Friday, December 23, 2011

TAX TALK-26.12.2011-THE HITAVADA

TAX TALK-26.12.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“ANCESTRAL PROPERTY PURCHASED IN 1936 SOLD NOW- INCOME TAX IMPLICATION”
Query 1]
We had an ancestral property purchased by our previous generation in 1936 and a house was built by them. My father and his 4 brothers were joint owners of the said property. After their death, their family members became the owners of the property. Now we sold the said property in Sept. 2011 for the total consideration of Rs. 277,44, 000/- & we (Total 18 members) received the consideration according to their ownership share. I am one of the co-owners amongst them and received Rs. 45, 77, 000/- as my share.
Now please advise me the quantum of property gain tax, I am liable to pay. How it should be calculated? Is it to be paid on whole amount received? What are the ways to avoid the gain tax, how much should I invest in house property so as to save total gain tax liability as I wish to keep some liquidity with me. What are the features of investing in RBI bonds/Government bonds?
I further wish to add that I am a Bank employee and regular tax payer and can the property gain have an impact on my yearly income?
Please also advice within how much period I have to settle all these transactions of investment / paying the tax? [Kishor V. Mujumdar - kvmujumdar.01@gmail.com]
Opinion:
1. The property sold is very old property. In such cases, the fair market value of the property as on 01.04.1981 could be taken as cost of the property for computing capital gain & income tax. You may obtain the registered valuer’s certificate about the valuation of the property as on 01.04.1981.
2. The cost of acquisition as mentioned above could be indexed to arrive at the Indexed cost of acquisition. For Indexation, you would be required to multiply the cost of acquisition by 7.85. [Cost Inflation Index for F.Y. 2011-12 is “785” & for FY 1981-82 is “100”.
3. Computing LTCG:From the sale consideration of Rs. 277,40,000/-, the cost of acquisition as mentioned above would be deducted. The resultant amount would be taxable Long Term Capital Gain. Your share in the property appears to be 16.50% and that share of LTCG would be added to your income. [However, if the value adopted by the Stamp duty authorities is higher than Rs. 277, 40, 000/-, then LTCG would be required to be calculated by taking such higher value.]
4. Taxability of LTCG:Long Term Capital Gain is taxable at a concessional rate of 20% u/s 112 of the Income Tax Act-1961. It appears that you are a regular assessee and have other income above the basic exemption limit as well. As a result, you are not entitled for any other deduction except as mentioned below.
5. Exemption from LTCG:In respect of Long Term Capital Gain arising from sale of House property, exemption can be claimed U/s 54EC or u/s 54, as under:a) U/s 54EC:To save LTCG tax u/s 54EC, one has to invest the amount of Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets in the specified bonds issued by REC/NHAI. Investment in RBI Bonds will not enable you to claim an exemption u/s 54EC. There is a maximum ceiling of Rs. 50 Lacs in a financial year for investment in 54EC Bonds. The interest from the bond is taxable as regular income only.b) U/s 54: Exemption u/s 54 is available if the assessee invests amount of LTCG for purchase of another residential house property within a prescribed time i.e., One year before or two years after the date of transfer; or, in the alternative, the assessee constructs a residential house within a period of three years from the date of the transfer of the original house.
Query 2]
I wanted to know whether section 43D is mandatory for the Nationalized banks. If so, RBI says interest on NPA need not be credited to profit and loss unless it is actually received where section 43D says that interest on NPA should be offered to tax at the time of credit or receipt which ever is earlier. As per guidelines of RBI, no bank credits such interest unless it is received. In such case, section 43D will be of no relevance Please guide. [priyamvada.shekdar@mahabank.co.in]
Opinion:
Section 43D is applicable to all the Schedule bank. It is mandatory for Nationalized banks. Section 43D provides for chargeability of interest income of a public financial institution or a scheduled bank, or a state financial corporation or a state industrial investment corporation or a public company in relation to specified categories of bad or doubtful debts. It is provided that the same shall be chargeable to tax in the year of credit of such interest to profit and loss account or in the year of receipt thereof, whichever is earlier. It may be noted that the interpretation of the word “credit” in section 43D is “credit to the profit & Loss A/c” and not credit to any other account. We are of the view that Section 43D as well as RBI guidelines are parallel and not contradictory with each other.

Saturday, December 17, 2011

TAX TALK-19.12.2011-THE HITAVADA

TAX TALK-19.12.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“RECEIVED NOTICE FOR ARREARS OF DEMAND!”
Query 1]
I have received arrear demand for the A.Y. 2002-2003 wherein the certain points as mentioned below were mentioned:
· The amounts mentioned as outstanding demand(s) are liable to be adjusted against the refunds arising on processing of return in CPC. This may be treated as intimation u/s 245 of the Income Tax Act, 1961.
· Please contact your current jurisdictional Assessing Officer for any clarifications on the Demand(s) stated in this intimation.
· Any rectification/correction of the demand can be made only by the Assessing Officer. CPC cannot carry out any modifications to the above demands nor can it clarify issues regarding these demands.
· In order to know your current jurisdictional Assessing Officer (AO) you may log on to http://www.incometaxindiaefiling.gov.in and click on “Know Jurisdiction” under “SERVICES”.
This is for the financial year 2001-2002 when arrear was paid due to pay revision.
In all the previous year IT returns, I have submitted the bifurcation sheet u/s 89 at the time of filing the return. After a period of 8-9 years, IT Department is demanding arrear amount. I am also transferred to Chandrapur from Bhopal. How to settle the issue? [s_c_swami@yahoo.com]
Opinion:
As of now, you don’t have any option but to make an application to your current jurisdictional assessing officer intimating the facts & figures, along with relevant documents/records, of the case to carry out the necessary rectifications. Admittedly, it will be a cumbersome process as the demands pertains to F.Y. 2001-02 & also there is a change in your Assessing Officer from Bhopal (Madhya Pradesh) to Chandrapur (Maharashtra). We understand the genuine hardship & problem that the tax payer may be facing as a result of the old demands. The Assessee might be facing the inconvenience due to the transitional phase of the I.T. Department from manual to e-era environment. However, wherever the demands or any communication is received from the Income Tax Department, the taxpayers are advised to take it seriously and should immediately comply to avoid the complications/ complexity like this in future.

Query 2]
I have a query on investment made from capital gains and request your advice on the same.
I was willed an ancestral property which I sold in September-2008. The capital gains so realized were invested in NHAI Bonds (Rs. 50 Lacs) & the balance was invested in construction of a residential accommodation in the stipulated time. The new accommodation has been registered in The Registrar's Office. The new accommodation has been designed and constructed in a manner that two identical & independent units can be obtained from it. I am keen to provide my only sister and her family with one such part so that the same is in her name. The other part I will use for myself and my family. My queries are as under:
1. Can I do this without going through the formalities of a WILL to be made by me?
2. Can I gift the portion to her, without any Gift Tax or any other cess?
3. Your advice on how this transfer can be done legally?
I await your reply. I may inform you that the property is located in Bareilly (U.P).
[kmpant@yahoo.com]
You will be doing a noble task and the Income Tax Act doesn’t have any provision to tax the above transactions. There will not be any Income tax / Gift Tax on the above transactions. You can do so by executing a registered Gift Deed.
For General Readers:
Our other readers may note that whenever any asset is purchased on the basis of which capital gain exemption is claimed u/s 54, 54B or 54D, 54G, or U/s 54F, it should not be sold within a period of 3 years of its acquisition. If it is sold within a period of 3 years, the exemption granted earlier would be taken back.

