“LIC COMMISSION INCOME: WHETHER BUSINESS OR PROFESSION”

TAX TALK-02.07.2012-THE HITAVADA

TAX TALK

BY CA. NARESH JAKHOTIA (Chartered Accountant)

“LIC COMMISSION INCOME: WHETHER BUSINESS OR PROFESSION”

Query 1]

Mr. X is having commission income of Rs. 15,82,760/-. The Commission is derived from LIC, Sahara & HDFC. Whether his income is professional income or business income? Because, if it is a professional income, then he has to get his books audited u/s 44AB. Otherwise, can he file his return u/s 44AD in ITR 4S. Apart from doctors, lawyers, architects, CA’s who else can be professional? What norms have to be taken into consideration? Please clarify. [saju_sak@hotmail.com]

Opinion:

1.      A person who is carrying on business is required to get its books of accounts audited if the gross sales/receipts/ turnover exceeds Rs. 60 Lacs for the Financial Year 2011-12 (The limit has been enhanced to Rs. 1 Cr from the F.Y. 2012-13).  A person who is carrying on profession, the limit for audit for the F.Y. 2011-12 is Rs. 15 Lacs (From FY 2012-13, it is Rs. 25 Lacs). The following activities are considered as profession by virtue of section 44AA & Notifications No. SO-17(E) dated 12.1.77 & No. SO 2675 dated 25.9.1992:

i.                    Legal

ii.                 Medical

iii.               Engineering

iv.                Architectural profession

v.                   Accountancy or

vi.                Technical consultancy or interior decoration

vii.              Film artists

viii.           Authorized representatives

ix.                Company Secretary

x.                  Information Technology
 The income by way of commission from the insurance/ RD is considered as business income & the tax audit would be compulsory only if the receipts exceeds Rs. 60 Lacs during F.Y. 2011-12 (Rs. 1 Cr from FY 2012-13).

2.      It may be noted that brokerage/ commission income cannot be offered for taxation u/s 44AD on presumptive basis. Hence, return cannot be filed in ITR-4S.

Query 2]

I have two queries regarding availing interest benefit on housing loan, as under:

1.      If husband and wife both are employed in Govt. service & availed housing loan and the house is self- occupied, can both of them claim interest benefit under section 24(b) individually i.e. maximum up to Rs.1,50,000/- each?

2.      On the same property, if additional housing loan for extension of house is availed, benefit of interest & principal can be claimed under 24(b) & 80C respectively subject to maximum prescribed limits?

3.      Kindly clear the position for both husband and wife separately.
[sanjayvinodia@rediffmail.com]

Opinion:

1.      Ownership is a primary condition, precedent for claiming deduction towards interest U/s 24(b) & towards Principal U/s 80C of the Income Tax Act-1961. If both the husband & wife are the co-owners in the house property, deduction towards interest for housing loan taken for purchase or construction of the house property, up to a maximum of Rs. 1.50 Lacs, can be claimed by each one of them. Similarly, deduction U/s 80C towards principal repayment, up to a maximum of Rs. 1 Lacs, can be claimed by each one of them.

2.      Deduction towards Additional Housing Loan for extension of House:
In respect of new loan to be availed by you for extension of the existing house property, the admissibility of deduction would be as under:
a] Interest Deduction U/s 24(b):
Interest related to the loan taken for addition to the existing house property, in our considered opinion, is admissible as deduction subject to the overall max cap of Rs. 1.50 Lacs u/s 24(b). [Our other readers may note that interest on loan taken for renovation is admissible as deduction subject to a maximum cap of Rs. 30,000/- only.]
b] Deduction U/s 80C towards Principal repayment:
No deduction u/s 80C is available in respect of loan taken for addition, alternation or renovation or repairs of the house property.

Query 3]

The provision for PPF as of now is EEE. As per DTC norms, will the provisions be altered to EET from the financial year 2013-14? Kindly throw some light on this. If I open a PPF now, will it be continued on EEE terms till maturity or change after introduction of EET? [plchatterji@yahoo.in]

Opinion:

Entire Direct Tax Code (DTC) is in the doldrums now & no one knows the fate of it. We will try to cover the provision of new Direct Tax Code vis a vis Income Tax Act after the Government notifies the date of its enactment.