Saturday, May 31, 2014

“WRONG SUBMISSION OF FORM NO. 15G / 15H CAN PUT YOU BEHIND BARS”


“WRONG SUBMISSION OF FORM NO. 15G / 15H CAN PUT YOU BEHIND BARS”

Query 1]
I wish to take your help on the following:
1.      I purchased a flat in Chennai during 2008 for Rs. 22 Lacs with financial help from my daughter (around 60%) and during March-2013, I executed a settlement deed in favor of my daughter and got registered as per the prevailing rules in Chennai.
2.      Meantime, I purchased another flat in Chennai during 2009 (registration done on 15.02.2013) with my savings and also the entire sale proceeds of my Bhopal flat. (Around Rs. 12 Lacs of LTCG).
3.      Now that I have sold a plot in Bhilai and to save LTCG, I want to invest in another flat the entire sale proceeds.
As per existing provisions, to claim tax benefit, I cannot have more than one house property before investing in another property from the LTCG amount. Out of 2 flats I had, as indicated above, I had transferred one property in favor of my daughter through a settlement deed (with required stamp duty paid), I hope I can invest in another flat out of the LTCG now I got. Kindly advice. [R.Chandrasekaran -manakkal46@rediffmail.com]
Opinion:
On the date of availing exemption u/s 54F, you own not more than one house property. Resultantly, you can claim an exemption u/s 54F by investing the amount of net sale consideration for purchase or construction of another house property within a specified period.

Query 2]
I am a salaried employee with annual salary Rs. 3.20 Lacs per annum. I have two queries:
1.      I am earning 2 lakh and more for last two years and have paid tax Rs. 2,700/- and Rs. 3,200/- respectively in financial year April 2012- Mar 2013 and April 2013-Mar 2014. I have paid excess tax but have not filed the return. Is there any penalty for the same?
2.      My father has applied a flat from Lucknow Development Authority (Lottery Based) and gave Rs. 270,000/- (10% as token from his A/c). Unluckily, no plot was allotted so the refund was made in my savings bank a/c in which the first a/c holder is my wife and I am second a/c holder. Then I made Term deposit of the said amount in joint name, first name as my wife who is house-wife and second name being me. The rate of interest for the said deposit is 10% annual.
 I have given 15-G to the bank for not deducting the TDS as my wife is house wife. Now I am confused whether I have done right or not and whose tax liability is arising out of this deposit income? As my father is retired Government employee and have taxable income. I am also employed and earning Rs. 3.20 Lacs per annum. Kindly suggest me what can be done as I have not shown the deposit income for calculation of my tax liability?
[Anurag Mishra- manianurag@gmail.com]
Opinion:
1.      Though you have paid excess tax, it doesn’t absolve you from the mandatory obligation of filing income tax return as your income during the relevant year is exceeding the basic exemption limit. Penalty of Rs. 5,000/- can be levied if any person who is mandatorily required to file the income tax return fails to do so before the end of the relevant assessment year. [Section 271F of Income Tax Act-1961].
2.      The money received in your joint account was the money of your father. The amount deposited in your joint account could either by in the form of loan or gift.
3.      If it is a gift to you, the resultant income would be taxable as your income only & you would be required to work out your tax liability after including this interest income. If it is a gift to your wife, the interest income from FDR would be required to be clubbed with the interest income of your father only as the clubbing provision is applicable in such case. If it is a loan to you, income from FDR interest would be taxable in your hands only. However, if it is loan to your wife, Interest income from FDR, in normal course, would again be includible with the income of your father by virtue of clubbing provision.
4.      Form No. 15G is a declaration form which can be given only if the taxpayer don’t have any taxable income.  Any false or wrong declaration attracts consequences under section 277 & so, it should not be signed ignorantly. Such false declaration is liable for prosecution which may vary from 3 months to 7 years depending upon the quantum of default. Taxpayer can be penalized with rigorous imprisonment irrespective of the fact that such wrong declaration was furnished ignorantly or unintentionally as “Ignorance of Law is no excuse”.  Taxpayer may further not that the part A1 in Form No. 26AS shows the interest against which tax is not deducted due to submission of Form No. 15G/15H. The information is readily available with the Income Tax Department.

Query 3]
I have received Rs. 27,000/- from government as hailstorm fund against crop damage. Is it exempt from tax or it should be included in my income for tax calculation? Is any amount received from government regarding any crop damage fund during the year is completely exempt from tax or should it also be included in our income? Please specify if the income is above basic tax exemption limit. [mohitnimbalakar230@gmail.com]
Opinion:
The amount received would not be subject to income tax and would not be clubbed with your other income.

