a .for the flat.
I acquired another flat in February 2010 out of the cash gifts received from my sons from time to time and derive an income of Rs. 20,000/- per month as Lease rent. I pay Rs. 1,500/- towards common facilities of this flat to the society, corporation tax of Rs 2,600/- p a, NIT Ground Rent of Rs. 1,000/- p.a.
I am a house wife and have an income of around Rs 1,00,000/- per annum from fixed deposits as Interest from Nationalized banks. What is my tax liability for the FY: 2010-11? Any tax planning aspect that needs to be taken care of before March-2011? I am a woman senior citizen aged 70 years. [Mrs. M Murthy]
Opinion:
1. No income tax implications shall be there on the house property used by you for your own residence. Also, no deduction shall be available against the corporation tax, Maintenance charges, NIT Ground rent etc paid by you for the house property used for own residential purpose.
2. Income from the second house property leased out by you would be chargeable to income tax on the basis of its annual value. Treating the rent of Rs. 2,40,000/- receivable by you as the fair market rent, the following two deductions would be available as deduction against the lease rent:a] Rs. 2,600/- corporation tax paid by you &b] Rs. 71,220/- [i.e., 30% of Rs. 2,3,7400/-] towards Repairs & Maintenance. The deduction is an ad-hoc deduction that is available against the house property income & it shall be available even if you haven’t actually incurred any expenditure towards Repairs & Maintenance.
3. No additional deduction shall be available towards the fixed monthly maintenance charges paid by you to the society & NIT Ground Rent.
4. With above basic proposition, your statement of income & tax shall be as under:
STATEMNT OF TOTAL INCOME & TAX
Rs.
Rs.

INCOME FROM HOUSE PROPERTY




Gross Annual Value

240000.00



Less: Corporation tax

2600.00



Net Annual Value


237400.00



Less: Deduction






- U/s 24(a)- Repairs & Maintenance [@30%]
71220.00



- U/s 24(b)- Interest on Borrowed Capital
0.00
166180.00









INCOME FROM OTHER SOURCES




Interest on Bank F.D.R


100000.00

Gross Total Income



266180.00


Less: Deduction under Chapter VI-A



- U/s 80C (towards LIC/PPF etc)