Sunday, December 11, 2011

TAX TALK-12.12.2011-THE HITAVADA

TAX TALK-12.12.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“TRANSFER OF FLAT BEFORE SALE DEED: WHETHER CAPITAL GAIN OR BUSINESS INCOME?”
Query 1]
Till now, I used to deposit annually Rs. 40,000/- in my & Rs. 15,000/- each in the two PPF accounts of my minor children. Now, I wish to deposit Rs. 1 Lacs each in all the three PPF accounts. Is it permissible? What will be the tax implication of the principal and interest in the accounts of the minors? Your opinion will be highly appreciated. [Parantap Chandurkar-parantap2010@gmail.com]
Opinion:
There is a limit on subscription in the PPF Account. Any individual may, on his own behalf or on behalf of a minor of whom he is the guardian, subscribe to the Public Provident Fund any amount not less than Rs. 500/- and not more than Rs. 1,00,000/- in a year.
(The limit of deposit in the PPF A/c has been increased from Rs. 70,000/- to Rs. 1,00,000/- w.e.f 01.12.2011 vide Notification F.No. 1/9/2011-NS-II, dated 25-11-2011)

Query 2]
Sir, If am planning to sell my house property for Rs. 81 Lacs. At the time of executing the agreement to sale (registered agreement to sale), I will be getting certain amount & I will be receiving the final payment at the time of sale deed. I am planning to spread the transactions in two financial year i.e., agreement to sale in one financial year wherein I will be receiving part amount and sale deed in the next financial year wherein I will be receiving the balance amount. My query is whether I can invest Rs. 50 Lacs in the Capital Gain exemption bonds in both years, outer time limit being 6 months from the final sale? [******06@rediffmail.com]
Opinion:
1. It’s true that an assessee can invest maximum amount of Rs. 50 Lacs in a financial year in specified bonds (NHAI/REC) for claiming an exemption u/s 54EC.
2. However, for claiming an exemption from Long Term Capital Gain u/s 54EC, an assessee is required to invest the amount of LTCG in NHAI/REC Bonds within a period of 6 months after the date of transfer. The date of transfer is relevant for the purpose of section 54EC & not the date of agreement to sale or the date of receipt of payment etc. Merely depositing the amount in the 54EC bonds received at the time of agreement to sale may not enable an assessee to claim an exemption from LTCG U/s 54EC.
3. At the most, you can transfer the house in such a way that the subsequent period of 6 months falls in two financial years (i.e., in between October to March). It may enable you to invest the amount in the way you want to.

Query 3]
1. I am presently in the 10% tax bracket. Apart from my regular income, I also have income by way interest from bank FDR.
2. If I transfer Rs. 5 Lacs to my son's account & he puts the fund in FD with bank that earns interest for him which remains lower than taxable limits, would this be acceptable way of reducing tax?
3. My son is a major (above 21 yrs) and has PAN also.
4. Would any paper record of some kind be necessary other than Bank statements showing the transfer from one a/c to the other? [jrwitthal@gmail.com]
Opinion:
1. If you transfer the fund by way of GIFT from your account to your son’s A/c. the resultant income would be treated as his income and would be assessable in his hands only. It would a valid tax planning tool.
2. Apart from transferring the fund from your account to his account, you may further declare the gift by making a Gift deed. The Gift deed, for the purpose of Income Tax Act, may be done even on a plain paper.
Query 4]
1. Mr. A has entered into an agreement for purchase of House property with the builder on 10.11.2009 for Rs. 20.00 Lacs. Till date, the house has not been completed & now Mr. A is no more interested in keeping the property with him due to dispute with builder, and hence he has decided to sell it to another person.
2. The figures are :Total Cost of Property cost Rs. 20,00,000/-Payments till date Rs. 16,00,000/-Balance Rs. 4,00,000/-
3. The agreement to sale with builder was duly registered and appropriate stamp duty has been paid around Rs. 1,00,000/- (Dec 2009)
4. Mr. A is selling the property for Rs. 25,00,000/-
5. Now whether his income will be assessable as capital gains or regular business income? Mr. A is a businessman (Trader) & this is first house, he was purchasing.
6. Can Mr. A deposit this amount in 54EC Bonds to claim exemption?Please advice. [*****md@rediffmail.com]
Opinion:
1. Capital assets include the “RIGHTS” in the property also.
2. Mr. A is not engaged in the business of land trading /builder-ship / layout etc. As a result, the income would be taxable as capital gain income.
3. No exemption u/s 54EC shall be available as the capital asset (Rights in the property) is a short term capital assets. 54EC is available against LTCG only.

TAX TALK-12.12.2011-THE HITAVADA

TAX TALK-12.12.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“TRANSFER OF FLAT BEFORE SALE DEED: WHETHER CAPITAL GAIN OR BUSINESS INCOME?”
Query 1]
Till now, I used to deposit annually Rs. 40,000/- in my & Rs. 15,000/- each in the two PPF accounts of my minor children. Now, I wish to deposit Rs. 1 Lacs each in all the three PPF accounts. Is it permissible? What will be the tax implication of the principal and interest in the accounts of the minors? Your opinion will be highly appreciated. [Parantap Chandurkar-parantap2010@gmail.com]
Opinion:
There is a limit on subscription in the PPF Account. Any individual may, on his own behalf or on behalf of a minor of whom he is the guardian, subscribe to the Public Provident Fund any amount not less than Rs. 500/- and not more than Rs. 1,00,000/- in a year.
(The limit of deposit in the PPF A/c has been increased from Rs. 70,000/- to Rs. 1,00,000/- w.e.f 01.12.2011 vide Notification F.No. 1/9/2011-NS-II, dated 25-11-2011)

Query 2]
Sir, If am planning to sell my house property for Rs. 81 Lacs. At the time of executing the agreement to sale (registered agreement to sale), I will be getting certain amount & I will be receiving the final payment at the time of sale deed. I am planning to spread the transactions in two financial year i.e., agreement to sale in one financial year wherein I will be receiving part amount and sale deed in the next financial year wherein I will be receiving the balance amount. My query is whether I can invest Rs. 50 Lacs in the Capital Gain exemption bonds in both years, outer time limit being 6 months from the final sale? [******06@rediffmail.com]
Opinion:
1. It’s true that an assessee can invest maximum amount of Rs. 50 Lacs in a financial year in specified bonds (NHAI/REC) for claiming an exemption u/s 54EC.
2. However, for claiming an exemption from Long Term Capital Gain u/s 54EC, an assessee is required to invest the amount of LTCG in NHAI/REC Bonds within a period of 6 months after the date of transfer. The date of transfer is relevant for the purpose of section 54EC & not the date of agreement to sale or the date of receipt of payment etc. Merely depositing the amount in the 54EC bonds received at the time of agreement to sale may not enable an assessee to claim an exemption from LTCG U/s 54EC.
3. At the most, you can transfer the house in such a way that the subsequent period of 6 months falls in two financial years (i.e., in between October to March). It may enable you to invest the amount in the way you want to.

