“NO TAX ON MY INCOME, CAN I SUBMIT FORM NO. 15G TO THE BANK? ”

TAX TALK-13.08.2012-THE HITAVADA

TAX TALK

BY CA. NARESH JAKHOTIA (Chartered Accountant)

“NO TAX ON MY INCOME, CAN I SUBMIT FORM NO. 15G TO THE BANK? ”

Query 1]

Sir, with reference to the Tax Talk edition dated 25^th June 2012, regarding Form No. 15G submission, Please clarify as to when it can be submitted? My total income from interest & salary is Rs. 2.60 Lacs for the financial year 2012-13 and after Section 80C deposit of Rs. 80,000/-, my income is reduced to amount below the taxable limit. In these circumstances, can I submit form 15G to bank and to submit IT return is optional
or compulsory? It may be noted that I have received salary from 2 sources.

[chandak_rachna@rediffmail.com]

Opinion:

1.      Form No. 15G- When can be submitted:
Form No. 15G is a declaration which can be filed by non senior citizens if the following two conditions are satisfied:
a) The final tax on his estimated total income computed as per the provisions of the Income Tax Act should be NIL [Section 197(1A)], and
b) The aggregate of the interest etc. received during the financial year should not exceed the basic exemption limit [Section 197(1B)],.
If both the conditions are satisfied, Form No. 15G may be furnished (before the payment or credit whichever is earlier) and in such case, the entire interest income can be paid without deduction of tax at source.
In your case, if your interest income is below the basic exemption limit (which is Rs. 2 Lacs for the FY 2012-13 for non senior citizen assessee) then you can submit Form No. 15G to the bank.

2.      Filing of Income Tax Return- Whether Mandatory or not?
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. In your specific case, your Gross total Income is Rs. 2.60 Lacs which is above the basic exemption limit and hence you are compulsorily required to file the return of income even though the ultimate tax liability would be Nil.

Query 2]

My wife & myself are Senior citizens aged 64 years & 66 years respectively. Presently, our income is below the basic tax exemption limit of Rs. 2.50 Lacs. However, we are regularly filing our Income Tax returns because we have income from Bank FD’s .We had two separate plots, on our individual name which were purchased during FY 1994-95 for Rs. 76,000/- each. These two plots have now been decided to be sold for Rs. 10 Lac each. Hence for calculating the LTCG I wish to know the following from you:

1.      What is the cost of inflation index (CII) for the F.Y.1994-95 and 2012-13?

2.      Whether the gap between the regular net income and the basic tax exemption limit of Rs. 2.50 Lac can be adjusted against the calculated LTCG?

3.      Whether 5 years bank deposits of Rs. 1 Lacs can be exempted for tax purpose u/s 80C?

4.      Whether the REC Tax Saving Bond being issued can be purchased for the entire LTCG amount for saving of I. Tax u/s 54 EC so as to make the Tax liability Nil?

5.      Whether NIT payment of Rs. 22,800/-per plot required to be paid for obtaining NOC can be deducted while calculating LTCG?

6.      What is the present tax rate for LTCG?

7.      Whether the maturity amount of REC bonds, after three years will be taxable? Kindly reply suitably. [ckvbadkas@gmail.com]

Opinion:

1.      Cost Inflation Index (CII) for the F.Y. 1994-95 is “259”. The CII for the FY 2012-13 has not been notified yet.

2.      The unutilized basic exemption limit (i.e., the gap between the regular net taxable income and the basic tax exemption limit) can be adjusted against the amount of Long Term Capital Gain (LTCG). The resultant LTCG only would be taxable.

3.      No deduction u/s 80C (including 5 years notified bank FDR) is admissible against LTCG. However, as a tax planning tool, assessee can claim deduction u/S 80C from other regular income (other than LTCG) which will have the effect of increasing the unutilized basic exemption limit. The increased unutilized basic exemption limit can then be adjusted against the LTCG.

4.      By investing the amount of LTCG in the specified bonds issued u/s 54EC, Assessee can reduce the LTCG tax liability to Nil.

5.      NIT payment of Rs. 22,800/-per plot to be paid by the seller for obtaining NOC can be reduced while calculating LTCG.

6.      LTCG is presently taxable at a special rate of 20% u/s 112 of the Income Tax Act-1961.

7.      The principal amount of REC Bonds received back after a period of 3 years at the time is not taxable.

Query 3]

Sir, I have applied home loan for purchase of land & construction of house. Bank has sanctioned Rs. 6 Lacs towards purchase of land under home loan scheme in April-2011 and informed that construction loan would be sanctioned separately after transfer of plot in my name, sanction of house map by competent authority etc. The process is going on & construction work is yet to be started. I am paying EMI of Rs. 6,000/- to bank since April, 2011 under home loan scheme.  My query is shall I be eligible exemption of Income Tax on EMI being paid to the bank? Under which section, EMI Payment is exempt & how much tax relief will I get? Please provide your valuable advice on above. [Dilip-om1950lal@yahoo.co.in]

Opinion:

1.      EMI of Rs. 6,000/- paid by you includes both Interest & Principal.

2.      Deduction towards interest on Housing Loan is governed by section 24(b) of the Income Tax Act-1961.The interest paid on housing loan prior to completion of the construction of the house property is not allowable as deduction.

3.      The interest pertaining to the period from the date of availment of the loan to the 31^st March immediately preceding the date of completion of the house property is classified as “Pre-construction period Interest” Interest in respect of pre-construction period is deductible in five equal annual installments commencing from the previous year in which the house is constructed.

4.      In your specific case, no deduction towards interest is admissible u/s 24(b) till the year of completion of the construction of the house property.

5.      As far as the repayment of the principal portion of the loan is concerned (which is included in your EMI of Rs. 6,000/-), the same is eligible for deduction u/s 80C subject to overall limit of Rs. 1 Lacs. Even if the construction is not completed, the deduction is admissible as there is no bar or limitation in claiming deduction u/s 80C in such case.