0.00

- U/s 80D, U/s 80G, etc


0.00

Total Income



266180.00

Tax on Total Income



2618.00

Add: Education cess



79.00

Total payable



2697.00









5. You can save entire tax if you invest minimum of Rs. 26,180/- in the tax saving instruments like LIC/PPF/ULIP etc.

Query 2]Please refer to the Tax Talk dated 14.02.2011 whrein it is mentioned that the F &O loss is not speculative loss & hence can be setoff against Regular Income. Till now, I was under the impression that F & O loss is to be treated as speculative loss only. It will be of great help if you highlight any case law or so, which will help to plead F & O Loss as regular business Loss and not speculative loss. [CA. AJ]
Opinion:
Finance Act 2005 has introduced clause (d) in section 43(5) so as to specifically EXCLUSE from the purview of speculative profits all the trading in derivatives carried out in a recognized stock exchange. Resultantly, profit/Loss arriving in derivates trading is not treated as a speculative Profit/Loss.
TAX TALK- 14.02.2011-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“COMPLICATIONS OF CAPITAL GAIN”
Query 1]
1. As per your answer in the earlier issues of Tax Talk, Capital gains is to be calculated by deducting the indexed cost of acquisition from the sale price. What does indexed cost means? Is it market price or Purchase price as per Sale deed? Whether it includes cost of Registration & Stamp Duty? What is cost inflation index? Please elaborate the terminology of complicated Capital Gain for general use of all.
2. You have mentioned that capital gains is not related in any way to home loan (except condition of 5 year of time binding for principal repayment benefit)My question is, if I have paid nearly 2,00,000/- as interest part to home loan in 5 year time (Approx Rs. 50,000/- Per Year of total EMI out of which nearly Rs. 10,000/- is principal & Rs. 40,000/- Interest part), Can I deduct interest repaid to calculate Capital Gain? (Sale Price Rs. 12 Lacs & Cost of Purchase 5 year ago Rs. 6 Lac, as per you reply it comes to Rs. 6 Lacs).
3. Whether it is necessary that full capital gain is actually invested in another property for tax benefit or Only Purchase of new property should be higher in amount than capital gain? Can I purchase another flat of Rs. 24 Lacs and invest my share as only Rs. 4 Lacs from capital gain and utilize balance Rs. 2o Lacs elsewhere (like repaying car loan etc)? [mahesh25771@hotmail.com]
Opinion:
1. Explanation (iii) to section 48 defines the term “indexed cost of acquisition” as the amount which bears to the cost of acquisition the same proportion as the COST INFLATION INDEX (CII) for the year for which the assets is transferred bears to the cost inflation index for the first year in which the assets is first held by the assesee. (eg, Mr. X has purchased a flat for in the year 1988-89 Rs. 1 Lacs and have sold the same in the F.Y. 2009-10. The indexed cost of acquisition in this case shall be = Rs. 1 Lacs * 632/ 161= Rs. 3.92 Lacs). Indexation benefit is given to the assesee on transfer of a long term capital assets to compensate the inflationary effect of economy. For the common benefit of all our readers, we are presenting the Cost Inflation Index (CII) since 1981:
S.No.
Financial Year
C.I.I
S.No.
Financial Year
C.I.I
1
1981-82
100
2
1982-83
109
3
1983-84
116
4
1984-85
125
5
1985-86
133
6
1986-87
140
7
1987-88
150
8
1988-89
161
9
1989-90
172
10
1990-91
182
11
1991-92
199
12
1992-93
223
13
1993-94
244
14
1994-95
259
15
1995-96
281
16
1996-97
305
17
1997-98
331
18
1998-99
351
19
1999-2000
389
20
2000-01
406
21
2001-02
426
22
2002-03
447
23
2003-04
463
24
2004-05
480
25
2005-06
497
26
2006-07
519
27
2007-08
551
28
2008-09
582
28.
2009-10
632



It may be noted that the cost of acquisition is the total of purchase price plus stamp duty, Registration expenses & other expenses of capital nature incurred for acquiring the title of the property.

2. Interest paid on housing loan in normal course doesn’t form the part of the cost of acquisition and would not be deductible expenses while calculating the long term capital gain.
3. (i) For exemption u/s 54 (i.e., capital gain arising on transfer of a residential house property), entire Long term capital gain only is required to be invested for full exemption.(ii) For exemption u/s 54F (i.e., capital gain arising on transfer of any capital assets other than residential house property), entire sale consideration is required to be invested for full exemption.

Query 2] I have received interest, Salary & Share of Profit form a partnership firm of Rs. 3,71,209/- during the F.Y. 2009-10.
I have also suffered a loss of Rs. 62,184/- during the F.Y. 2009-10 as a result of transacting in the share market in F & O segment.
I also have earned a S.B A/c interest of Rs. 2,061/- & FDR Interest of Rs. 16040/- during the F.Y. 2009-10.
Except above, I don’t have any other income during the F.Y. 2009-10.
My query is whether I can set off my Loss against my other income? I am getting a conflicting view about the set off. Please elaborate. Is it possible to show such loss in ITR-3? Should I file the return in ITR-3 or ITR-4?[Ramesh K. Malpani]
Opinion:
1. The income from Derivative transactions (F&O) is not a speculative transaction and is normally taxable under the head “Income from Business & Profession”. The interest/ remuneration/share of profit from a partnership firm is also taxable under the head “Income from Business & Profession” You can set off the loss in F & O transactions against the Interest / Salary /Remuneration received from the Partnership Firm.
2. The return in such case is required to be filed in ITR-4. The set off is required to be mentioned in “Schedule CYLA” at Sl. No. (iii) & (vii).