Query 3]
1. I am presently in the 10% tax bracket. Apart from my regular income, I also have income by way interest from bank FDR.
2. If I transfer Rs. 5 Lacs to my son's account & he puts the fund in FD with bank that earns interest for him which remains lower than taxable limits, would this be acceptable way of reducing tax?
3. My son is a major (above 21 yrs) and has PAN also.
4. Would any paper record of some kind be necessary other than Bank statements showing the transfer from one a/c to the other? [jrwitthal@gmail.com]
Opinion:
1. If you transfer the fund by way of GIFT from your account to your son’s A/c. the resultant income would be treated as his income and would be assessable in his hands only. It would a valid tax planning tool.
2. Apart from transferring the fund from your account to his account, you may further declare the gift by making a Gift deed. The Gift deed, for the purpose of Income Tax Act, may be done even on a plain paper.
Query 4]
1. Mr. A has entered into an agreement for purchase of House property with the builder on 10.11.2009 for Rs. 20.00 Lacs. Till date, the house has not been completed & now Mr. A is no more interested in keeping the property with him due to dispute with builder, and hence he has decided to sell it to another person.
2. The figures are :Total Cost of Property cost Rs. 20,00,000/-Payments till date Rs. 16,00,000/-Balance Rs. 4,00,000/-
3. The agreement to sale with builder was duly registered and appropriate stamp duty has been paid around Rs. 1,00,000/- (Dec 2009)
4. Mr. A is selling the property for Rs. 25,00,000/-
5. Now whether his income will be assessable as capital gains or regular business income? Mr. A is a businessman (Trader) & this is first house, he was purchasing.
6. Can Mr. A deposit this amount in 54EC Bonds to claim exemption?Please advice. [*****md@rediffmail.com]
Opinion:
1. Capital assets include the “RIGHTS” in the property also.
2. Mr. A is not engaged in the business of land trading /builder-ship / layout etc. As a result, the income would be taxable as capital gain income.
3. No exemption u/s 54EC shall be available as the capital asset (Rights in the property) is a short term capital assets. 54EC is available against LTCG only.

Saturday, November 26, 2011

TAX TALK-28.11.2011-THE HITAVADA

TAX TALK-28.11.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“TRANSFER OF DEPRECIABLE ASSETS & EXEMPTION FROM CAPITAL GAIN”
Query 1]
I had purchased one office chamber in commercial complex in 1988, for Rs. 2 Lacs (WDV-2010, Rs. 27,000/-) and sold it this year for Rs. 32 Lacs. I am a senior citizen with income, from all sources, below exemption limit. Please tell me the tax treatment:
a. Whether benefit of sec 50, 54 will be available or not?
b. If not, what is the amount of tax to be paid? [yeshwant1938@gmail.com]
Opinion:
1. You have sold an office block on which you have been claiming Depreciation.
2. Section 50 provides that where a capital asset forming part of a block of assets in respect of which depreciation has been allowed, when sold, if the full value of consideration exceeds the block value of the asset, such excess shall be deemed to be the capital gain arising from the transfer of short term capital assets.
3. In your case, probably, office chamber appears to be the only assets in the block of fixed assets and after sale of the office chamber, the block ceased to exist and is resulting in surplus of Rs. 31.73 Lacs. If not opted for exemption as mentioned in subsequent paras, the surplus would be treated as short term capital gain and accordingly would be taxable as per regular slab of income tax.
4. The most important, & even academically interesting also, question here is whether exemption u/s 54F or U/s 54EC would be available or not? The general prevailing presumption is that no exemption u/s 54F or u/s 54EC is available on capital gain arising on transfer of depreciable assets. However, the discussion herein below would be of immense interest, not only the general reader, but also for the Tax Professionals as well.It may be noted that a] Subject to other stipulations, Exemption u/s 54F is available, if the net sale consideration arising on sale of a long term capital assets (other than residential house property), is invested for purchase of a residential house property.b] Similarly, exemption u/s 54EC is available, if capital gain arising on transfer of a long term capital assets, is invested for purchase of certain specified bondsc] Undoubtedly, exemption u/s 54F & U/s 54EC is available if the asset transferred is a long term capital assets. For levy of tax on depreciable assets, the gain is treated as short term capital assets. However, for all other purposes, the asset remains a long term capital assets if it is held by the assessee for a period of more than 36 months.d] In your case, the office block purchased by you in the year 1988 is a long term capital assets and you are eligible for exemption u/s 54F or Section 54EC of the Income Tax Act-1961.
5. There is no explicit statutory provision to approve or disapprove the above viewpoints. However, the same views may also be inferred from the following judgments:a] CIT v. Assam Petroleum Industries (P) Ltd. (2004) 36 DTC 304 (Gau-HC) : (2003) 262 ITR 587 (Gau.)b] ACE Builders P Ltd v. Asst. CIT (2001) 76 ITD 389 (Mum) followed in CIT v. M/s Delite Tin Industries in ITA 1118/2008 dated 26th September, 2008.c] CIT v Rajiv Shukla, [Delhi High Court in ITA No. 620 of 2011 Decided on: 8 April 2011]
Query 2]
I had taken a loan for renovation of my existing house. Whether deduction towards repayment of interest and principal repayment of loan borrowed for repairing or renovation of home is allowable from my income? [******saha@gmail.com]
Opinion:
a] Deduction of Interest
Interest deduction u/s 24 is allowed in respect of the loan taken for repair/renovation of house property. However, in respect of such loan taken for self occupied house property, the maximum amount allowed is Rs 30,000/- only and not Rs 1,50,000/-
b] Deduction of Principal Amount
No deduction is available towards the principal repayment of the loan taken for repairs/ renovation of house property.

Thursday, November 24, 2011

TAX TALK-21.11.2011-THE HITAVADA

TAX TALK-21.11.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“TDS CERTIFICATE NOT ISSUED DESPITE MANY REMINDERS & REQUESTS”
Query 1]
One of my relatives who is a Govt. employee, tax payer, purchased of plot in the year 1995 with a cost of Rs. 54,000/- and spent some money for boundary wall of Rs. 21,000/- (Total expenditure was Rs, 54,000/- + Rs. 21,000/- = Rs. 75,000/-). Now (2011), he has sold that plot with a cost of Rs. 15,00,000/-.
My questions are as follows:
1. How much he has to pay the tax?
2. If he invests the whole money in MIS, or some bonds, etc, still he has to pay tax?
3. What are ways to avail the tax benefit?
4. If he purchases a flat/plot with the sale proceeds of his plot, still he has to pay some tax?
5. Is it called capital gain? I request you if you could guide something. [susantakumardutta@yahoo.com]
Opinion:
It is presumed that a) The plot is purchased in the FY 1994-95.(If it is purchased in F.Y. 1995-96, “259” used below shall be replaced by “281”) b) The Stamp duty valuation of the plot transferred is not exceeding Rs. 15 Lacs. (If the Stamp Duty valuation exceeds Rs. 15 Lacs, capital gain would be required to be computed by taking such higher value)
Cost Inflation Index (CII) for the relevant F.Y. 1994-95 & F.Y. 2011-12 are “259” & “785” respectively.
LTCG on sale of plot shall be Rs. 12.73 Lacs [ i.e., Rs. 15 Lacs Less ( 0.75 Lacs * 785 / 259). Capital gain tax is payable @20%.
Long Term Capital Gain arising on sale of plot can be saved by opting for an exemption u/s 54F and/or U/s 54EC.a) U/s 54F: For exemption u/s 54F, subject to various other terms / stipulations, your relative would be required to invest the amount of net sale consideration for purchase of a residential house property within a prescribed period. Exemption u/s 54F is available on the basis of net sale consideration invested (& not on the basis of LTCG earned). If entire net sale consideration is not invested, exemption will be available on proportionate basis.b) U/s 54EC:To save LTCG tax u/s 54EC, one has to invest the amount of Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets in the specified bonds issued by REC/NHAI. There is a maximum ceiling of Rs. 50 Lacs in a financial year for investment in 54EC Bonds.
There is no exemption if the capital gain or the sale proceeds is invested in the MIS or bonds other than 54EC Bonds mentioned above. The income arising on sale of capital assets (like plot, in the given case) is considered as capital gain income.

