Sunday, October 11, 2009


(Chartered Accountant)
Query 1]
My nature of business is to carry on business of acquiring, establishing, Running & maintenance of Hospital & Clinic Research Institutes. I want to know the treatment of the expenditure for Web designing, Domain Name & Space incurred before Incorporation. Can it be treated as Preliminary Expenses? Confusion is arising as this particular expenditure is not specified in Income Tax Act in Section 35D.

Conceptually, there is a difference in the concept of preliminary expenses under companies Act vis a vis Income Tax Act. Section 35D of the I.T. Act -1961 clearly and specifically mentions the expenditure to be included in preliminary expenditure. The I-T Act provides for amortization of preliminary expenses in 5 equal installments. The expenses referred to in your query doesn’t form the part of preliminary expenses for the purpose of Section 35D of the Income Tax Act-1961.
The expenses you are referring to in your query are of the nature of Preoperative expense. Pre-Operative expenses of Capital Nature are generally to be capitalized with the cost of fixed assets in relation to which they have been incurred whereas pre-operative expenses of Revenue Nature are to be charged against the profits of the company in they year in which business has commenced.

Query 2]
Sir, I shall be obliged to know my tax on my income during F.Y. 2009-10.
I am a retired college teacher, Age 78 years. My pension income would be about 2 Lacs this year. As per a SCI judgment in 2008, the Government of Maharashtra has sanctioned 3 increments to Ph.D. degree holders from 01-01-1986. The arrears of pay up to 31-03-2008 together with interest thereon at GPF rates are to be paid now.
My query is: What will be my taxable income during 2009-10, whether it is on
a) Rs. 2 Lacs + Rs. 33,000/- arrears (i.e., on Rs . 2.33 Lakhs ) Or
b) Rs. 2 Lacs + Rs. 33,000/- arrears + Rs. 1,97,000 interest (i.e., Rs. 4.30 Lacs).
I may say that on my retirement in November-1991, my total PF contribution and interest thereon were refunded to me totally tax free.
Please advice and oblige. [Dr. M.H. Damle, Nagpur- 22]
In the given case, prima-facie, entire amount of Rs. 4.30 Lacs appears to be taxable. Further, you may examine possibility of claiming relief u/s 89 of the Income Tax Act-1961. Also, you may go through the judgment of Punjab & Haryana High court in the case of CIT vs B. Rai (264 ITR 61) to ascertain if the interest can be treated as non taxable income.

Query 3]
I am 56 year old widow housewife and I am getting family pension of Rs. 17,000/- per month. Please advice me whether:-a) should I file income tax return or not?b) If yes tell me the procedure? []
You have to file the income tax return if the income mentioned above pertains to the F.Y. 2008-09. Your annual pension income is Rs. 2.04 Lacs against which you can claim ad-hoc deduction of Rs. 15,000/- u/s 57(iia). Effectively, your Gross Total Income shall be Rs. 1.89 Lacs. Filing of income tax return is not mandatory if the Gross Total Income (GTI) doesn’t exceed the basic exemption limit. The basic exemption limit for female assessee (not senior citizen) is Rs. 1.80 Lacs for the F.Y. 2008-09 (A.Y. 2009-10). The same has been enhanced to Rs. 1.90 Lacs for the F.Y. 2009-10 (A.Y. 2010-11). With only above income during F.Y. 2009-10, you will not be required to file the income tax return.
Since you don’t have any income from Business/Profession, You can file the income tax return in ITR-2 Form. You can get ITR – 2 at have following three options to file the income tax return. Either you can a) e-file the return with digital signature orb) e-file without attaching digital signature followed by sending the hard copy of acknowledgement in ITR-V to “Income tax department-CPC, Post Bag No. 1, Electronic City post office, Banglore-560100 (Karnataka)” by ordinary post or c) Submit the hard copy of the return to your jurisdictional Income Tax Department.

Query 4]
Whether the advance money received & forfeited on sale of land is taxable or not? If yes, at what rate the tax is payable? I have received Rs. 15 Lacs at the time of signing agreement to sale in October-2008. The property is our ancestral property. But time is over and we have cancelled the agreement from our end. Please guide. [Rajesh Kapse]
Advance Money Received & Forfeited: The advance money received and forfeited is not taxable as income. There is nothing in the law which provides for charging of such amount to income tax. Section 51 of the Income Tax Act-1961 provides that where any capital asset (land in your case) was, on any previous occasion, the subject of negotiations for its transfer, any advance or other money received and retained/forfeited by the assessee in respect of such negotiations shall be deducted from the cost for which the assets was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition. Accordingly, the advance money of Rs 15 Lacs received/forfeited by you would reduce your cost of acquisition and subsequently whenever you sell the land, the capital gain shall be computed by taking such reduced cost of acquisition.