TAX TALK- 07.02.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“WHETHER 80DDB DEDUCTION IS AVAILABLE IF TREATMENT IS DONE IN PRIVATE HOSPITAL?”
Query 1]
I have one small query regarding LIC premium & expect your kind adviseMy wife & myself are filing Income Tax return individually. I am a CPSU Executive and my wife is earning from tuitions classes of students since last 10 years. I have paid the LIC premium for say five policies in the name of myself, my wife's name and for our two children including LIC Jivan suraksha for me. Due to increase in my CPF deduction in my salary component, the limit of Rs.100000/- is now comes from CPF only and hence the amount of LIC premium of Rs. 30,000/- do not contribute for any Income tax rebate benefit to my family. On the other hand due to increase in tuition earnings of my wife she need to save for Income Tax rebate. Kindly advise us, can we shift the LIC policy premium contribution of the existing policies from my account to my wife's account so that she may get the benefit of Income Tax rebate in her Income Tax Return? In case it is possible then what is the formality required for the same?[brajeshprasad_sinha@rediffmail.com]
Opinion:
Deduction under section 80C towards Life insurance premium payment is available to the person who makes the payment. As a tax planning tool, you can shift the LIC policy payment commitment from your account to your wife account. Your wife can claim deduction u/s 80C if she makes the payment of your LIC Policies taken out in her name or in your name or in the name of your children.

Query 2]Brief Fact:
1. I am working in public limited company.
2. I have purchased a residential plot in September 2009. I took loan from ICICI Bank as plot loan.
3. I have paid installments till September 2010 to ICICI bank and later paid the whole balance amount to ICICI Bank in October 2010 and closed the Account.
4. I have availed loan from SBI in Nov-2010 and started building a house at this plot.
5. I have not availed the benefit in Income tax in financial year 2009-10 as it is a plot loan
Query: Since I am constructing a house on the same plot within a span of two year from purchase, can I avail Income tax benefit for the financial year 2009-10 and 2010-11 for the interest amount? [vmkalantri@yahoo.com]
Opinion:
Interest in respect of pre-construction is deductible in five equal annual installments commencing from the previous year in which the house is constructed/acquired. For this purpose “pre-construction period” means the period commencing on the date of borrowing and ending on March 31 immediately prior to the date of completion of construction /acquisition.
If the house is completed in any particular year then one should note that the pre-construction interest doesn’t include the interest from 1st April of that year to the date of completion in that year.
In your case, if the construction of your house a] is completed in the F.Y. 2010-11, then pre-construction period interest would mean interest of the F.Y. 2009-10 only. In this case, interest would be the interest paid to ICICI Bank only.b] is completed in the F.Y. 2011-12, then pre-construction interest would mean interest of the F.Y. 2009-10 & 2010-11 taken together. In this case, interest would be the interest of ICICI Bank & SBI also.It may further be noted that for housing loan interest deduction up to Rs. 1,50,000/-, the construction should be completed within a period of 3 years from the end of the financial year in which capital was borrowed.

Query 3]
Sir, please let me know What are the diseases covered by section 80DDB & whether I am entitled to have tax saving under section 80DDB,for my parents treatment in a private hospital?. [atul670@yahoo.co.in]
Opinion:
1. 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.
2. Deduction is available even if the treatment is done in a private hospital.
3. For deduction, Assessee has to get a certificate in the prescribed form (Form No. 10-I) from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist as may be prescribed, working in a Government Hospital.
4. Please note that only the certificate needs to be obtained from a specialist working in a Government hospital, the treatment can be done anywhere.
TAX TALK- 31.01.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“RETIREMENT BENEFITS & INCOME TAX”
Query 1]
I have two specific queries to make, if you kindly enlighten me, I will be ever grateful:
1. I am a retired Govt. employee, senior citizen. My wife is also a Senior Citizen. She wants to have one single Fixed Deposit of Rs. 6.00 Lacs with 10% Interest/year. Can she get TDS exemption on submitting 15H form to the Bank? Some body told me that, if the total interest on fixed deposit in a particular Bank, for a person, is Rs.50000/- or more, tax will be deducted by Banks as TDS, in spite of submitting 15H form. She has PAN Card.
2. Can you tell us how to make a “Will”. Can a Will be made on plane paper? Or has to be made on Govt. Stamp paper only? If on stamp paper, what will be the denomination of that Stamp paper? Is it mandatory to register the Will? What is the legality, if the Will is made on plane paper? [baniajoy@gmail.com]
Opinion:
1. Your wife can submit the Form No. 15H if tax on her total income during the relevant financial year is Nil. Ensure to quote her Permanent Account Number (PAN) on the Form No. 15H. There is no bar of Rs. 50,000/- as mentioned in your query. Bank have to deduct tax at source if the interest amount exceeds Rs. 10,000/- and the depositor doesn’t furnish Form No. 15G/15H with PAN quoted thereon. It may further be noted that where an asset is transferred by an individual to his spouse directly or indirectly, otherwise than for an adequate consideration or in connection with an agreement to live apart, any income from such asset is deemed to be the income of the transferor. [64(1) (iv) of the Income Tax Act-1961]. So if the amount to your wife is given by you otherwise than for adequate consideration then the income from bank FDR will be clubbed with your income.
2. Wills can be made on a plane paper also. Alternatively, it can be executed on stamp paper of any denomination. Wills remains valid even if it is un-registered provided it is executed properly. Registration of will is not compulsory under the Indian Registration Act. Following few care & caution may be taken while making the wills:a] Though, Registration is not mandatory, it is always advisable to get the will registered as it ensures authenticity, sanctity & genuineness.b] Wills should be signed by the testator (maker) in the presence of atleast two witnesses.c] The witnesses should express that the wills has been signed in their presence in a good health of mind. Their name and addresses should be given in full.d] Each page of the will should be signed by the testator.