Query 2]
By profession, I am a Post Office agent. I do business every year & on the commission received, the post office deducts T.D.S. on regular basis. Now, I want to file my I.T return. For this, I have asked for T.D.S. certificate to the post office, but they have asked me to give the details of business done by me in the previous financial year. As far as my knowledge is concerned, maintaining of T.D.S. record is a part of the post office job. Kindly suggest me how can I file my return without getting the T.D.S. certificate? Kindly tell me the what kind of punishment and fines can be imposed on post office for not maintaining T.D.S on commission given to agents and for harassing for the same? Looking for your advice at the earliest.
[aqualai@yahoo.com]
Opinion:
The person deducting the tax at source is duty bound to:
a. Deposit the tax deducted at source within prescribed time to the Government Treasury.
b. File the Quarterly TDS return in respect of the Tax Deducted
c. Issue the TDS Certificate to the Deductee within a prescribed time.
For non compliance of each and every part mentioned above, there is a separate penalty and consequences under the Income Tax Act-1961.
For non issuance of TDS Certificate within a prescribed time, penalty is imposable u/s 272A (2) @ Rs. 100/- per day during which the failure continues. However, the amount of penalty cannot exceed the amount of tax deductible/deducted.
For non filing of TDS Return also, there is a penalty provision of Rs 100 per day.
Without Quarterly TDS Return being filed by the Deductor, you will not be entitled for the Tax Credit in respect of TDS done from payment made to you.
In your case, you should have been issued the TDS Certificate within the prescribed time by the Tax Deductor. However, there is a general grievance that in many cases the Tax Deductor do not issue TDS certificate despite the fact that many requests & reminders are given by the Deductees for such issue of certificates. In such cases, Deductee can follow the following approach:
1. Write a letter to the Deductor incorporating:a] The details of payments done to you and the tax deducted there from.b] Provision of Section 203 which requires the Deductor for issue of tax certificate within one month from the date of tax deduction
2. Keep the proof of letter issued to the Deductor
3. If despite this, the certificate is not issued, write a letter to Joint Commissioner or Addl. CIT of TDS wing who has jurisdiction over the Deductor mentioning the detailed facts elaborated above.

You can also view all the tax deducted & deposited in your account [i.e. Tax Credit in Form No. 26AS] by registering your PAN at www.incometaxindia.gov.in.

Saturday, November 12, 2011

TAX TALK-14.11.2011-THE HITAVADA

TAX TALK-14.11.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“AMOUNT DEPOSITED IN THE PPF ACCOUNT OF WIFE: INCOME TAX IMPLICATONS”
Query 1]
I am 76 years of age and would have only the contributions to the PPF A/c as the category of investment eligible for Deductions U/c 80C, as the benefit of deduction on the Investments made in ELSS is proposed to be withdrawn from 1st April, 2012. I wish to contribute Rs. 30,000/- to the PPF A/c of my Spouse to claim the full benefit of Rs. 1 Lacs U/s 80C. However, I need clarifications and guidance with regards to:
1. Whether the contributions made to the PPF A/c of the Spouse will be treated as ‘Gift, and/or, attract the ‘Clubbing provisions’ as per the New Direct Tax Code, being introduced from 1st April, 2012?
2. If the ‘Clubbing provisions’ are applicable, whether the Interest credited every year on such contributions, on ‘cumulative basis’, is to be added to my income, as ‘tax-free Income’, every year?
3. Whether a written consent of the Spouse to the contributions made by me to her the PPF A/c is needed, and is to be retained along with the ‘Original’ Pay-in-slip in my Income-Tax records, for future reference?
4. Whether the Original Documents, referred above, are to be retained in the Income-Tax record of the Spouse and only the Copies are to be retained in my Income-Tax records?
I hope that you will guide me and the readers of the tax-talk, by publishing the reply in Hitavada, at an early date. [shatekar@rediffmail.com]
Opinion:
1. If any individual decides to deposit amount in the PPF account of a spouse, the investment shall be eligible for deduction u/s 80C(2)(v) read with Section 80C(4) of the Income Tax Act-1961. Such contribution / deposit could either be treated by the depositor as Gift or as Loan. In either case, the clubbing provisions under section 64 of the present Income Tax Act-1961 applies in respect of deposit in the account of Spouse. However, there is nothing to worry about as the interest on PPF is exempt u/s 10 and no tax liability arises in the hands of the Depositor. On maturity of PPF account, if the amount is reinvested somewhere else by the named account holder, the clubbing provisions becomes applicable. The new proposed Direct Tax Code also have incorporated the clubbing provision as is contained in the Income Tax Act-1961. Section 9 of the proposed Direct Tax code proposed to club the income of the spouse from the assets transferred without consideration in the hands of the transferor.The Good news: Government has recently increased the Annual Investment ceiling in PPF A/c to Rs. 1,00,000/- from the present limit of Rs. 70,000/- .
2. Yes, the interest income on cumulative basis has to be clubbed every year and the same can be claimed as exempt u/s 10.
3. The written consent is not necessarily required as such. However, documentary evidence as to the payment should be kept to justify the deduction in the account of the Payer.
4. The original documents should be kept in the records of the person paying & claiming the deductions.
Query 2]
I had purchased a flat in the year 2002 for Rs.6,00,000/- and I am selling it now (2011) for Rs.11,50,000/-. The Govt. ready reckoner value of the flat is Rs.24,00,000/-. What will be my tax liability? How capital gain will be calculated?
[atulsonak@rediffmail.com]
Opinion:
1. To be undisputable & as per the normal rule, the capital gain is required to be computed by taking the Government Ready reckoner valuation of Rs. 24 Lacs, even though the actual sale consideration is Rs. 11.50 Lacs. [Section 50C(1) of the Income Tax Act-1961].
In your case, there is a vast difference between the actual sale consideration vis a vis Government Ready Reckoner Value. In such a case, U/s 50C(2), you can file your return of income by claiming the sale consideration as Rs. 11.50 Lacs as full value consideration. In such case, the Assessing Officer may refer the valuation to the Departmental Valuation Officer (DVO). If the value assessed by the DVO exceeds RS. 24 Lacs, capital gain would be required to be computed by taking the valuation of Rs. 24 Lacs. If however the valuation done by the Departmental Valuation Officer is lower than Rs. 24 Lacs, then the valuation shown by the DVO will be adopted as sale consideration in place of actual sale consideration shown by the assessee in the sale deeds.
In the absence of all the relevant information like date of purchase, purchase expenses etc, the amount of capital gain & tax thereon cannot be worked out.