Monday, October 5, 2009


(Chartered Accountant)
Query 1]
Loss on Sale of shares( held for less than 12 months) i. e. short-term capital loss can de adjusted only against short term capital gains on sale of shares. If net balance is profit, the tax is required to be paid. Any option to save tax? If there is excess loss whether it is carried forward & can be set off against short term/long term capital gains for next year. Please clarify.
For long term capital gains on sale of shares (held for more than 12 months), whether long term capital loss (on sale of share) can be set off? Any avenues to save such tax. Please guide. []
“Capital gain” constitutes a separate class in itself in the I.T. Act, 1961 for taxability and set off provision.
The basic rules are: -i) Losses under the head “Capital gains” cannot be set off against income under other heads of income (like salary income etc)ii) Short term capital loss can be set off against any capital gain (be it a short term or a long term). iii) Long term capital loss can be set off against long term capital gain only.iv)The loss, whether long term or short term capital loss, can be carried forward for maximum period of eight assessment years immediately succeeding the assessment year in which the loss is first computed.v) The benefit of carry forward of the loss is available only if the return is filed within DUE DATE of filing the same. (If, however, the return is filed after the due date of filing, the delay may be condoned if a few conditions are satisfied- circular No. 8/2001, dated 16.05.2001).
With above basic idea, it may be noted that1. Short term capital Loss on sale of shares can be adjusted against short term capital gain. It can well be adjusted against the short term capital gain of that year itself or even with the short term capital gain of subsequent years as well. If the net result after set off in any year is profit, tax is required to be paid. 2. Long term capital gain on sale of shares covered by Securities Transactions Tax is exempt u/s 10(38) of the I.T. Act, 1961. Once income from particular source is tax free, loss from such a source cannot be set off against income chargeable to tax.
TAX SAVING TIPSa) Basic exemption limit which remained unutilized against other taxable income of the assessee can be adjusted against Capital gains. b) One may rethink whether the transaction in shares is in the nature of Investment so as to yield “Capital gain” or it is in the nature of business so as to yield the income in the nature of “Business Income”. For few, Income from share trading as business income may be more beneficial. All depends upon the facts and circumstances of each individual case.
Query 2]
I am an agent of Post Office, L.I.C.I. & Sahara Para-banking Division. I am doing the business since last seven years. Till date, I have received the T.D.S. Certificates from LICI & Sahara Para-banking divisions only. I haven’t yet received any T.D.S. certificate from Post Office even though I have asked for it in written request. I have a copy of letter by which I have asked for the T.D.S. certificate. Post Office has deducted T.D.S. @ 10% on the commission I am getting. Now my question is how can I claim T.D.S. credit on the business I have done? Next thing is that I want to file my return of all the three agencies at the same time. Is it possible to file the returns of the three agencies at the same time even though I have got the TDS Certificates of two (LIC & Sahara Para-banking) only before June 30 of the current year 2009? Can I file the return of T.D.S. return of the Sahara Para-banking Division of the previous year 2007-2008 along with the return for financial year 2008-2009? Kindly show me the proper and safest path to claim my T.D.S. credit for all above. []
It is one of the most commonly faced problems faced by the assessee whose tax is deducted by the deductor and the certificate remained un-issued despite repetitive requests by the deductee. The only option is either to wait for the deductor to issue the TDS certificate. In the alternative, you may file the return of income showing all your income of the relevant year from all the sources and claiming the entire TDS (from all the three sources) on your income. In support of your claim, you may attach the copy of the letter written by you to the post office for the TDS certificates. You don’t have option to ignore the income from Post office, for any reason whatsoever, while filing the income tax return.
It may further be noted that as per the provision of sub-section (1) of section 203 of the Income Tax Act, 1961 deductor of tax at source (T.D.S) is duty bound to issue a TDS certificate within the prescribed time period to the person whose tax has been deducted. The time limit for issue of T.D.S in most of the cases is one month from the end of the month in which the T.D.S is done by the payer of income [Rule 31(3) of the Income Tax Rules, 1962].
Section 272A (2g) provides for levy of penalty @ Rs 100/- per day for the period of delay if any persons fails to comply with the provision of section 203. So, a person who has deducted tax at source should ensure the issue of T.D.S certificate within the prescribed time period to avoid the penalty provided u/s 272A (2g).
You may make further make a written communication to the deductor clearly mentioning the above provisions of law and delays in number of days. If still payer do not respond and do not issue the T.D.S. certificate, communicate it to the respective C.I.T. (T.D.S. section) stating the facts of the case and praying for issue of direction to the payer for issuance of certificate.

