“WHETHER EXTENSION IN SENIOR CITIZEN SAVING SCHEME IS ELIGIBLE FOR DEDUCTION U/S 80C?”

TAX TALK-12.11.2012-THE HITAVADA
TAX TALK

BY CA. NARESH JAKHOTIA

(Chartered Accountant)

“WHETHER EXTENSION IN SENIOR CITIZEN SAVING SCHEME IS ELIGIBLE FOR DEDUCTION U/S 80C?”

Query 1]

I want to ask you a query regarding the transfer of money by cheque to HUF account as an unsecured loan. In turn, the HUF account invests it in fixed deposit. What is the income tax liability in such transaction? [Archana Anasane-aganasane@rediffmail.com]

Opinion:

1.        If any member of the HUF transfer his own assets to HUF without consideration (i.e., throw his assets to the common hotchpotch), income from such assets would be taxable in the hands of individual transferring the assets and not in the hands of HUF [Section 64(2)].

2.        If you give interest bearing loans to your HUF, Income earned by the HUF out of the funds so advanced will be taxable as income of the HUF only and will not attract the clubbing provision of section 64(2).

Query 2]

I am having flat in Navi Mumbai which cost around Rs. 45 Lacs. I would like to know, if I sell the flat for Rs. 45 Lacs, then, what tax amount I will have to pay to tax authorities? I have purchased the flat in 2003 for Rs. 10 Lacs. How the tax can be saved? Please reply. [prashantneware02@gmail.com]

Opinion:

1.      Computing LTCG:
You haven’t mentioned the exact date/month of purchase for, Stamp duty valuation of the flat proposed to be sold, purchase expenses (like registration exp, stamp duty etc which could be added to purchase price to arrive at the cost of acquisition) and the expenses in connection with transfer (like brokerage, legal exp etc). However, presuming that
a] flat was purchased by you in the FY 2003-04 (i.e., on or after 01.04.2003)
b] stamp duty valuation as not exceeding Rs. 45 Lacs,
c] You will be transferring the flat in the F.Y. 2012-13 and
c] Other expenses as Nil,
the Long term Capital gain would be as under:
i] Cost Inflation Index (CII) for the relevant F.Y. 2003-04 & F.Y. 2012-13 are “463” & “852” respectively.
ii] The indexed cost of acquisition of the flat is Rs. 18,40,173/- i.e., Rs. (10 Lacs * 852/463)
iii] Long term capital gain shall be Rs. 26,59,827/- (i.e., Rs. 45,00,000 – 18,40,1732/-).

2.      Taxability of LTCG & Exemption:
LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961. However, the LTCG tax arising on transfer of a residential house property can be saved by claiming an exemption u/s 54 or U/s 54EC, as under: -
i) Exemption Under Section 54:
Invest the amount of Long term Capital Gain from sale of flat (i.e., amount of Rs.26,59,827/-) for purchase of another house property within a period of 2 years or construct a house within  3 years period  from the date of transfer of the flat. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income for the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.
ii) Exemption Under Section 54EC:
One can invest the amount of Long term Capital Gain in Specified bonds issued by the Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer of flat to get exemption under this section.

Query 3]

1.      This has reference to Tax-talk published in Hitavada dated 11/6/2012 regarding senior citizen saving scheme. I had opened one account under this scheme which matured on 26/05/2012. Since there is provision for extension, I have extended it for 3 years. Kindly clarify and oblige as to whether this extension of investment will qualify for deduction U/S 80-C? I did not avail this facility at the time of initial investment.

2.      I have opened Postal 5 year time deposit account in the name of self & my wife (housewife), her name being first. Will there be any problem in claiming relief U/S 80-C only because her name appears first in the account so opened? [faraaz.fast@gmail.com]

Opinion:

1.      The depositor under the senior citizen saving scheme Rules may extend the account for a further period of three years by making an application in Form B to the deposit office within a period of one year after the maturity period of five years [Rule 4(3) to the Senior Citizens Savings Scheme Rules, 2004. Extension of investment in the Senior Citizen saving scheme is not eligible for deduction u/s 80C.

2.      You cannot comfortably claim deduction u/s 80C towards the deposit in the 5 year time deposit account in the name of your wife.

Query 4]

I am receiving Rs. 3,000/- as home allowance whereas I am paying Rs. 5,000/- as house rent. Also, my Basic is very high (Rs. 80 K). Could I still claim it in IT return? If yes, How much & under which section the claim is admissible? I fill ITR-2 every year as I have one house in other city for which I am paying back loan. Please suggest. [vickysadan@rediffmail.com]

Opinion:

Exemption in respect of House Rent Allowance is regulated by Section 10(13A) read with Rule 2A of the Income Tax Rules, 1962.
U/s 10(13A), the least of following is exempt from tax:

a.       An amount equal to 50% of salary, where the residential house is situated at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of salary where residential house is situated at any other place;

b.      House rent allowance received by the employee in respect of the period during which the rental accommodation is occupied by the employee during the previous year; or

c.      The excess of rent paid over 10% of salary.

Following points need to be taken in to consideration while calculating the amount of HRA admissible as exemption u/s 10(13A):

1.      “Salary” for the purpose of computation of exemptions u/s 10(13A) means Basic Salary and includes Dearness Allowance if terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per the terms of contract of employment AND EXCLUDES ALL OTHER ALLOWANCE & PERQUISITE.

2.      Exemption is not available where an employee lives in his own house, or in a house for which he doesn’t pay any rent.