Friday, November 4, 2011

TAX TALK-07.11.2011-THE HITAVADA

TAX TALK-07.11.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“SECOND HOUSE PROPERTY: INCOME TAX IMPLICATONS”
Query 1]
I have some confusion regarding house property income. Please clear my doubts.
1. I have taken two home loans. One home is in place of work and other in different city. Both the house properties are self occupied & have not been let out. One loan is 10 year old; employer has given it with lesser interest rate and the other taken last year only. New Loan amount: Rs. 11 Lacs for 15 year term, Interest Rs. 1,12,858/- & Principal Rs. 72,088/- in the first year.
2. I have not let out other home. I want to take interest benefit for both loans can I? Please explain whether it is possible?
3. Which Form I have to use for filing Income Tax Return? ( Two Home loans)
4. How to file return, detailed steps for claiming loss on house property?
5. I have already paid tax without counting 2nd loan and I want refund now. Can I get refund?
6. Since other home is not let out, can I show income from house property as zero?
7. Please give general guidelines as most of information available is regarding one self occupied house only like Interest deduction limit of Rs. 1,50,000/- is for the first self occupied home. Some say this limit is not applicable to 2nd (if let out)? or even if vacant ?) [Mahesh Avadhani-mahesh25771@hotmail.com]
Opinion:
1. The income from house property is taxable on the basis of its“Annual Value”. The term “Annual value” is elaborated at point No. 6hereunder.
2. The tax implication / housing loan benefit for the second houseproperty is not similar/ same as applicable to the first houseproperty. The second house property has a different tax treatmentunder the Income Tax Act-1961.
3. One house used by the tax payer for his/her own residence is exemptfrom tax as its annual value is treated as Nil.
4. Where the assessee owns only one house property and it cannotactually be occupied by him because it is situated at a place otherthan a place where he is employed or carries on business orprofession, in such a case also the annual value of the property istaken as nil provided the property is not actually let out.
5. If taxpayers have two or more houses which are used for ownresidence, then assessee have the option to choose one of the house (according to his own choice) as self-occupied house, for which an assessee would like to get anexemption from tax and its annual value will be considered as Nil. Thesecond house (or other houses) shall be deemed to be have to been let out [whether not actually let out].
6. What is Annual Value of house property and how it is determined?The annual value means the amount for which the property mightreasonably be expected to be let out from year to year. However, ifthe actual rent received or receivable in respect of any let outproperty is higher, it shall be treated as its Annual Value. Theannual value is always taken to be NIL in case of one self-occupiedproperty.
7. How to calculate annual value/taxable value of property:Annual value of property is considered as higher of the following:(i) Actual rent received a year; (ii) Reasonable expected rent of the property.[ The reasonable expected rent is deemed to be the sum for which the property might reasonable be expected to be let out from year to year and is normally higher of (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]As mentioned earlier, the assessee has the option to choose only onehouse as self-occupied property. Rest of property is assessable toincome tax on the basis of its annual value.
8. Deductions:From the annual value the following deductions are available under theIncome Tax Act: -a] Municipal Tax paid.b] 30% of the net annual value of the house property towards Repair &Maintenance charges (Deduction is fixed @ 30% whether assessee incursmore or less amount on repair and maintenance of the house).c] Actual Interest paid on housing loan whether house is actually letout or is deemed to be let-out.d] For self-occupied property, maximum interest on housing load isrestricted to Rs. 1,50,000 p.a., subject to certain otherstipulations.
9. Effectively, if Assessee owns more than one house property & is kept for own use,a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above. In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.However, for the second house property, no deduction is available for repayment towards theprincipal portion of housing loan under section 80C as clause ( xviii)to section 80C of the I T Act reads as under: -"(xviii) for the purposes of purchase or construction of ‘ a’ residential house property the income from .....".
The replies to other parts of your queries are as under:
1. You are a salaried Assessee & may not be having Income under the head “Income from Business/Profession”. In this case, you have to file Income Tax Return in ITR-2 as you own more than one house property.
2. You have to fill up the “Schedule-HP” (Details of Income from House property) in the ITR-2 which is self explanatory. The loss from House property can be shown in the “Schedule CYLA” (Details of Income after set off of current year losses) from House property) & “Part-B- TI” (Computation of Total Income).
3. You can get the refund if it is due after computing the income & tax as elaborated above.
4. Even if any of the house property is not actually let out, the income of one of the house property will be taxable on notional basis. Income cannot be shown as Zero.

Friday, October 28, 2011

TAX TALK-31.10.2011-THE HITAVADA

TAX TALK-31.10.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)

“EXEMPTION U/S 54F & U/S 54EC CAN BE CLAIMED SIMULTANEOUSLY”
Query 1]
I had purchased an agriculture land in the year 1995 and sold the same in April- 2011. The agricultural land was well within rural land as per Income Tax Act. i.e., there was no village having more than 10,000 populations & is not within the circle of 8 Km as per pervious census, but as per latest census the population of a nearby village has been more than 10,000. My queries are:
1. From when the new census would apply?
2. Whether my sale would attract LTCG or it would be free from capital gain tax available on sale of Rural Agricultural Land?
[dalmia_shivratan@rediffmail.com]
Opinion:
In normal course, any income from transfer of agricultural land shall be tax free if the agricultural land is not situated: (a) in any area which is comprised within the jurisdiction of a municipality (Whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in items (a), as the central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Official Gazette.
In short, Profit arising on sale of Rural Agricultural land used for agricultural activity situated beyond notified municipal limit or a cantonment board with a population of less than 10,000 would be tax free.
However, depending upon the facts & Circumstances of each & every case, if a person is engaged in the business of trading in agricultural land then the profit could be taxable as “Income from Business”. Similarly, if the agricultural land is purchased with a motive to instantly transfer it to earn profit then it could be considered as treating it as an adventure in the nature of trade & would be taxable under the head “Income from Business”.
Query 2]
I have few queries regarding subject matter and I seek your guidance for the same.
I have purchased a residential plot in Feb-1995 for total consideration as detailed below:
1. Purchase cost : Rs. 1.98 Lacs
2. Stamp Duty, Reg : Rs. 0.18 Lacs
3. Commission : Rs. 0.02 Lacs
4. Fencing wall Cost : Rs. 0.32 Lacs
-------------------------------------------------------
TOTAL : Rs. 2.50 Lacs
-------------------------------------------------------
I sold the said plot for Rs. 102 Lacs. I seek your kind advice on the following issues:
1. What is my capital gain?
2. Whether capital gain tax exemption would be available if I purchase residential house (say Rs. 40 Lacs), plot (say Rs. 20 Lacs) and NHAI Bonds (say Rs. 40 Lacs), Total of Rs. 100 Lacs all taken together? [atulhe@rediffmail.com]

Opinion:
1. It is presumed that a) you have transferred the plot in the FY 2011-12.b) The Stamp duty valuation of the plot transferred is not exceeding Rs. 102 Lacs.
2. Cost Inflation Index (CII) for the relevant F.Y. 1994-95 & F.Y. 2011-12 is “259” & “785” respectively.
3. LTCG in your case shall be Rs. 94.42 Lacs [ i.e., Rs. 102 Lacs Less ( 2.50 Lacs * 785 / 259)
4. Long Term Capital Gain arising on sale of plot can be saved by claiming an exemption u/s 54F and/or U/s 54EC.a) U/s 54F: For exemption u/s 54F, subject to various other terms / stipulations, you have to invest the amount of net sale consideration for purchase of a residential house property within a prescribed period. Exemption u/s 54F is available on the basis of net sale consideration invested (& not on the basis of LTCG earned). If entire net sale consideration is not invested, exemption will be available on proportionate basis.b) U/s 54EC:To save LTCG tax u/s 54EC, you are required to invest the amount of Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets in the specified bonds issued by REC/NHAI. There is a maximum ceiling of Rs. 50 Lacs in a financial year for investment in 54EC Bonds.
5. There is no specific restrictions/ bar in claiming simultaneous exemption u/s 54F & 54EC taken together. We are of the opinion that a] you can claim an exemption u/s 54F towards investment in the residential house property and b] also u/s 54EC towards investment in the 54EC Bonds.
6. Isolated Investment in the plot of Rs. 20 Lacs will not enable you to claim any exemption from long term capital gain.