Query 3]
I am a salaried employee. I and my minor daughter both have PPF accounts. I would like to know if I deposit Rs. 70,000/- every year in the account of my daughter besides claiming the allowable exemption in other tax saving instruments of Rs. 1 Lacs in my own case u/s 80C, whether the interest accrued in my daughter's PPF account would be added to my income? []
Minor’s income is required to be clubbed with the income of the parents. However, PPF interest is tax free and will remain so in your hands as well. The deposit in your PPF account and your daughter’s PPF account taken together should not exceed Rs. 70,000/- as per PPF Scheme.


(Chartered Accountant)
Query 1]
Sir, I am farmer. I produce vegetables (Tomato, Lauki, Karela, Khira, Papita, Bandi, Gobi) in 20 Acres of land. My farm is well equipped with DRIP Irrigation system. I have availed Rs. 5.00 Lacs loan facility from SBI. My income from this activity in the last year (i.e., from 01-06-2008 to 30-05-2009) was Rs. 5,00,000/-. The annual income normally varies from Rs. 4 Lacs to Rs. 7 Lacs. Total sales varies from RS. 20 Lacs to Rs. 30 Lacs and savings after all expenses ranges from Rs. 4 to Rs. 7 Lacs as mentioned above. I have never filed any income-tax return so far.
Please advice as to whether: 1. should I file income-tax return?
2. I propose to purchase a house in Durg city costing Rs. 15 Lacs. What account or papers I should keep? [Narayan Chawde, Durg]

Plainly & simply speaking, filing the return of income is mandatory for persons who have TAXABLE income above basic exemption limit. If you don’t have the TAXABLE income, filing the return of income is not mandatory.
It may be noted that Agricultural income is Exempt from income tax u/s 10(1) of the Income Tax Act, 1961. Any income from the sale of any produce (of any land situated in India and used for agricultural purpose) to the cultivator is agricultural income provided the produce is not subjected to any process except process ordinarily employed to make it fit for taking it to market.
In some cases, however, the agricultural income is taken in to consideration to find out tax on non agricultural income.
The income for income tax purpose is required to be computed on the basis of financial year from April to March.
You should keep all the documents that justifies your agricultural income & may enable you to explain your source of investment. The documents to substantiate your claim may be the Records of the Patwari / Local authorities, Fertilizer bills, Vegetable sale documents, etc.

Query 2]
Sir, this is in reference to your article Tax-talk dated 21st Sept. 2009 in The Hitavada . In Query 2 you have said that the legal heirs can save capital gain tax arising on sale of inherited plot of land by investing the sale proceeds in instruments covered under Section 54EC or by investing the proceeds for purchase of another residential house property u/s Sec 54F.
However , in similar situation , my lawyer has suggested that if legal heirs make a MOU & Settlement with the objective of avoiding friction and maintaining harmony amongst the heirs and then sell the land and other inherited assets , then the capital gains will not occur because it will not be regarded as Transfer.
They can then divide the total proceeds amongst themselves and show it as assets and receipts received by way of WILL & Inheritance, the receipts which are Tax Free. Please comment whether it is correct view and advise. If not, suggest something better. []
It appears that you are talking about the family settlement amongst the family members and the legal heir wish to transfer the land/immoveable properties etc to other legal heir to avoid friction and conflicts. If it is so & the transfer doesn’t involve any monetary consideration, the transaction would be tax neutral.
If however, the legal heir dispose off the assets by way of sale after inheritance then it may not be tax free transactions even though the sale proceeds therefrom is subsequently distributed amongst the family members to avoid the possible conflicts. The distribution of sale proceeds amongst the family members shall be recognized as an application of income and tax liability will be there on the legal heir who is disposing off the assets.

Tuesday, September 22, 2009


(Chartered Accountant)

Query 1]
I want some clarification of Scope of section 40A (3) (As amended by the Finance Act-2008).
In the below mentioned case, if payment in a day of more than Rs. 20000 is made but against different LR/Bill, Whether It will be allowed or disallowed while computing taxable income of a company: -

Payee: Sai Transport
Bill / LR No.
Amt. Rs.
10 am
25th Sept
3 pm
25th Sept
Total payment made in a day is Rs. 33,000/- (Rs. 15000/-against Bill No. 1 & Rs. 18,000/- against Bill No. 2 at different time. Please give your comment considering scope of section 40A (3)? []
Expenditure & payment of that expenditure in cash exceeding Rs. 20,000/- is necessary for disallowance u/s 40A(3).
Section 40A(3) of the Income Tax Act, 1961 reads as under: -”Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee Cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.”
We are of the view that no disallowance is attracted in your case. Section 40A(3) is applicable only in respect of an “expenditure” which is in excess of Rs. 20,000/-. In other words, for applicability of section 40A (3), both the bill and the aggregate payment of that bill should exceed Rs. 20,000/-. In the present case, you are making payment against two different bills (none of the bill is exceeding Rs. 20,000/-), the disallowance is unwarranted.
We are of the view that Amendment in section 40A(3) by the Finance Act– 2008 doesn’t cover the above disallowance.