Query 2]
I am shortly going to retire under VRS from Central Government Employment. I will be getting amount pertaining to provident fund, Gratuity, Commutation of pension, Insurance and Encashment of privilege leave to my credit (240 days max.). Kindly guide me which are the amounts exempted fully under TDS and whether encashment of privilege leave is fully exempted under TDS provision and under which section? [d_pande1@yahoo.in]
Opinion:
TREATMENT OF RETIREMENT BENEFITS: -A] Provident Fund: Lump sum payment received from Statutory Provident Fund received by the Government employee is fully exempt from income tax.B] Gratuity: In the case of Government employee, Gratuity amount is exempt from income tax u/s 10(10)(i) of the Income Tax Act- 1961.C] 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.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] 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)
Exempt amount of leave salary as calculated above will not attract the T.D.S provision and the same can be paid without deducting tax at source (T.D.S).





TAX TALK- 24.01.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SALE OF FLAT, HOUSING LOAN & THE CAPITAL GAIN”
Query 1]
I have sold my old flat for Rs. 12 Lacs purchased by me about 5 years ago for Rs. 6 Lacs. I have housing loan outstanding of Rs. 5 Lacs (Paid from Rs. 12 Lacs)My queries are:
1. On what amount I have to pay tax and at what rate?
2. Is it connected with Housing Loan availed in any way?
3. I want to purchase another flat of Rs. 24 Lacs. What benefit I will get to save tax?
4. Is there any time limit for re-investment?
5. In the IT return can I show Housing Loan repaid principal of 5 Lac? (For getting Maximum benefit of Rs. 1 Lacs)?
6. When There are two housing loan in one year, partially (8 Months) old flat and partially (4 Months) new flat, can I add both interests (and/or principal) repayment for getting IT benefit? [mahesh25771@hotmail.com]
Opinion:
1. Income on sale of flat after a holding period of more than 3 years would be treated as Long term Capital gain & is taxable @20%. Long term capital gain, as mentioned above, is the amount arrived at after deducting the following from the sale consideration (i.e., Rs. 12 Lacs or the value adopted by the Registrar for levy of stamp duty, whichever is higher): -a] Indexed cost of Acquisition and b] Expenses incurred for effecting transfer.
2. Long term capital gain taxability remained unaffected by the availment (or non availment) of the Housing loan. However, it may be noted that if the house property for which deduction u/s. 80C in respect of principal repayment of housing loan is taken by the assessee, then it should not be transferred within a tenure of 5 years from the end of the financial year in which the possession of house property is obtained. If assessee transfers the property within a duration of 5 years then the benefit allowed earlier u/s. 80C shall be denied retrospectively and assessee would be liable to pay the tax so saved as a result of deduction u/s.80C on the principal repayment of housing loan.
3. & 4. Long term capital gain arising from sale of flat may be claimed as exempt under Section 54 subject to the following conditions:-a] The amount of capital gain is invested in another residential house property.b] Exemption in respect of the entire amount of capital gain is allowed in cases where the investment in new house or flat is equal to or exceeds the amount of capital gain. Otherwise, gains in excess of the amount invested are brought to tax.In your case, if you purchases a flat for Rs. 24 Lacs within a prescribed time limit, you would not be liable to pay any Long term capital gain tax.c] Time Limit for Investment: This investment must take place within one year before or within two years after the date of transfer in case of purchase of new residential house and three years after the date in case of its construction.d] If you want to save the tax by investing the capital gain amount in the above mode but the amount is not utilized for purchase/construction of the residential house property as mentioned above before the due date of submission of income tax return, then it should be deposited in the “Capital gain Deposit Account scheme” with a nationalized bank. The amount deposited in the said account can be withdrawn for purchase/construction of house property.
5. There is nothing in the Income Tax Act -1961 which debars your claim of Rs. 1 Lacs u/s 80C as mentioned in the query.
6. After selling the first house property, you intend to avail the second housing loan. In this case, subject to (2) mentioned above, you can club interest & principal amount of both the loan & will be eligible for IT Relief.