Friday, October 21, 2011

TAX TALK-24.10.2011-THE HITAVADA

TAX TALK-24.10.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“PROCEDURE FOR MAKING CORRECTION IN THE INCOME TAX CHALLANS”
Query 1]
a] If I deposit amount of Rs. 6 Lacs in a FDR with Bank for 3 years on which Bank deducts TDS directly. In such case, whether bank will also deduct on current A/c. or S.B. A/c Interest? [bsc.arya@gmail.com]
b] I am a student pursuing CA-Final. Recently, during our bank audit, we have come across the interest payment of more than Rs. 10,000/- to the customer. No Tax is deducted by the bank in the current year nor has been done so in the past as well. I have gone through section 194A which no where provides exemptions from TDS on interest payment on Saving A/c. I have gone through the Circular No. 22/68-IT(B) [F.No. 12/23/68-IT(B)], dated 28-3/13-5-1968 which also confirms the deduction of Tax at source on Saving bank account interest. Please examine whether TDS will be applicable or on interest credit on saving bank A/c? [xxxx5147@gmail.com]
Opinion:
1. No Tax is deductible at source on interest paid/credited to the saving bank Account even though the interest amount on such account, individually or in aggregate, exceeds the threshold limit of Rs. 10,000/-,.
2. Circular No. 42 [F. No. 275/62/70-ITJ], dated 20-6-1970, exempts interest paid on deposits (other than time deposits) paid by bank from deducting tax at source (TDS). The same is covered by clause (vii) of section 194A (3) w.e.f.from 1-4-1970. The Circular No. 22/68-IT(B) [F.No. 12/23/68-IT(B)], dated 28-3/13-5-1968 was issued prior to introduction of clause (viii) to section 194A(3) & don’t have any relevance now as far as the saving bank account interest is concerned.

Query 2]
While paying the TDS through online payment mode u/s 192B (on salary) I have wrongly credited the amount in Surcharge column instead of Education cess column. I noticed the mistake only after the receipt copy is generated. Is there any chances of rectification and if there any provision for rectification to whom should I contact for the same. The details are as follows - Wrong Entry / Correct Entryi) Basic Tax - 84174.00 / Basic Tax - 84174.00ii) Surcharge - 2526.00 / Surcharge - 0iii) Education Cess - 0 / Education Cess - 2526.00iv) Penalty - 0 / Penalty - 0 v) Interest - 0 / Interest - 0vi) Others - 0 / Others - 0 Kindly help me in this matter.[arnava_2006@rediffmail.com]
Opinion:
There are numerous instances where there is an error while making payment of Tax either electronically or manually. To rectify these errors, Income-Tax Department has issued new guidelines effective 01-09-2011. This new mechanism allows Banks to correct physical challans only. For correction in electronic challan, request will have to be made to the concerned Assessing Officer.
For general benefit, the procedure for correction is physical challan is given hereunder:
Fields that can be corrected by bank:
· Assessment Year
· Major Head Code
· Minor Head Code
· TAN/PAN
· Total Amount
· Nature of payment (TDS Codes)
Time frame for correction request:
- Request for correction has to be made within 7 days of deposit of challan for correction in PAN, TAN and Assessment Year
- For Major head, minor head and nature of payment, request can be made within 3 months of deposit of challan.
Remedy available after time frame is over:
- After lapse of time frame, request can be made to the Assessing Officer.

Time frame given to bank to carry out correction:
- After receipt of request, bank must carry out the correction within 7 days
Other conditions for correction:
- Correction in name is not allowed
- Any combination of correction of Minor Head and Assessment Year together is not allowed
- PAN/TAN correction will be allowed only when the name in the challanmatches with the name as per the new PAN/TAN.
- The change of amount will be permitted only on the condition that the amount so corrected is not different from the amount actually received by the bank and credited to Govt. Account.
- For a single challan, correction is allowed only once. However, where 1st correction request is made only for amount, a 2nd correction request will be allowed for correction in other fields.
- There will be no partial acceptance of change correction request, i.e. either all the requested changes will be allowed, if they pass the validation, or no change will be allowed, if any one of the requested changes fails the validation test.
Procedure for requesting correction:
- The tax-payer has to submit the request form for correction (in duplicate) to the concerned bank branch.
- The tax-payer has to attach copy of original challan counterfoil.
- In case of correction desired for challan in Form 280, 282, 283, the copy of PAN card is required to be attached.
- In case of correction desired for payments made by a tax-payer (other than an individual), the original authorization with seal of the non-individual taxpayer is required to be attached with the request form.
- A separate request form is to be submitted for each challan.
Correction in Electronic Challans
- For correction in electronic challans and for correction after the time period for application to bank lapses, a written request in prescribed format has to be made to the Assessing Officer
- Assessing Officer has power to rectify the error , in bona fide cases, to enable credit of tax to assessee
Form of application to bank:
Income-tax department has given a format in which application can be made to the bank. The form is given is available at nareshjakhotia.blogspot.com or http://www.incometaxindia.gov.in/archive/LeftMenu_ChallanCorrectionMechanism_26082011.pdf

Format of application to bank for challan correction to be requested by the taxpayer

Format of application to bank for challan correction to be requested by the taxpayer
To
The Branch Manager,
--------------------------- (Address of Branch)
Taxpayer Details :
Taxpayer Name :
Taxpayer Address :
Taxpayer TAN/PAN :
Name of Authorized Signatory :
(in case of non-individual taxpayer)
Sub : Request for Correction in Challan No: 280/281/282/283 [Strike out which ever is not
applicable]
Sir/Madam,
I request you to make corrections in the challan data as per following details :
Challan Details:
BSR Code Challan Tender Date (Cash/Cheque Deposit Date) Challan Sl. No.
Sl. No. Fields in which correction required Please Tick Original Details Modified Details
1. TAN/PAN (10 digit)
2. Assessment Year (YYYY)
3. Major Head code (4 digit)
4. Minor Head code (3 digit)
5. Nature of Payment (3 digit)
6. Total Amount (13 digit)
Note: Please tick against the relevant fields where changes are required.
Tax payer/Authorized Signatory
Date
Note:
1. Attach copy of original challan counterfoil.
2. In case of correction to challan 280, 282, 283 attach copy of PAN card.
3. In case of a non-individual tax payer, attach the original authorization with seal of the
non-individual tax-payer.
4. The request form for correction is to be submitted in duplicate to the bank branch.
5. A separate request form is to be submitted for each challan.