Query 2]
1. Please refer to the last week’s Tax Talk Dated 14th Sept-2009. It is mentioned therein that shares be treated as a capital assets if an assessee do less transactions (delivery based) in shares and hold it for a longer duration. And if shares qualifies as a capital assets, long term capital gain thereon would be tax free u/s 10 (38). But I read some where that if and if STT is paid, than in that case, long term capital gain on shares is considered as exempt u/s 10(38). Please confirm.
2. Another query is of Land. My father purchased land in 1993 at 150/- per sq feet. He died in 2007. Now his legal heirs i.e. we, are going to sell out this land at 15,000/- per sq ft. Does our case come under long term capital gain? If so, can we claim tax exemption u/s 10(38) against capital gain or under any other clauses like shares? If we have to pay tax, then how much per sq ft. tax has to be paid? And to avoid tax, what is the way out? Somebody told us that we can purchase house for the difference amount (amount of capital gain) or Invest in Govt. bond like IDBI Bonds etc? If I already have one house in my name, than can I claim tax benefit for second house purchase? []
1. Applicability of section 10(38): Exemption u/s 10(38) is available only on income arising from the transfer of long term capital assets being an EQUITY SHARE of a company or a unit of an equity oriented fund AND where such transfer is subjected to Securities Transactions Tax (STT). So, transfer of shares/Unit not covered by STT Payment, would not qualify for exemption u/s 10(38). Exemption is available only if the shares are capital assets and not merely on the basis of STT Payment. Payment of STT is one of the criteria for exemption u/s 10(38).
2. Capital gain on transfer of Land:a) Your father has purchased the property in the year 1993. You, all the legal heirs, became the owner of the property in the year 2007 on the death of your father. The land would be long term capital assets as the period of holding of that land in your hand shall be reckoned from 1993 and not from the year 2007.b) Long term capital gain on sale of land is not exempt u/s 10(38). Reason elaborated at (1) above.c) The long term capital gain is required to be calculated by deducting the INDEXED cost of acquisition from the amount of sale Consideration (or valued adopted by the Registrar of stamp duty for levy of stamp duty if it is higher than the sale consideration) received on sale of land.The indexed cost of acquisition shall be calculated as under: - Indexed cost of Acquisition =[(Area of the land in sq.ft. * Rs. 150)+ Registration Expenses etc of the land ] * Cost inflation Index (CII) of the Financial Year in which the land is sold / CII for the F.Y. in which the father died.You have not mentioned the months of purchase/sale/death in the absence of which financial year could not ascertained. Accordingly, in the absence of the required data, amount of long term capital gain could not be worked out.d) The amount of long term capital gain as computed above shall be divided amongst the legal heir in the ratio of ownership and is taxable separately in the hands of each legal heir.e) Option to Save Tax: The following two options are available to the legal heirs to save the tax on Long Term Capital Gain arising on transfer of land as under: -i) Exemption Under Section 54F:Invest the amount of Sale consideration ( and not the difference between the sale consideration and the indexed cost as mentioned in the query) received on sale of land for purchase of another house property within a period of 2 years (for construction- 3 years period is permissible) from the date of transfer of the Land. In case the amount is not utilized for purchase/ construction before the due date of filing the return of income of 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. Exemption is available only if an assessee does not own more than one residential house property while claiming an exemption u/s 54F.ii) Exemption Under Section 54EC:Invest the amount of Long term Capital Gain in Specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI). Investment in other Government bonds/ IDBI bonds would not enable you to save LTCG tax.

Sunday, September 13, 2009


(Chartered Accountant)


Query 1]
Kindly clarify how the limit of Rs. 40 Lacs for compulsory audit of accounts would be applied in case of person doing trading in derivatives? How Sales, Turnover or Gross Receipts is to be calculated in such cases? How the turnover/ sales etc will be calculated in case of intra day trading in equities? Please elaborate the accounting aspects of the transactions. []

