TAX TALK-04.04.2011-THE HITAVADA
TAX TALK BY CA. NARESH JAKHOTIA (Chartered Accountant) “GIFT RECEIVED FROM GRANDMOTHER’S BROTHER – TAXABLE OR EXEMPT?” Query 1] Gift is received by an individual from Grandmother's Brother. Whether exempt u/s. 56(2) of the IT Act, 1961? Any case law to support such claim? [firstname.lastname@example.org] 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 the above detailed backdrop on the provision of law, the gift received by an individual from Grandmother’s brother will not be exempt u/s 56(2) of the Income Tax Act-1961. Similar views was upheld in Assistant commissioner of Income Tax Vs. Lucky Pamani, 2011 (49) DTR ((Mumbai) (Tribunal) 501. Query 2] I have invested Rs. 1,00,000/- in bank FD for a period of 1000 Days @ 9.25% interest. My bank will deduct TDS on maturity i.e, after 1000 Days and not at the end of each Financial Year. My question is: 1. Can I show interest earned, as income in the corresponding FY at the end of FD tenure? 2. If I show interest earned every year and pay advance tax on the basis of interest earned statement of Bank, what will happen if Bank deducts TDS on entire interest paid on maturity. 3. Please advice me how to handle such situation in a better manner. [email@example.com] Opinion: 1. As per the provision of Income Tax Act-1961, Tax Deduction at Source (T.D.S) is required at the time of credit or at the time of payment, whichever is earlier. Interest provision is required to be done by the bank at the end of each year and so ideally bank should deduct the tax at source at the end of each year if the interest amount exceeds the prescribed amount of Rs. 10,000/- p.a. 2. Ignoring the mistake the bank is committing in not deducting tax at source at the correct timing, point-wise replies to your queries are as under: a] The interest to be offered for taxation depends upon the method of accounting regularly followed by you in recognizing the income.b] If you are following cash (Receipt) system of accounting, you can offer the entire interest income at the end of FD Tenure. At that time, you can claim entire amount of T.D.S done as credit against your income tax liability.c] If you are following mercantile (Accrual) system of accounting then you have to show interest due every year as income of that year only. You have to accordingly pay the income tax for that year. T.D.S. credit can be claimed at the end of the FD tenure for the entire amount of T.D.S. You may be required to offer the evidences to prove the interest income offered in earlier years before the I.T. Authorities so as to enable them to give credit for the entire T.D.S amount. 3. In view of the Circular No. 371 dated 21.11.1983 issued by the Central Board of Direct Taxes (CBDT), we advise the readers to offer the interest on Bank FDR on accrual (due) basis only. Query 3] 1. I have received salary arrear for the period from 01.01.2007 to 30.04.2009 (28 months) in April-2010 i.e., FY -10-11. The housing perk tax was implemented w.e.f. F.Y. 2007-08 in our company and was paid by company for the F.Y. 2007-08 & 20 08-09 AND by the employee from FY -09-10 (FBT abolished). Will the housing perk tax is to be paid on arrear amount? Who will bear the tax amount, if it is to be paid for the FY 2007-08 & 2008-09? Can I pay (if at all it is to be paid) housing perk tax for one month arrear amount (Apr-09 amount) as employee has to pay w.e.f. FY-09-10, this financial year ?Please advise. 2. I am getting Rs. 1,000/- as education allowance pm & Rs. 2,000/-hostel allowance pm apart from salary as perks. I am also paying Rs. 1,000/- pm as tuition fees for my single child. Can I get tax rebate on education allowance & hostel allowance apart from tuition fee u/s 80C? [firstname.lastname@example.org] Opinion: 1. The entire amount of arrears received by you will be taxable as your income for the F.Y. 2010-11. In normal course, the tax arising out of this is to be borne by the employee only. You may examine the availability of relief u/s 89(1). 2. Children Education Allowance:Children education allowance is exempt up to a maximum of Rs. 100/- per month per child up to a maximum of two children 3. Hostel Allowance:Any allowance granted to an employee to meet the hostel expenditure on his child up to Rs. 300/- per month per child up to a maximum of two children is exempt from tax. 4. Deduction towards Tuition Fees:You can deduct the deduction towards the tuition fees paid by you u/s 80C. You will be eligible for exemption towards children education allowance & hostel allowance apart from tuition fees deduction u/s 80C.