Saturday, October 15, 2011

TAX TALK-17.10.2011-THE HITAVADA

TAX TALK-17.10.2011-THE HITAVADA
TAX TALK BY CA. NARESH JAKHOTIA (Chartered Accountant)
“SURPLUS FROM CHIT FUND & INCOME TAX IMPLICATIONS”
Query 1]
Sir, I have following questions. Can you clear them please
1. I am a housewife. I am able to save Rs. 2000/- to Rs. 3000/- per month from household expenses given by my husband and putting it my SB account. I am having PAN card. I have accumulated Rs. 60,000/- so far.
a) I would like to put some amount in Bank Fixed deposit or company NCD and
b) some amount in Reliance Gold Savings fund.
My husband has paid the income tax on the amount given to me for household expenses. The interest that I will get from FD or NCD, will it be tax free as it is in my name or it is to be added to my husband's income?
2. What are the tax implications for gold savings fund if I redeem within one year and after one year?
3. This is regarding investment in Chit fund. We took a chit for Rs. 1 Lacs for 50 months. Due to bidding the total amount we pay over 50 months is around Rs. 80,000/- and we get around Rs. 95,000/- after deduction of commission by company on completion of chit. I think that he has to pay tax on this gain (i.e. Dividend) of Rs. 15,000/-. Whether tax is to be
a) paid every year on the accumulated dividend or
b) on completion of the chit. Dividend is shown in pass book & not paid till completion of chit.
4. If he bids in between, say after 35 months, and get Rs. 90,000/- (at 10% loss, 5% commission to company & 5% which is dividend to all members). After 35 months chit amount paid is Rs. 55, 000/- & dividend is Rs. 15000/- and till completion of chit we would be paying around Rs. 80,000/- (Rs. 55,000/- + Rs. 25,000/-) for remaining period). We are confused whether gain to be taken as Rs. 35,000/- (Rs. 90,000/- (-) Rs. 55,000/-) or Rs. 10,000/- (Rs. 90,000 - Rs. 80000). Please help. [D.Lakshmi- dlakshmi725@gmail.com]
Opinion:
1. U/s 64(1) (iv) of the Income Tax Act-1961, any income arising from assets transferred to spouse without adequate consideration is taxable in the hands of the transferor and not in the hands of transferee.
However, if asset is acquired by the spouse out of pin money (i.e., an allowance given to the wife by her husband for her dress and usual household expenses) then the income from such assets cannot be clubbed with the income of her husband.
[R.B.N.J Naidu Vs CIT (1956) 29 ITR 194 (Nag) and
R.Dalmia Vs. CIT (1982) 133 ITR 169 (Delhi).]
Resultantly, the income arising out of the reasonable fund of Pin Money accumulated & invested need not be clubbed with the income of your husband. The same could be treated as your income.
2. Investment in a gold savings fund enables you to avail the benefit of long-term capital gains tax, after the period of one year of its holding. However, any sale of the fund before the period of 1 year would attract short-term capital gains tax & is treated as your other regular income.
3. Income/Loss from chit could best be known only on the completion of the chit tenure. Till completion, the amount of loss/ surplus could not be ascertained in certainty. We are of our considered opinion that, for the purpose of Income Tax, the income/loss should be recognized at the completion of the tenure only.
4. The question of taxability of Rs. 35,000/- does not arise at all. To be precise, you are contributing Rs. 80,000/- & getting Rs. 90,000/- from the chit Fund. Your income from the chit would be Rs. 10,000/- only and the same would be your income for the purpose of Income Tax.
The most important & equally controversial issue is about the taxability of this surplus..
There is no specific provision in the Income Tax Act -1961 for taxing or exempting the income from Chit funds. Divergent view prevails as to the tax implication of loss/surpus from chit funds.
i] There is one school of thought which believes that the amount is taxable as the same would come within the broader definition of income. Instruction No. 1175 [F.No. 169/21/78--IT(80)], dt. 16-5-1978] issued by the Central Board of Direct Tax says that
”(b) In the hands of the subscribers, a few will be receiving more than what they have subscribed. This extra amount is the nature of interest and as such, taxable. Members who take the money earlier from the chit will necessarily have to contribute more which means that they incur loss, which is nothing but interest paid for moneys taken in advance. The claim of such a loss will have to be considered for the purpose of allowance according to the provisions of the Act depending upon how the money was utilised by the subscriber.”
b] The other school of thought believes chits are organized by chit companies & every chit group forms an association. The members of such association make contribution to a common fund and lend it to the successful bidder (or the winner of the lot in case of lottery chits), who has necessarily to be a member of the group, so that the transactions are always confined to members except for the fee paid to the organizer for his service out of the collections. As a result, every chit is therefore, an instance of a mutual activity & the surplus should not be taxable on the principle of mutuality. The same inference could be drawn from Soda Silicate and Chemical Works v CIT (1989) 179 ITR 588 (P&H).

Saturday, October 8, 2011

TAX TALK-10.10.2011-THE HITAVADA

TAX TALK-10.10.2011-THE HITAVADA
TAX TALK BY CA. NARESH JAKHOTIA (Chartered Accountant)
“DON’T HAVE PAN CARD / NUMBER, HOW TO RETRIEVE IT?”
Query 1]
1. I would be grateful to you if you solve my query. My father is a retailer and was not having taxable income till last year. He has lost his PAN card & we don’t have copy of it. We don’t know his PAN Number also. This year he is suppose to file the income tax Return. It won’t be possible to file the return without PAN. What should we do? Do we apply for new PAN card? If possible, how can we get new copy of old PAN number itself? Please advice.
2. I have a commercial property which I have given it on Rent @ Rs. 1,50,000/- per month. I have come to know that corporation tax @ 40% is applicable on such rent. Since annual rent is more than Rs. 8,00,000/-, Service tax is also applicable as Rs. 1,50,000/- received by me is inclusive of the service Tax. Further there will be TDS Deduction & my other income is also above Rs. 6,00,000/- (Business). After deduction of all above, I am left with very little. I request you to please advice me on the above. What if I enter into partnership with the tenant and limit my share to amount of rent for the period of the lease? [harshwardhanagrawal@rediffmail.com]
Opinion:
1. You can get the Permanent Account Number by entering the required data at the following link: “https://incometaxindiaefiling.gov.in/portal/knowpan.do”
Once you get the Permanent Account Number from the above link, you can apply for duplicate PAN by making an application in “Request for New PAN Card or/and Changes or Correction in PAN data” . The form can be downloaded from the websites of UTI Technology Services Ltd (UTITSL), National Securities Depository Ltd (NSDL), or the I-T department [www.utitsl.co.in, www.tin-nsdl.com or www.incometaxindia.gov.in].
2. You can think of having a joint venture (or forming a partnership firm) whereby rent could be compensated by other forms of payment as a result of which Service Tax, Municipal Tax. TDS etc can be planned. However, depending upon each & every individual case, one needs to understand & anticipate various other implications & probability involved of this type of arrangements.
Query 2]
I have a query regarding tax liability for the Accounting Year 2011-2012 (A.Y. 2012-13).
I had planted Teak (Sagwaan) plants in my agricultural land of 14 acres in the year 1989. Since then, I have regularly maintained the plants, I had also shown expenses related to it in my accounts from time to time. I had received Rs. 22 Lacs on sell of these plants, after requisite permission from the Forest Department. I am also having business income of around Rs. 10 Lacs every year. I have following queries:
1. Will the income from teak trees would be treated as Agricultural income or Business income?
2. What will be my tax liability in A.Y. 2012-13? [rahulagrawal1972@gmail.com]
Opinion:
1. Agricultural income is exempt from tax u/s 10(1) of the Income Tax Act-1961. Income from sale of forests, trees, wild grass, fruits and flowers grown spontaneously without human efforts is not considered as Agricultural Income. However, as per the facts provided by you in the query, the income of teak wood plantations would be treated as Agricultural Income.
2. Although the Agricultural Income is exempt from income tax, it is included in the income of an individual / HUF for the purpose of determining the income tax on non agricultural income.
Ignoring the investment eligible for deduction under Chapter VI-A (like deduction u/s 80C, 80G, 80D etc), your tax liability for the A.Y. 2012-13, considering Agricultural income of Rs. 22 Lacs & Business Income of Rs. 10 Lacs, shall be Rs. 2.53 Lacs assuming that you are a male, resident non senior citizen Assessee.

Query 3]
I am Employee in Government Organization. My son went to UK for higher studies. I have taken Education loan, personal loans for him from Credila and cooperative society in my name. I am repaying these loans from my salary. I am taking benefit of 80E from Income tax. Now he got a job there. He is in a position to send some money (monthly or bimonthly) to me. If he sends me money, will it be taxable? Will it be considered as my income from other source? Can I repay my loan from this money without showing this money as my income from other source?
Please guide me in this matter. Please give rules of income tax for the same if
any. [R.V.Deshmukh - rvdsh@rediffmail.com]
Opinion:
1. Deduction admissible u/s 80E towards interest payment of education loan only if the loan is taken from any financial institutions (i.e., bank or notified financial institutions) or an approved charitable institution. [HDFC Ltd & Credila Financial services private limited are notified financial institution for the purpose of section 80E]. Deduction is available only for “Higher Education”.
“Higher Education” for the purpose of Deduction U/s 80E means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so.
2. The money your son would be remitting to you would either be in the form of Loan or in the form of a Gift. In either case, the amount received by you will not at all be taxable as your income.
3. The amount could be used for any purpose. It can be used for the repayment of the loan taken by you. However, it may be noted that deduction u/s 80E towards interest payment is available only if it is paid out of the income & not otherwise. You are advised to make the payment of the loan out of your regular income.