1. TURNOVER IN CASE OF DERIVATIVES: I] Accounting Aspects: a) In the case of derivatives, transactions are not recorded at the time of purchase/sale. b) Only the initial margin and mark-to-market margins are recorded as and when paid, and the profit or loss on the futures transactions is recorded as an income/expense on squaring up of the transaction or on expiry of the contract. II] Calculation of Turnover: a) The margin paid is certainly not the turnover in the light of its accounting treatment.b) At best, only the difference (profit or loss in the derivatives transaction) can be regarded as turnover. c) The mute question then is – should one net off the profits and losses and is only the net profit or loss to be regarded as the turnover? This does not appear to be proper, as the net profit or loss would not reflect a measure of the actual volume of transactions. d) It should be the Gross differences which would constitute turnover, and not the net differences. The scrip wise gross differences for each maturity should be determined, the negative signs of the losses within a script of each maturity ignored and such losses grossed up with the gains to compute the turnover.e) For Example: If the profit is Rs. 25 Lacs and loss is Rs. 16 Lacs you will be required to get your accounts audited as total turnover for the purpose of section 44AB shall be Rs. 41 Lacs (Gross Difference) and not Rs. 9 Lacs (Net Difference)
2. TURNOVER IN CASE OF INTRA DAY TRADING OF SHARES (Speculative Profit/ Loss): a) The Institute of Chartered Accountants of India in its Guidance Note on Tax Audit under section 44AB of the Income Tax Act, 1961 (Revised 2005 edition) (Para 5.11) has expressed following views in respect of method of determining the turnover in case of intra-day transactions in shares.b) In a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so as to result in the sale as per value of contract note. The contract is settled otherwise and squared up by paying out the difference which may be positive or negative figure. As such, in such transaction, the difference amount is ‘turnover’. c) In the case of an assessee doing speculative transactions there can be both positive and negative differences arising by settlement of various such contracts during the year. Each transaction resulting into whether a positive or negative difference is an independent transaction. Further, amount paid on account of negative difference paid is not related to the amount received on account of positive difference. d) Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions for determining the liability to audit under section 44AB.

Query 2]
Sir, Will u please advise me on following point;-
1. I do not have a PPF A/c, but my major son has a PPF A/c.
2. Can I deposit the amount in his PPF A/c and seek Income Tax Benefit? My son is not a tax payer. []
Yes, you can claim deduction u/s 80C in respect of deposit done by you in the PPF A/c of your major son.

Query 3]
I was holding some share for a period of more than 2 years and then I sold them in the year 2007. I had earned a capital Gain of approx. Rs. 7 Lacs. Now, at the time of assessment, the I.T.O is saying that he would assess the same as business income.
I have read earlier that long term capital gains on shares are fully exempt from income tax if sold through recognized stock exchange and is covered by Securities Transactions Tax payment. I request you to kindly guide me in this matter along with legal provision. []
It is true that the Long term capital gain on shares on which STT is paid is exempt from income tax U/s 10(38) of the Income Tax Act, 1961.
The key word is “Capital gain”. Capital gain arises on sale of capital assets.
Shares could either be business assets or a capital assets.
If shares are the capital assets, obviously long term capital gain would be exempt u/s 10(38). If, however, it is a business assets, it would be chargeable to tax like other regular business income.
There are no clear cut set of guidelines or principles that distinguishes business assets vis a vis capital assets. Whether shares are a business asset or a capital asset depends upon number of factors.
The prominent factors that play an important role in determining whether it is a business assets or capital assets are: a) Volume/Nature of transactions.b) Intention/Logic behind investments.c) Holding period of shares etcd) Investment of own funds or a borrowed fund.e) Other business activities of the assessee.
Holding period of 2 years is sufficiently appearing to be a longer period to be qualified as a capital asset. If you were doing delivery-based long term investment with low volume of transactions in shares, in that case, the investment in shares could be regarded as capital assets eligible for exemption u/s 10(38).
[VIDE NOTIFICATION NO. 67/2009, DATED 09.09.2009]
Also available at