Sunday, May 4, 2014

UNTAXING THE TAX ON LONG TERM CAPITAL GAIN


TAX TALK-05.05.2014-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA
Chartered Accountant

“UNTAXING THE TAX ON LONG TERM CAPITAL GAIN”

Query 1]
Your help is sought in the following query: 
One of my cousins at Durg (CG) has sold one Plot (with one shop constructed on it) for Rs. 60 Lacs in January-2014. The plot was purchased in the Year 1987 and its cost was Rs. 35000/- only. Please  advise:-
1.      The approximate amount of basic exemption (i.e., cost of purchase) after taking into account Index Factor?
2.      The amount of Capital Gains he will be required to pay?
3.      The different options for him to invest his money to save Capital Gains Tax?
4.      Whether he can invest in other Plot/ Shop to claim exemption under Section 54?  [manjit_parihar@yahoo.co.in]
Opinion:
1.      It may be noted that expenses towards registration, stamp duty, legal fees etc could also be added to the purchase price to arrive at the cost of acquisition of the plot. Further, you have mentioned the purchase price of the plot only & not the construction cost of the shop thereon. The construction cost of shop would also be eligible for deduction (after indexation) from the sale consideration of the property while working out the amount of capital gain. Furthermore, the month of purchase of plot in the year 1987 is also important for arriving at the amount of indexed cost of acquisition. Cost Inflation Index (CII) for the relevant FY 1986-87, 1987-88 & 2013-14 are “140”, “150” & “939” respectively. If the plot is purchased in the FY 1986-87 (i.e., on or before 31.03.1987), Indexed cost of acquisition (ignoring stamp duty, registration expenses etc) would be Rs. 2,34,750/- (i.e., Rs. 35,000/- * 939/140).  The same would be Rs. 2, 19, 100/- if the plot is purchased in the FY 1987-88.
2.      In absence of all the required information & data, exact amount of capital gain & tax thereon could not be worked out. However, whatever is the amount of capital gain, tax is payable @ 20% u/s 112.  It may cautiously be noted that capital gain is required to be computed by taking the higher of the following as sale consideration:
a] Actual sale price (i.e., Rs. 60 Lacs in your case) or
b] Value adopted for the purpose of Stamp Duty Valuation.
3.      Your cousin is transferring a shop after a holding period of more than 36 months. He can explore the possibility of saving tax on Long Term Capital Gain (LTCG) arisen from sale of shop either by claiming an exemption u/s 54F or u/s 54EC. Exemption u/s 54, as mentioned in the query, is not available since your cousin is transferring a shop & not a residential house property.
4.      Exemption U/s 54F:
LTCG arising on sale of Plot/Shop could be exempt from tax u/s 54F if following conditions are satisfied: -
a) The transferor is an individual or a Hindu Undivided Family.
b)
 The capital gain arises from the transfer of any long-term capital asset other than residential house property.
c)
 The transferor has, within a period of one year before or two years after the date on which the transfer took place purchases, or within a period of three years after that date constructs, a residential house.
d)
  The taxpayer does not own more than one house property, other than the new asset, on the date of transfer of the original asset.
e)
  The taxpayer do not purchase any residential house, other than the new asset, within a period of two years after the date of transfer of original asset or constructs any other residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.
If all above conditions are satisfied, transferor can claim LTCG as exempt provided entire amount of net sale consideration is invested for new residential house property as mentioned above. If entire amount of net sale consideration is not invested then exempt LTCG would be available proportionately. [U/s 54F, it’s the investment of actual net sale consideration that determines the claim of exemption.]
5.      Exemption Under Section 54EC:
To save tax u/s 54EC, One can invest the amount of LTCG, within a period of 6 months from the date of transfer, in the Specified bonds issued by Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI). For exemption U/s 54EC, Investment of LTCG is relevant and not the amount of net sale consideration as required in section 54F.  [There is a maximum investment ceiling of Rs. 50 Lacs in a financial year for investment in 54EC Bonds.]