Query 2]
Sir, In cases where a Truck Owner doesn't furnishes his PAN but payment to him for a single sum remains below Rs. 30,000/- & total sum during the year remains less than Rs. 75,000/-, whether TDS is required? [itr_ngp@rediffmail.com]
Opinion:
No Tax Deduction at Source (T.D.S) would be required if the individual payment doesn’t exceeds Rs. 30,000/- AND the aggregate of the payment during the year also doesn’t exceed Rs. 75,000/-.



TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“WHETHER T.D.S. REQUIRED ON TARGET INCENTIVES GIVEN?”
Query 1]
I am a regular reader of your Column in The Hitavada news daily. I want to know more about IT Act - Relief U/S 89(1). [mohandas1956@sify.com]
Opinion:
A. Section 89 gives relief to the salaried assessee in the following cases:i) Where the arrears of salary is received or the salary is received in Advanceii) Where the Gratuity is received in excess of the specified limits.iii) Where the compensation is received in respect of Termination of Employmentiv) Where payment is received in commutation of pension in excess of the specified limit.
B. The mostly used relief is in respect of Arrears / Advance salary. For mass benefit, we are producing the mode of computing relief u/s 89 read with Rule 21A(2) in respect of Advance/ Arrears Salary. 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 worked out in Form No. 10E.

Query 2]
With respect to your opinion published in 'Money For You' in The Hitavada issue dated 27.09.2010 & in one issue prior to that, you had opined that investment in PPF Account of son or daughter (married or unmarried) is also eligible for deduction U/s 80 C of I.T Act-1961.
I would like to know the details of procedure to be followed in the above case, kindly enlighten on the following points:
1. The bank pay-in-slip will be in the name of the account holder either son or daughter (married or unmarried). How to show it in my name?
2. Whether marriage certificate will be required for married daughter?
3. Whether any certificate will be required in case of son or unmarried daughter?
4. What is the limit of PPF deposit under these circumstances, whether Rs. 70,000/- or Rs. 70,000/-*2?
Kindly guide me regarding the above matter. [vdbade@rediffmail.com]
Opinion:
1. Even though the Deposit slip remains in the name of a Son or Daughter, still one claim deduction u/s 80C in respect of deposit done in the PPF A/c of son/ Daughter provided he makes the PAYMENT in their PPF A/c.Deposit in the PPF A/c of Son/ Daughter by issue of Account Payee instruments of the claimant would make the deduction claim easy.
2. No marriage certificate as such is required at the time of filing return of income. However, you may be required to submit the same at a later date if the Assessing Officer demands it to justify the claim.
3. There is a ceiling of maximum of Rs. 70,000/- per PPF A/c. The overall deduction u/s 80C would be restricted to Rs. 1 Lacs only. Subject to said max restriction of Rs. 70,000/- per Account, you can claim Rs. 1 Lacs deduction u/s 80C for both the accounts taken together (i.e., Rs. 70,000/- + Rs. 30,000/- or any other combination].