Sunday, August 30, 2009



- Tax law in simple and easy to understand language.
- The new Income Taxes Code to be applicable from 1st April, 2011.
- Personal Income tax rates slashed substantially. o Upto 10 lacs (less existing basic exemption limit) : 10% o Next 15 lacs : 20% o Over 25 lacs : 30%
- All Companies to pay tax @ 25%.
- MAT @ 2% of gross assets. Even loss making companies to pay MAT.
- No provision for MAT credit.
- Dividend distribution tax to continue @ 15% of divided.
- Foreign companies also to pay 15% of branch profit tax.
- Firms to continue to pay tax @ 30%.
- No cess or surcharge in any case.
- Agricultural income continues to be included in taxable income only for rate purposes.
- Wealth tax exemption limit raised to 50 crores. To include financial assets like shares.
- Limit of savings increased from 1 lac to 3 lacs.
- Savings to be taxed at the time of maturity under the EET system. Savings before 1-4-2011 not taxable.
- Law made stricter for defaulters and non-filers.
- The new law to apply in place of existing direct tax avoidance agreements with other countries.
- Losses allowed to be carried forward indefinitely.
- TDS to be deposited in the year of deduction. For last quarter, TDS can be deposited till due date of filing ITR. If TDS not deposited within 2 years from end of year of deduction, Expenditure shall be disallowed.
- TDS rates reduced in some cases like payment to contractors and rent of machinery to 1%.
- Due dates of filing income tax returns :o Companies and other audit cases : Aug. 31o Others : June 30
- Revised return or belated return can be filed within 21 months from the end of the financial year.
- Valuation of perquisites like rent free accommodation to be same in case of all employees whether in government or private sector.
- Gratuity to be exempt only if invested in a retirement fund.
- No deduction of interest upto Rs. 1.50 lacs for self occupied properties.
- Standard deduction from Gross Income from house property reduced from 30% to 20%.
- No distinction between short term and long term capital gains. All capital gains to be taxed at normal rates.
- 2000 to be base year for indexation in case of capital gains.
- Security Transaction Tax to be abolished.
- Exemptions u/s 54 etc. from capital gains abolished.
- For business, profit linked incentives removed. Only revenue and capital expenditure shall be allowed to be amortised. The remaining profit shall be taxable.
- Area based incentives also removed. Existing business concerns not affected.
- Limit of turnover for presumptive taxation raised to 1 cr.
- Sources of income will have folowing names. A. Income from employmentB.Income from house propertyC. Income from businessD. Capital gainsE. Income from residuary sources.
- Key proposals for businesses:- Taxation of all non profit organisations rationalized- Profits of non-life insurance biz to be disclosed annually- Govt. may enter overseas agreements for double taxation avoidance- No tax deduction on interest payable to banking cos, insurers


(Chartered Accountant)


Query 1]
Sir, We are a private limited company. We are paying salary to employees in the break up of Basic, HRA, Conveyance & Medical allowance.I want to ask is any deduction available in respect of medical allowances (paid as salary)or entire amount of medical allowance is taxable? What about the taxability of other items like HRA, Conveyance, and Basic? []
1. Medical Allowance: a) Only reimbursement of medical expenses up to Rs. 15,000/- is exempt from income tax. Amount received over and above Rs. 15,000/- is taxable as “Income From Salary”. b) Fixed Medical allowance is taxable in the hand of employee. It is not plainly exempt from income tax even if it is actually expended for medical treatment by the employee.
2. House Rent Allowance (HRA): In respect of HRA, the least of the following is exempt from tax u/s 10(13A):(a) 40% of salary (50% for Mumbai, Kolkata, Delhi and Chennai).(b) HRA for the period the house is occupied by the employee.(c) The excess of rent paid over 10% of salary. However, an employee living in his own house or where he does not pay any rent is not eligible for this exemption.
3. Conveyance Allowance: Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit is fully exempt from tax u/s. 10(14) read with Rule 2BB (1)(c). However, transport allowance for commuting between residence and place of duty is exempt up to Rs 800/- per month.
4. Basic:
It is taxable.
Query 2]
I shall be thankful if I am enlightened on the following points:
1. I have learned through bank sources that interest earned on recurring deposit with bank and on saving deposit are not taxable. Quarterly or Monthly interest on bank FDR if put in recurring deposit which will also earn interest further is also not taxable. If this is true, please quote the relevant clause of exemption.
2. How long do we need to keep our investment records after filling IT returns? Please reply [ ]
1. Interest income from bank FDR, Interest on R.D. A/c with banks, Interest on saving bank deposit is taxable. Also, interest on bank FDR invested in bank RD A/c is taxable. The further income by way of interest on R.D A/c is also taxable.
2. In normal course, the record for investment/ income should be kept for a minimum period of six years.

