“PERSONAL TAXATION- PAYMENT, INVESTMENT, DEDUCTIONS & EXEMPTIONS”

TAX TALK-20.08.2012-THE HITAVADA

TAX TALK

BY CA. NARESH JAKHOTIA (Chartered Accountant)

“PERSONAL TAXATION- PAYMENT, INVESTMENT, DEDUCTIONS & EXEMPTIONS”

Query 1]

Sir, Husband & Wife both are working. Husband has invested all his savings & avail a housing loan while purchasing of residential flat. Residential flat & Housing loan is in joint name. Husband’s monthly earnings are sufficient for his family maintenance & Housing loan EMI only. There is no surplus left in the hands of the husband.
They have mutually planned that the earnings of wife should be invested for first Daughter’s Education, Marriage & rest for their retirement planning. They have obtained a floating mediclaim plan for any unwanted medical treatment of Rs. 3.50 Lacs. I would like to know in what proportion their investments should be made i.e.

1.      In the name of wife only or

2.      In the name of husband only or

3.      In the name of husband & wife equally or

4.      In the name of daughter.

Following additional aspects may further be considered:

1.      Advice the planning for investments in such a way that no one can
suffer in case of any uncertainty or major medical problem arises
around Rs. 10-15 Lacs in the family.

2.      Whether wife can claim Interest & Principal repayment of Housing
loan under the Income Tax Act, if only husband repays from his earnings
only? [Sara Vij-cnpcoca@gmail.com]

Opinion

1.      It’s indeed a query with lot of practical relevance and need a sensible & personalized individual approach. The money doesn’t have any colour & whosoever invests gets the same value for it. In a family, flow of funds plays a very vital role in taxability and accrual of income therefrom. Under the Income Tax Act-1961, the movement of funds also determines the admissibility & availability of deduction. By whom or in whose name the amount should be invested vary significantly depending upon various factors like
- applicable slab of the individuals investor
- nature of investment-long term or short term
- nature of income yielding i.e., tax free or taxable
- risk element involved therein
- present & future income out of the investment etc.
The investment in the name of wife or husband or major/ minor child need to be done after considering various other factors also & it is practically impossible to standardize or advise it in totality in an isolated manner.

2.      Normally, most of the deductions are admissible subject to the condition of payment. The deduction u/s 80C towards the repayment of the principal portion of housing loan would not be available to wife if
a] the husband pays the amount
b] the same is paid by & on his own behalf by the husband and
c] the amount appears to be non recoverable from wife.
However, if the correct accounting treatment is given in the books & Balance-sheet to show that the amount though paid by husband is indeed paid on behalf of the wife as well and the same is recoverable or adjustable against other amount, the wife could also claim the deductions. The same is the case with the claim towards interest on housing loan.

Query 2]

I have some queries regarding wealth tax. Can you please clarify them:

1.      What is wealth tax? 

2.      On what items it is applicable?

3.      Is it applicable on House, Flat, Agricultural Land, Open Plot, Gold and Silver jewellery etc?

4.      What is the rate for each items?

5.      If applicable on these, what is the maximum limit a person can invest so as not to attract wealth tax. [suryajeet.614@rediffmail.com]

Opinion

1. Wealth tax is charged for every assessment year on the “Net wealth” of every individual, HUF and company.
2. It is charged @1% on the amount by which the net wealth exceeds Rs.30,00,000/-.[Section 3].
3. It is applicable to all except the following:

(a)   Section 25 company (b) Co-operative society (c) Social club (d) Political party (e) Mutual fund specified u/s 10 (23D) of the I.T.Act. [Section 45]

4. For the levy of wealth tax, Assets under Section 2 (ea) means –

1.      House- Any building or land appurtenant thereto whether used for residential or commercial purposes or for the purpose of maintaining a guest house or a farm house in an urban area.
Exceptions- Houses which are.

(a)   mean exclusively for residential purposes and which is allotted by a company to a whole time employee (including officer or director in whole time employment), having gross annul salary of less than Rs.5 lacs.

(b)  Stock-in-trade.

(c)  Occupied for business or profession of the assessee.

(d)  Residential property and which is let out for a minimum period of 300 days in the previous year.

(e)  Commercial establishments or complexes.

2.      Motor cars-Except that which is used in the hiring business or as stock-in-trade.

3.      Jewellery-Except that which is used as stock-in-trade

4.      Yachts, boats and aircrafts-other than those used for commercial purposes.

5.      Urban land-any land situated in urban area.

Exceptions-

(i)                Land on which construction of a building is not permissible under any law.

(ii)             Land occupied by any building which has been constructed with the approval of the appropriate authority.

(iii)           Unused land held for industrial purposes up to 2 years

(iv)             Land held as stock-in-trade up to 10 years.

6.      Cash in hand-For individuals and HUF’s, in excess of Rs.50,000/- and in the case of any other person, any amount not recorded in the books of account.

 E. Net Wealth- Section 2(m)- The difference between aggregate value of assets and the value of all debts owed by the assessee on the valuation date which have been incurred in relation to the said assets. There is no separate rate for individual items. Net Wealth is liable for wealth Tax.

5. Valuation date means the last day of previous year.