Query 3]
Sir, we are engaged in a manufacturing activity in Nagpur. Our case for the A.Y. 2008-09 was selected for scrutiny and the Assessment order was passed wherein disallowance is done u/s 40(a)(ia) for not deducting & paying the T.D.S u/s 194H on Target Incentives paid to our dealers. Our dealers are independent persons & we provide them with the incentives if they purchases over and above certain target on month to month basis. The percentage of incentives also keeps varying from month to month basis and on the basis of sales target achieved. Whether tax is deductible on incentives payment? What is the remedy available? [HTPPL]
Opinion:
1. Section 194H provides for deduction of Tax at Source (T.D.S.) on brokerage & Commission payment.
2. Dealer, in your case, are an independent persons and not your agent as they are free to sell goods on their own profit margins and normal buying & selling goes on de hors any incentive schemes. We are of the opinion that the target incentives paid by you is only a motivator and it can not be termed as a commission so as to fall within a purview of section 194H. Accordingly, provision of section 194H could not be applied.
3. You can file an appeal against the Assessment Order with C.I.T (Appeal).
4. You may submit the following citations while filing an appeal:a] S.D. Pharmacy (p) Ltd Vs. Dy. CIT (2009) 31 SOT 386 (Coch- Trib).b] National Panasonic Dimia(p) Ltd Vs. Dy. CIT (2005) 3 SOT 16 (Del- Trib)c] Tube Investment of India Ltd Vs. Asstt. CIT (2009) 223 CTR (Mad) 99.






TAX TALK- 10.01.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“BASIC EXEMPTION LIMIT FOR THE F.Y. 2010-11”
Query 1]
I am a senior citizen. Please let me know the personal income tax limits for the financial year 2010-2011 (Assessment year: 2011-2012). [n_premkumar@hotmail.com]
Opinion:
The basic exemption limit and tax slab/rate for the F.Y. 2010-11 (Assessment Year 2011-12) is as under:A) For Resident Senior citizen (65 years or more)i) Up to Rs 2,40,000/- : Nilii) Rs. 2,40,001/- to Rs 5,00,000/- : 10%iii) Rs. 5,00,001/- to Rs. 8,00,000/- : 20%Income above Rs. 8,00,000/- : 30%B) For Resident Male assesseess other than senior citizeni) Up to Rs. 1,60,000/- : Nilii) Rs. 1,60,001/- to Rs 5,00,000/- : 10%iii) Rs.5,00,001/- to Rs. 8,00,000/- : 20%Income above Rs 8,00,000/- : 30%C) For Resident Female assesseess other than senior citizeni) Up to Rs. 1,90,000/- : Nilii) Rs. 1,90,001/- to Rs 5,00,000/- : 10%iii) Rs.5,00,001/- to Rs. 8,00,000/- : 20%Income above Rs 8,00,000/- : 30%.
Query 2]
I have a query on sale of Agricultural Land. Recently my father has sold an Agricultural land (Urban) which was purchased by him in the year 1981. Subsequently he purchased another Agricultural land (Rural) with the amount received from sale of Urban Agricultural Land with an assumption that agricultural land can be purchased with the amount received from sale of earlier agricultural land. After purchasing the new land, we came to know that sale of the agricultural land situated within 8 Km from the Municipal Corporation limit would attract LTCG. We also heard that purchase of new agricultural land can be shown under section 54D to get exempted from tax. Is it right to use Sec. 54D for tax exemption? Kindly advise us. [cst_wcl@rediffmail.com]Opinion:
1. Exemption u/s 54D is available on investment of capital gain arising out of compulsory acquisition of land & building forming from of the Industrial Undertaking.
2. Capital gain arising on transfer of Urban Agricultural Land can be saved by claming an exemption u/s 54B (& not u/s 54D).
3. Exemption u/s 54B: The main stipulations incorporated in section 54B are as under: -a) Exemption is available to an Individual Only. [Exemption is not available to HUF or any other category of Assessee]b) Capital gain arises on transfer of Agricultural Land. The Agricultural land may be a long term capital assets or may be even a short term capital assets.c) The Agricultural Land is used by the tax payer or his parents for agricultural purpose for a period of two years immediately preceding the date of transfer.d) The taxpayers has purchased another land for agricultural purposes within a period of two years from the date of transfer. If all the above conditions are satisfied, Lower of the following shall be allowed as exemption u/s 54B:i) The amount of capital gain generated on transfer of agricultural land orii) The amount invested for purchase of new Agricultural Land.