Query 3]
I am working for State Government PSU. I have received medical reimbursement of Rs. 2,00,000/- for my angioplasty from my office. As per exiting rules of our office, medical reimbursement above Rs 15,000/- is taxable. I have learnt that there is exemption in Income tax for complete amount in case of special diseases u/s 80DDB. Please clarify and give details. [Sachin Date]
1. Only reimbursement of medical expenses up to Rs. 15,000/- is exempt from income tax. Amount received over and above Rs. 15,000/- is taxable as “Income From Salary”.
2. Deduction u/s 80DDB :The deduction u/s 80DDB is available if the expenses for the medical treatment of specified disease or ailment is incurred by assessee on himself or on dependant. The specified disease for the purpose of section 80DDB is prescribed in Rule 11DD as under: 11DD. (1) For the purposes of section 80DDB, the following shall be the eligible diseases or ailments : (i) Neurological Diseases where the disability level has been certified to be of 40% and above,— (a) Dementia ; (b) Dystonia Musculorum Deformans ; (c) Motor Neuron Disease ; (d) Ataxia ; (e) Chorea ; (f) Hemiballismus ; (g) Aphasia ; (h) Parkinsons Disease ; (ii) Malignant Cancers; (iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ; (iv) Chronic Renal failure ; (v) Hematological disorders : (i) Hemophilia ; (ii) Thalassaemia.
The angioplasty treatment undergone by you does not appear to fit into the diseases and ailments mentioned in the said Rule. You will, therefore, not be able to claim deduction in respect of the expenditure on medicines incurred. Query 4]
A gift (Immoveable Property) is given by Mother in law to her daughter jointly with Son in law. In such case whether Son in law can be treated as "Relative" under IT Act ? And hence 50% value of the property attributable to him will not be treated as income. Please clarify. [AVR]
Son-in-law is a “Relative” for the purpose of section 56(2) (vi) of the Income Tax Act-1961. Hence gift to son-in-law is law is not treated as income of the receiver.
Further, presently gift in kind (like property, jewellery etc) is outside the purview of section 56(2)(vi). However, the provision is amended by the recent union budget to treat gift in kind as income u/s 56 with effect from 01.10.2009.

Saturday, August 29, 2009



Call it a T.D.S or a TEDIOUS. It’s tantamount to one and the same thing. Perhaps, no one can breathe comfortably (Exclude I.T. department) if one goes through the recent ruling of the Honorable Apex court. What a thankless job an assessee is doing for the Government? What is the reward an assessee is getting when it is working as an agent of the Government? All the more, what is the consequence that follows if a minor failure is committed by the assessee? A judgment with a far reaching effect was very recently delivered by the Honorable Supreme court in Madhumilan Syntex limited case wherein it is held that prosecution can be done for delay in depositing the T.D.S

The amount involved in this case was a little more than Rs 1 lacs & relates to the year 1989. The company had deposited the T.D.S along with interest into the Government treasury after a delay of two-day, yet the AO (Assessing Officer) issued a show cause notice to the company alleging that there was failure to credit TDS to the Central Government as required by the Income-Tax Act. This was an offence punishable under Section 276B & 278B of the Act, he said.
Though the assessee had reasonable cause for not remitting the taxes within the stipulated period, the Commissioner of Income tax (CIT) granted sanction to prosecute the assessee and its directors.
It was pleaded by the assessee that there was delay in receiving loan from the bank, due to which TDS could not be paid in time. Also, that because of construction of a unit by the company, there was shortage of liquid funds and hence the payment could not be made by the due date.

On reference to the Supreme Court, it was held that once a statute requires payment of tax and stipulates the period within which such payment is to be made, the payment must be made within that period. If the payment is not made within the specified period, it amounts to default and appropriate action can be taken under the Act. Failure on part of the company in depositing the taxes is an offence, which is punishable under the Income Tax Act.
The further ruling said that the imposition of a penalty for non-deduction of tax does not take away the power to prosecute accused persons if an offence has been committed by them. If a civil suit is pending against the assessee, an appropriate order will be passed by the competent Court in such an event. That, however, does not mean that if the accused have committed any offence, the jurisdiction of criminal court would not be applicable to the situation. Both the proceedings are separate and independent and one cannot abate or defeat the other in such a scenario.
Although the company is merely a “legal” or “juristic” person and not a natural person, prosecution under the Act would still apply as “corporate criminal liability” is not unknown to law. Further, the Supreme Court observed that to hold a person responsible under the Act, it must be shown that he/she is a “principal officer” or is “in charge of” and “responsible for” the business of the company or firm.
Also, no separate notice and/or communication is required to be served on the directors treated as the principal officers, if the notice served on the company indicated that the directors are the principal officers of the company. Therefore, the sanction to prosecute granted by the CIT cannot be held to be illegal or unlawful.

It’s not only an absolute failure to deposit T.D.S that attracts prosecution penalty. A mere delay in deposit of T.D.S would equally attract prosecution. No matter how much is the delay in payment of T.D.S. Forget the quantum of amount involved. Ignore the good intention & past track record. Leave apart the reasonableness for non-payment of T.D.S. Mobilize the fund by whatsoever way but Pay T.D.S WITHIN TIME. Now one needs to be extra careful and comply with the provisions relating to T.D.S.

