Sunday, October 11, 2009

TAX TALK- 12.10.2009-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TAXABILITY OF AMOUNT FORFEITED?”
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.
[ash_deo123@rediffmail.com]
Opinion:

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]
Opinion:
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? [mrindafrost@rediffmail.com]
Opinion:
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 www.incometaxindia.gov.in.You 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]
Opinion:
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

TAX TALK- 28.09.2009-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“SET OFF AND CARRY FORWARD OF CAPITAL GAIN LOSS”
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. [nayan.lagad@cosmosbank.in]
Opinion:
“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. [aqualai@yahoo.com]
Opinion:
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? [parantap2010@gmail.com]
Opinion:
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.

TAX TALK- 05.10.2009-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“CHANGES IN TDS RATES……”
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]

Opinion:
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. [nagarwal06@yahoo.co.in]
Opinion:
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.