Query 3]
Home loan was sanctioned to me for purchase flat on 31st March 2010 by SBI. From April 2010, I have been paying Rs. 11,214/- as pre-EMI regularly as construction of flat was in progress. Sale Deed of flat was done in December 2010 and now I will Pay EMI of Rs. 12,214/- from January 2011. My question is how much tax benefit will I get as I have paid certain amount of interest which is pertaining to a period before I have taken the possession i.e., pre-construction period? [sandip_omitsoft@yahoo.com]
Opinion:
Deduction towards interest on Housing Loan is available u/s 24(b) of the Income Tax Act-1961. For the purpose of section24(b), pre-construction period means the period commencing from the date of borrowing and ending on March 31 immediately prior to the date of possession. In your case, pre-construction period would mean the period from the date of loan to 31.03.2010. The period from 01.04.2010 to December-2010 would not be considered as pre-construction period. Effectively, entire interest paid during the F.Y. 2010-11 would be eligible for deduction u/s 24(b). Similarly, entire principal portion of loan repaid during the F.Y. 2010-11 would be eligible for deduction u/s 80C.

TAX TALK- 03.01.2011-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“INCOME TAX PROVISION ON PROFIT FROM SALE OF AGRICULTURAL LAND”
Query 1]
During F Y 2009-10, a person has a loss of around Rs. 25,000/- in F & O segment. He wishes to set off this loss against remuneration from partnership firm. Whether the set off is permissible? He has no other income. My query is how & exactly where in the ITR-4 should the loss in F & O segment be shown? Is it possible to show such loss in ITR-3? [itr_ngp@rediffmail.com]
Opinion:
1. The income from Derivative transactions (F&O) is not a speculative transactions and is normally taxable under the head “Income from Business & Profession”. The remuneration from a partnership firm is also taxable under the head “Income from Business & Profession” You can set off the loss in F & O transactions against the Remuneration from Partnership Firm.
2. The return in such case is required to be filed in ITR-4. The set off is required to be mentioned in “Schedule CYLA” at Sl. No. (iii) & (vii).

Query 2]
What is the income tax rule related to taxability of profit arising on sale of agriculture land and long term gain calculations there on if the land is situated 10 km away from MahaNagarpalika Limits? [aganasane@rediffmail.com]
Opinion:
1. In normal course, any income from transfer of agricultural land shall be tax free if the agricultural land is not situated: (a) in any area which is comprised within the jurisdiction of a municipality (Whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in items (a), as the central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Official Gazette.
2. In short, Profit arising on sale of Rural Agricultural land used for agricultural activity situated 8 Kms beyond the municipal limit or a cantonment board with a population of less than 10,000 would be tax free.
3. However, depending upon the facts & Circumstances of each & every case, if a person is engaged in the business of trading in agricultural land then the profit could be taxable as “Income from Business”. Similarly, if the agricultural land is purchased with a motive to instantly transfer it to earn profit then it could be considered as treating it as an adventure in the nature of trade & would be taxable under the head “Income from Business”.

Query 3]
1. My wife has separate Bank A/c, Demat A/c, PAN card and does share trading out of money given by me. Will profit on this will be added to my annual income and taxed accordingly? I am salaried employee.
2. If I do share trading and earn profit, what is the tax liability, if I earn profit on:a] Intra-Day tradingb] Delivery based and keep for less than one yearc] Delivery based and keep for more than one year? [s_c_swami@yahoo.com]
Opinion:
1. Where an asset is transferred by an individual to his spouse directly or indirectly, otherwise than for an adequate consideration or in connection with an agreement to live apart, any income from such asset is deemed to be the income of the transferor. [64(1) (iv) of the Income Tax Act-1961]. So even if your wife have a separate bank account/ Demat A/c & a PAN card, even then the income would be clubbed with your income by virtue of clubbing provision incorporated in section 64 (1)(iv).
2. You are a salaried assessee. In normal course, the following tax provision shall be applicable: a] Income from Intra Day profit would be treated like your other income and would be taxable at the regular rate depending upon your income slab.b] Income from delivery based share with a holding period not exceeding 12 months would be treated as short term capital gain & would be taxable at a flat rate of 15% if the transaction is covered by Securities Transactions Tax (STT).c] Income from delivery based share with a holding period of more than12 months would be treated as Long term capital gain & would be exempt from income tax if the transaction is covered by STT.

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