Query 2]
I need your advice on the following issues. I purchased a Flat in the year 2006 (Agreement to Sale) and Sale Deed was executed in June-2009. The price of the flat was Rs. 4.50 Lacs at that time.  Now, I am selling the Flat at 17 Lacs. I have claimed tax benefit and closed the home loan by 2009. I have also purchased one more house in Nagpur in the year 2010 only Agreement to Sale is executed till now for this house & the sale deed is still pending. The price of this new house is 18 Lacs. I have availed a Home Loan of Rs. 17 Lacs. Now, I want to close this loan with the help of Rs. 17 Lacs which I am going to get from selling of my first flat.  Please let me know if I have to pay any tax on Rs. 17 Lacs? If yes, please advise some measures to save it? Please don't disclose my identity in Newspaper. [**********.mudliyar@gmail.com]
Opinion:
  1. Long Term Capital Gain (LTCG) arising on sale of house property could be claimed as exempt u/s 54 if taxpayer invests the amount of LTCG for purchase or construction of another residential house property within a prescribed time frame, as under:
    i] For purchase:
    One year before or two years from the date of Transfer.
    ii] For Constructions:
    Three years from the date of Transfer.
2.      In your specific case, you will be selling earlier flat (i.e., flat purchased in 2009) after a holding period of more than 36 months. This would result in Long Term Capital Gain.  As mentioned above, LTCG arising on sale of a house property could be claimed as exempt u/s 54 if tax payer invests the amount of LTCG for purchase/ construction of another house property. As mentioned in the query, you have already entered in to an agreement to sale & likely to purchase another house property by executing the sale deed within a prescribed time period as mentioned above. Resultantly, LTCG on sale of your earlier flat would be exempt and nothing would be taxable.
3.      A word of slight caution. It appears that you have purchased & taken possession of your earlier flat in 2009 and selling it now. If a person has claimed housing loan repayment benefit u/s 80C and sale the House within 5 years from the date of its purchase then all the benefit availed under this section 80C would be reversed and will be included in the taxable income of the year in which house is sold.

[The author is a practicing Chartered Accountant and is a partner of M/s. SSRPN & Co., Nagpur. Readers may send their queries at cassrpn@gmail.com. If you wish to unsubscribe from the mailing list, please reply back “unsubscribe” on the same email id]

“UNTAXING THE TAX ON LONG TERM CAPITAL GAIN”


TAX TALK-05.05.2014-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA
Chartered Accountant

“UNTAXING THE TAX ON LONG TERM CAPITAL GAIN”

Query 1]
Your help is sought in the following query: 
One of my cousins at Durg (CG) has sold one Plot (with one shop constructed on it) for Rs. 60 Lacs in January-2014. The plot was purchased in the Year 1987 and its cost was Rs. 35000/- only. Please  advise:-
1.      The approximate amount of basic exemption (i.e., cost of purchase) after taking into account Index Factor?
2.      The amount of Capital Gains he will be required to pay?
3.      The different options for him to invest his money to save Capital Gains Tax?
4.      Whether he can invest in other Plot/ Shop to claim exemption under Section 54?  [manjit_parihar@yahoo.co.in]
Opinion:
1.      It may be noted that expenses towards registration, stamp duty, legal fees etc could also be added to the purchase price to arrive at the cost of acquisition of the plot. Further, you have mentioned the purchase price of the plot only & not the construction cost of the shop thereon. The construction cost of shop would also be eligible for deduction (after indexation) from the sale consideration of the property while working out the amount of capital gain. Furthermore, the month of purchase of plot in the year 1987 is also important for arriving at the amount of indexed cost of acquisition. Cost Inflation Index (CII) for the relevant FY 1986-87, 1987-88 & 2013-14 are “140”, “150” & “939” respectively. If the plot is purchased in the FY 1986-87 (i.e., on or before 31.03.1987), Indexed cost of acquisition (ignoring stamp duty, registration expenses etc) would be Rs. 2,34,750/- (i.e., Rs. 35,000/- * 939/140).  The same would be Rs. 2, 19, 100/- if the plot is purchased in the FY 1987-88.
2.      In absence of all the required information & data, exact amount of capital gain & tax thereon could not be worked out. However, whatever is the amount of capital gain, tax is payable @ 20% u/s 112.  It may cautiously be noted that capital gain is required to be computed by taking the higher of the following as sale consideration:
a] Actual sale price (i.e., Rs. 60 Lacs in your case) or
b] Value adopted for the purpose of Stamp Duty Valuation.
3.      Your cousin is transferring a shop after a holding period of more than 36 months. He can explore the possibility of saving tax on Long Term Capital Gain (LTCG) arisen from sale of shop either by claiming an exemption u/s 54F or u/s 54EC. Exemption u/s 54, as mentioned in the query, is not available since your cousin is transferring a shop & not a residential house property.
4.      Exemption U/s 54F:
LTCG arising on sale of Plot/Shop could be exempt from tax u/s 54F if following conditions are satisfied: -
a) The transferor is an individual or a Hindu Undivided Family.
b)
 The capital gain arises from the transfer of any long-term capital asset other than residential house property.
c)
 The transferor has, within a period of one year before or two years after the date on which the transfer took place purchases, or within a period of three years after that date constructs, a residential house.
d)
  The taxpayer does not own more than one house property, other than the new asset, on the date of transfer of the original asset.
e)
  The taxpayer do not purchase any residential house, other than the new asset, within a period of two years after the date of transfer of original asset or constructs any other residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.
If all above conditions are satisfied, transferor can claim LTCG as exempt provided entire amount of net sale consideration is invested for new residential house property as mentioned above. If entire amount of net sale consideration is not invested then exempt LTCG would be available proportionately. [U/s 54F, it’s the investment of actual net sale consideration that determines the claim of exemption.]
5.      Exemption Under Section 54EC:
To save tax u/s 54EC, One can invest the amount of LTCG, within a period of 6 months from the date of transfer, in the Specified bonds issued by Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI). For exemption U/s 54EC, Investment of LTCG is relevant and not the amount of net sale consideration as required in section 54F.  [There is a maximum investment ceiling of Rs. 50 Lacs in a financial year for investment in 54EC Bonds.]

