“NEW PENSION SCHEME & INCOME TAX IMPLICATIONS”

TAX TALK-28.01.2013-THE HITAVADA

TAX TALK  

BY CA. NARESH JAKHOTIA

Chartered Accountant

“NEW PENSION SCHEME & INCOME TAX IMPLICATIONS”

Query 1]

I am a Government employee working with Indian Railways. I have taken a house building loan from ICICI bank on 2007 which I later transferred to a co-operative bank named Dr. Babasaheb Ambedkar Bank in 2011. Initially, when my loan was in ICICI bank, I was given exemption on income tax. But, after transferring the loan to co-operative bank my office account's dept denied giving any exemption in income tax on the basis of my home loan giving the reason that it is from a co-operative bank. Please guide, whether home loan from Co-operative bank doesn’t qualify for income tax exemption? Or, are there different tax exemption rules for nationalized banks and co-operative banks?  [K.K.Roy-dev_roy000@yahoo.com]

Opinion:

The deduction is available even in respect of the loan taken from the co-operative bank. The deduction us/ 80C & U/s 24(b) towards Principal repayment of Housing loan and towards Interest on borrowed capital cannot be denied for the mere reason that the loan is availed from the Co-operative bank.

Query 2]

I am a senior citizen & have income from “other sources” above Rs. 2.50 Lacs /year. I had purchased units of “Bajaj Allianz Life Insurance co Ltd.” under its scheme “Bajaj Allianz Unit Gain” as per details below:-

1.      Date of Purchase- 23.03.2006 (F-Y 2005-06), Cost of Index- 497, Amount Invested- Rs. 60,000/-

2.      Date of sale-19.01.2013 (F-Y 2012-13), Cost of Index- 852, Sale Amount - Rs.81, 877/-

3.      Indexed cost of Purchase- Rs. 60,000 * 852 / 497 = Rs.1,02,857/-

4.      Hence, Capital Loss = Rs.1, 02,857-81,877 = 20,980/-

I shall be obliged to know whether this capital loss of Rs. 20,980/- can be adjusted against capital gain on sale of UTI units, Mutual Fund units etc. or against “Income from other sources” during   F-Y 2012-13 and/or can be carried forward in the subsequent 8 years.

[R.P.Gupta Nagpur-rpgupta@murliindustries.com]

Opinion:

1.      Before coming to your query, one needs to understand the tax treatment of income arising form transfer of Mutual Funds. The tax treatment of income arising from sale of mutual funds is different for debt funds vis a vis equity fund, as under:
i) Debt Fund:
a] For sale within one year from the date of its purchase, the difference between sale price & cost of acquisition would be taxable as Short Term Capital Gain in the hands of Investor. It will be taxable like other regular income of the assessee.
b] For sale after one year from the date of purchase, the difference between sale price & cost of acquisition would be taxable as Long Term Capital Gain in the hands of Investor & 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 sale within one year from the date of its purchase, the difference between sale price & cost of acquisition would be treated as Short Term Capital Gain in the hands of Investor & would be taxable @ 15% u/s 111A of the I.T. Act-1961.
b] For sale after one year from the date of purchase, the difference between sale price & cost of acquisition would be treated as Long Term Capital Gain in the hands of Investor & would be exempt from tax u/s 10(38).

2.      If you are transferring equity fund as mentioned in 1(ii)(b) above, then any loss arising cannot be set off against any income whatsoever. However, if you are transferring any fund other than equity fund then
a] You can adjust it against other taxable LONG term capital gain arising from the transfer of other mutual funds
b] No set off is possible against Income from Other source against such long term Capital loss.

Query 3]

I am a Central Govt. Civilian Employee employed after 01.01.2004.  10% of my (Basic Salary plus Dearness Allowance) deducted towards New Pension Scheme which is mandatory and the matching amount is contributed by Employer i.e. Central Govt.  My queries are is as under:

1.      What will be tax treatment of contribution made by me for F.Y. 2012-13?

2.      What will be tax treatment of contribution made by employer for F.Y. 2012-13?

3.      Is it true, contributions made by me and matching amount of Govt are counted for Gross Total Income in F.Y. 2012-13 and subsequently deducted u/s 80C?

4.      Any valuable information related to New Pension Scheme.

Please elaborate, if possible, with example. [Sunil Kumar Singh, Chhinwara- sunilsinghiti@gmail.com]

Opinion:

1.      Employee’s Contribution:
Deduction is available under section 80CCD(1) in respect of employee’s contribution in the year in which contribution is made. However no deduction is available in respect of Employee’s contribution, which is in excess of 10% of the salary of the Employee.

2.      Employer’s contribution:
Employer’s contribution to NPS is taxable as salary income in the year of contribution. However, Deduction available is under section 80CCD(2) in respect of employer’s contribution- Contribution by employer to NPS is deductible in hands of the concerned employee in the year in which contribution is made. However, no deduction is available in respect of employer’s contribution which is in excess of 10% of the salary of the employee.

3.      Deduction & Taxability:
Employer & Employee contribution forms part of the income of the salaried assessee as mentioned above. Both the contributions are eligible for deduction u/s 80CCD read with section 80C of the IT Act. The aggregate amount of deduction under section 80C, 80CCC and 80CCD cannot exceed Rs. 1,00,000/-.

4.      Other Information:
Pension (or any other payment) out of NPS account (for which deduction has been claimed under section 80CCD) will be taxable in the hands of recipient. If, however, the amount of pension received from NPS is used for purchasing an annuity plan in the same previous year, then it will be exempt from tax.
For calculating 10% limit for the above purpose, “salary” includes dearness allowance, if the terms of employment but excludes all other allowances and perquisites (in other words, Salary for this purpose has the same meaning which is applicable in the case of house rent allowance).