Thursday, August 20, 2009


(Chartered Accountant)


Query 1]Sir, we are working with a PSU. Kindly clarify whether group insurance compensation received from insurance company by staff is exempt from income tax or not?
[N. Subramanian]
1. Insurance compensation received under a group insurance scheme is not taxable in the hands of employee since it is a capital receipt.2. Further, if a person receives ex-gratia payment from the Central Government/ State Government/ Local Authorities/ or a Public Sector unit, consequent upon the injury to the person while on duty, such ex- gratia payment will not be liable to income tax. [Circular No. 776 dated 08.06.1999]

Query 2]
Sir, Kindly let me know whether deductee can claim credit when deductor did not issue or refused to issue Certificate for the Tax Deducted at Source. Is it not binding on the part of deductor to issue TDS Certificate? What steps can deductee take in such case?
[Vilas M. Chandorkar]
Firstly it may be noted that as per the provision of sub-section (1) of section 203 of the Income Tax Act, 1961 deductor of tax at source (T.D.S) is duty bound to issue a TDS certificate within the prescribed time period to the person whose tax has been deducted. The time limit for issue of T.D.S in most of the cases is one month from the end of the month in which the T.D.S is done by the payer of income [Rule 31(3) of the Income Tax Rules, 1962].Furthermore, Circular : No. 785, dated 24-11-1999 issued by the Central Board of Direct Taxes (C.B.D.T) makes it mandatory to issue of certificate for tax deduction at source (T.D.S.) under section 203 in all cases where tax is deducted at source, including cases where payments are made ‘net of tax’ in terms of section 195A.Section 272A(2g) provides for levy of penalty @ Rs 100 per day for the period of delay if any persons fails to comply with the provision of section 203. So, a person who has deducted tax at source should ensure the issue of T.D.S certificate within the prescribed time period to avoid the penalty leviable u/s 272A(2g).In your case, we are of the opinion that you can undertake following measures to ensure legal compliance from your side: -Make a written communication clearly mentioning the above provisions of law and delays in number of days.If still payer do not respond and do not issue the T.D.S. certificate, communicate it to the respective C.I.T. (T.D.S. section) stating the facts of the case and praying for issue of direction to the payer for issuance of certificate.Even if you don’t get the T.D.S Certificate, claim T.D.S. in your income tax return by attaching the copies of letter written to the payer of income and C.I.T. (T.D.S. section).

Query 3]
My queries are:
1. Can a house or Flat be registered in joint names i.e., husband & wife name?
2. Can a loan be applied in joint names & interest rebate can be claimed?
3. Suppose we book for new flat/ house today in joint names by taking loan from bank , then at a later date can the sale proceeds of already owned plot/flat (in either of us name) be re-invested in the new property for claiming capital gain tax? If so, how to go about it?Kindly explain in detail more about joint acquisition of house property
[R. Srinivasan, Bhilai]
1. House / Flat can be purchased in joint names.2. If a house/ flat is purchased in joint name, both husband and wife can have the income tax benefit in respect of interest / principal repayment of housing loan. The deduction shall be available in the ratio in which the loan is availed. Also, the deduction u/s 80C towards registration expenses etc shall also be available in the ratio of property ownership.3. If you sell already owned plot with a holding period of more than 3 years, then you can claim an exemption from long term capital gain U/s 54F. For Flat with holding period of more than 3 years, exemption from LTCG is available u/s 54.4. There are various other stipulations that need to be complied with for valid claim of exemption from LTCG U/s 54 or u/s 54F.

Exemption u/s 54:

The main stipulations incorporated in section 54 are as under: -a) The capital gain should arise from the transfer of long-term capital assets being buildings or lands appurtenant thereto, being a residential house.b) The income from such residential house should have been assessable under the head ‘Income from House Property’.c) Benefit of exemption u/s 54 is available only to an Individual or HUF.d) The transferor must purchase a residential house within a period of one year before or two years after the date of transfer; or, in the alternative, the assessee must constructed a residential house within a period of three years from the date of the transfer of the original house.e) The amount invested in the purchase or construction of new residential house should either be equal to or more than the gain, or where it is less than the amount of capital gain, the shortfall shall be taxable under section 45 of the Act.

Exemption u/s 54F

The main stipulations incorporated in section 54F are as under: -1. Benefit of exemption u/s 54F is available only to an Individual or HUF.2. Exemption is available only if the long term capital gain arises from the transfer of any capital asset other than a residential house property. If the asset transferred is a residential house property then an assessee can claim an exemption u/s 54 (and not u/s 54F).3. The assessee does not within a period of 2 years purchase or 3 years construct any residential house other than the new house.4. The assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.5. The quantum of exemption amount will be worked out on the following basis:a] If the amount invested is more than or equal to the net consideration then the entire capital gain. b] If the amount invested is less than the net consideration, then the amount invested x capital gain/net consideration.