Query 2]
I need your advice on the following issues. I purchased a Flat in the year 2006 (Agreement to Sale) and Sale Deed was executed in June-2009. The price of the flat was Rs. 4.50 Lacs at that time.  Now, I am selling the Flat at 17 Lacs. I have claimed tax benefit and closed the home loan by 2009. I have also purchased one more house in Nagpur in the year 2010 only Agreement to Sale is executed till now for this house & the sale deed is still pending. The price of this new house is 18 Lacs. I have availed a Home Loan of Rs. 17 Lacs. Now, I want to close this loan with the help of Rs. 17 Lacs which I am going to get from selling of my first flat.  Please let me know if I have to pay any tax on Rs. 17 Lacs? If yes, please advise some measures to save it? Please don't disclose my identity in Newspaper. [**********.mudliyar@gmail.com]
Opinion:
  1. Long Term Capital Gain (LTCG) arising on sale of house property could be claimed as exempt u/s 54 if taxpayer invests the amount of LTCG for purchase or construction of another residential house property within a prescribed time frame, as under:
    i] For purchase:
    One year before or two years from the date of Transfer.
    ii] For Constructions:
    Three years from the date of Transfer.
2.      In your specific case, you will be selling earlier flat (i.e., flat purchased in 2009) after a holding period of more than 36 months. This would result in Long Term Capital Gain.  As mentioned above, LTCG arising on sale of a house property could be claimed as exempt u/s 54 if tax payer invests the amount of LTCG for purchase/ construction of another house property. As mentioned in the query, you have already entered in to an agreement to sale & likely to purchase another house property by executing the sale deed within a prescribed time period as mentioned above. Resultantly, LTCG on sale of your earlier flat would be exempt and nothing would be taxable.
3.      A word of slight caution. It appears that you have purchased & taken possession of your earlier flat in 2009 and selling it now. If a person has claimed housing loan repayment benefit u/s 80C and sale the House within 5 years from the date of its purchase then all the benefit availed under this section 80C would be reversed and will be included in the taxable income of the year in which house is sold.

[The author is a practicing Chartered Accountant and is a partner of M/s. SSRPN & Co., Nagpur. Readers may send their queries at cassrpn@gmail.com. If you wish to unsubscribe from the mailing list, please reply back “unsubscribe” on the same email id]

“TAX TREATMENT ON SALE OF FACTORY LAND & SHEDS”


TAX TALK-28.04.2014-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA
Chartered Accountant

“TAX TREATMENT ON SALE OF FACTORY LAND & SHEDS”

Query 1]
I am a govt. employee. in FY 2013-14, my home loan bank showed interest on home loan
as Rs. 28,500/- in provisional income tax certificate whereas actual interest as shown in
final certificate is Rs. 2,82,73/-. Please tell me how to pay that extra tax online and also
the corresponding challan involved? [N.A. Mahajan-
nilay_am@rediffmail.com]
Opinion:
1.      It’s important for the taxpayer to verify the data recorded in the TDS certificate in Form No. 16 vis a vis actual data.
2.      You can pay the tax online by just logging in at www.incometaxindia.gov.in wherein you will have a link for tax payment on the left hand side of the portal with menu as “Pay tax Online”. You can follow the screen wise instructions & can pay the tax. Following points may be of your held while making the payment:
a] Use “Challan No. /ITNS 280” for making the payment.
b] Select option “(0021) Income-Tax (Other than Companies)” & Assessment Year as “2014-15”
c] Click on Type of Payment as “Self Assessment Tax”

Query 2]
I am managing director of my private limited company incorporated in 1994 at MIDC. Now, I want to sale 10,000 sq ft land with 3,600 sq ft shed out of 16,000 sq. Ft plot owned by company. My purchase price was Rs. 4 per sq ft and sale price is Rs. 250 per sq ft. Shed valuation is Rs. 400/-per sq ft. Kindly advice:
1.      What tax liability arises to private Ltd Company?
2.      Can company re-invest the profits in manufacturing activity to claim tax exemption?
3.      Can this tax be deferred and paid subsequently? [hemant**********@gmail.com]
Opinion:
1.      The company is selling Land (Non Depreciable Assets) and the shed (Depreciable Assets). Both the assets are the part of the fixed assets only in the financial statements.
2.      The profit on sale of land & on sale of Sheds would be required to be calculated separately.
3.      The profit on sale of land would be Long Term Capital Gain (LTCG) as the land is sold after a holding period of more than 36 months. The capital gain has to be worked out on the basis of actual sale price (i.e., @ Rs. 250/- per sq.ft as mentioned in the query) or stamp duty valuation whichever is higher. Indexation benefit is also available while working out the LTCG on the proportionate amount of land value sold (i.e., on 10,000 sq.ft. sold out of 16,000 sq.ft). The tax on LTCG arising on sale of land could be saved by the company u/s 54EC by investing the amount of LTCG within a period of 6 months in the specified NHAI/ REC bonds.
4.      Calculating the profit on sale of sheds (Depreciable assets) & working of the tax treatment would require a professional help & understanding of the provision of Income Tax Act-1961. For the benefit of readers at large, I am trying to simplify it.
5.      Under the Income Tax Act-1961, there is a concept of “Block of Assts” while claiming depreciation. The term “Block of Assets” means a group of assets falling within a class of assets in respect of which same rate of depreciation is prescribed. Resultantly, every depreciable asset is required to be grouped in one particular block on the basis of rate of depreciation admissible on that asset. The shed you are selling now is obviously the part of one particular block for the purpose of Income Tax Act. The sale price of the shed would be reduced from the entire block of that asset. After reducing the sale price from that block of assets, there are four possible probabilities:
a] The block could consist of other assets and the resultant figure is reduced to negative figure at the year end. Or
b] The block could consist of other assets in that block and resultant figure remains a positive figure at the year end. Or
c] The block could consist of no other assets except sheds as sold by you now and the resultant figure is reduced to negative figure. Or
d] The block could consist of no other assets except sheds as sold by you now in that block and resultant figure remains a positive figure.

The tax treatment with all above four probable possibilities would be as under:

In the case of (a) above, the negative figure would represent the profit at the end of the year. It would be taxable as Short Term Capital Gain pursuant to special tax treatment mechanism u/s 50 of the Income Tax Act-1961.

In the case of (b) above, the depreciation would be admissible on the residual amount only and nothing directly would be taxable as a result of sale of sheds in such case.

In the case of (c) above, there is no asset in that particular block at the yearend & negative figure would represent the profit on cessation of that block and would be taxable as Short Term Capital Gain pursuant to special tax treatment mechanism u/s 50 of the Income Tax Act-1961.

In the case of (d) above, there is no asset in that particular block at the yearend & the positive figure would represent the loss on cessation of that block and would be treated as Short Term Capital Loss pursuant to special tax treatment mechanism u/s 50 of the Income Tax Act-1961.

In (b) & (d) above, the short term capital loss could be carried forward for set off in subsequent years. In (a) & (c), the profit would be taxable like other regular profit of the company.

To save tax under (a) & (c) above, you can exercise following options:
a] Make addition (by way of purchase or construction etc) of other assets in the same block i.e. assets entitled to same rate of depreciation during the same year only.
b] Invest the amount of gain in NHAI / REC bonds specified u/s 54EC of the Income Tax Act-1961. [It may interestingly be noted that exemption u/s 54EC is available even in respect of depreciable assets sold after a holding period of more than 36 months. It is a profit that is deemed as short term capital gain u/s 50 and the assets (i.e., shed in your case) still remains a long term capital assets. Exemption u/s 54EC is available on the long term capital assets transferred.]

Further, it may be noted that exemption in 54EC bonds is restricted to a maximum of Rs. 50 Lacs in a financial year. However, in view of few judgments, you can schedule your transaction in between October to March so that you could claim exemption u/s 54EC up to Rs. 1 Cr by investing the amount in two financial years (i.e., Rs. 50 Lacs in each financial year).