Friday, September 30, 2011

TAX TALK-03.10.2011-THE HITAVADA

TAX TALK-03.10.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“RS. 100/- PER DAY PENALTY FOR NON FILING OF QUARTERLY TDS RETURN”
Query 1]
Sir, I have two house properties in Gujarat (Kutch & Ahemdabad) purchased by me in the year 1978 & 1982. I wish to sale the same in the current year. The capital gain roughly calculated on the above flat sell is around Rs. 43 Lacs & Rs. 67 Lacs respectively. I wish to purchase two flats, one in Raipur & the other one in Nagpur for Rs. 60 Lacs each. I have two sons, one in Raipur & the other one in Nagpur. The flat is intended to be purchased by me with my son name as the co-owner in each of the flat separately. I have following queries for which I seek your guidance:
1. Whether the capital gain amount will be exempt as my total investment in the residential house properties will exceeds the total amount of capital gain?
2. Whether the exemption is restricted to purchase of one house property or both the house properties? I already have one more house property in my name in Nagpur.
3. Whether the inclusion of my each son name in sale deed will pose any difficulty in claiming exemption even though I am paying the amount of new property and will be reflecting so in my records & documents?
4. Any other precautionary or tax planning aspects should I consider in the said transactions? [A.K. Patel- kanishkapatel19@gmail.com]
Opinion:
We are happy to see the pre-mortem approach to tax planning which is more beneficial and helpful rather than doing the post-mortem after the transactions.
The point wise replies to the issues raised are as follows:
1. The total capital gain on sale of existing house properties is expected to be around Rs. 110 Lacs whereas the aggregate investment in the new residential house properties is expected to be around Rs. 120 Lacs. Now, your question is whether the exemption will be available for the entire/ aggregate amount of capital gain or not? It may be noted that Long term capital gain is exempt u/s 54 if the LTCG on sale of house property is invested within a prescribed period for purchase of another residential house property. We are of the view that the exemption will be available in relation to each set of sale and corresponding investment in the residential house. Particularly in your case, for one property, the entire amount of LTCG will be exempt whereas for the second property, Rs. 7 Lacs will be taxable as LTCG. The concept of investment of LTCG vis a vis aggregate investment in the new house properties appears to be unacceptable by the Revenue.
2. Exemption is available against sale of any number of residential houses if there are corresponding investments in residential house subject to fulfillment of all other conditions. So, if there is sale of more than one residential house, the exemption will be available in relation to each set of sale and corresponding investment in the residential house. Exemption is available even if you have one more residential house property (or even more than one also) at the time of reinvestment.
3. Exemption cannot be denied if your son name is incorporated in the sale deed for the name sake.
4. As far as the tax planning aspect is concerned, our readers may please note that the new Direct Tax Code has originally proposed to replace the base date of from existing 01.04.1981 to 01.04.2000 for computation of capital gain. However, dust on the DTC has not yet been cleared & the final provisions, date of its enactment, etc are still in the doldrums. We will try to cover the tax planning aspects in the new Direct Tax Code vis a vis Income Tax Act after the Government notifies the date of its enactment.

Query 2]
What penalty can be levied for non filing of quarterly TDS Return? And after how much period such penalty can be levied? Kindly explain under which section it can be penalized, subject to maximum amount of penalty?[pravin.aparajit@gmail.com]
Opinion:
Its a very relevant query indeed. There is a large scale non compliance on various fronts as far as the provisions of the TDS are concerned. For the mass benefit & for awareness of our readers, we are summarizing the penal consequences for non compliance of few TDS Provisions:
Nature of Default
Section
Penalties
Failure to deduct TDS
Sec. 201(1A)
Interest @ 1% per month for every month or part there of from the date of deduction to the date on which it is actually paid[Even if the delay is by one day, you will pay one month's interest.]
Failure to deposit after Deduction
Sec. 201(1A)
Interest @ 1 ½ % per month for every month or part there of from the date on which tax was deductible to the date on which it is actually paid
Failure to Quote TAN in challan or certificate, etc.
272BB(1A)
Rs. 10,000/-
Failure to Deposit TDS
276B
Rigorous imprisonment for a term of which shall not less than 3 months but may extend to 7 years and also fine.
Failure to issue TDS Certificate
272A(2)(g )
Rs. 100/- per day but does not exceed the amount of TDS
Failure to furnish the details of no tax deduction on deposit [Person specified in 194A(3)]
272A(2)(l)
Rs. 100/- per day but does not exceed the amount of TDS
Failure to submit declaration u/s 197A
272A(2)(f)
Rs. 100/- per day but does not exceed the amount of TDS
Failure to submit TDS Return
272A(2)(c)
Rs. 100/- per day but does not exceed the amount of TDS
Failure to submit statement of perquisite
272A(2)(i)
Rs. 100/- per day but does not exceed the amount of TDS
Failure to submit Quarterly Statement
272A(2)(k)
Rs. 100/- per day but does not exceed the amount of TDS
Failure to quote PAN or quoting PAN which is false
272B(2)
Rs. 10,000/-

Friday, September 23, 2011

TAX TALK-26.09.2011-THE HITAVADA

TAX TALK-26.09.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“EMPLOYEE WELFARE TRUST ALLOTING SHARES TO ITS EMPLOYEE AT A DISCOUNTED PRICE-INCOME TAX IMPLICATION”
Query 1]
Sir, I am in the Company which got listed last year at NSE & BSE. The Company is having Employees Welfare Trust before its got listed in NSE & BSE. Employees Welfare Trust is holding shares of the Company since more than 5 to 6 years. Now Employees Welfare Trust is offering shares to employees (based on their tenure, performance & designation) at a discounted rate (say Rs. 15) as compared to the market rate around Rs. 200 on the date of transaction. I have accepted the offer and bought shares, with lock-in period of 6 months (insider trading). I am getting contrasting opinion on the matter and confused, whether difference of Fair Market Value - Purchase Price (Rs. 200/- – Rs. 15/-) i.e., Rs. 185/- is taxable as income from other source? Or, it will be taxable as and when I will sale the shares (Short-term or Long-term gain)? Kindly revert on the above, if it is taxable as income from other source then will I have to pay advance tax? [PDM - pdm1978@gmail]
Opinion:
1. Section 56 (2)(vii) specifies the following receipt taxable as income: (vii) Where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,-
a) Any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
b) Any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property ;
c) Any property, other than immovable property,-
i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
ii) for a consideration which is less than the aggregate fair Market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:Based on certain set of normal presumption as to the Employee Welfare Trust, we are of the considered opinion that the difference between the fair market value and the purchase price would be taxable as “Income from Other source”.
2. The fair market value so adopted above would be taken as your cost whenever subsequently you sell the share [Section 49(4)]
3. The income would also be subject to advance tax payment provision.

Query 2]
I have taken a loan of Rs. 3 Lacs at 9% p.a interest from a co-operative society for educational purpose of my daughter. Later on, since my daughter did not procure admission, I made a fixed deposit of the amount in a bank at 9.5% p.a. interest. Now, what will be the taxable portion of interest? Will it be
1. Interest received (-) Interest paid or
2. Entire amount of interest received?[Dr. Jacob Sakariah-jacobsakariah@hotmail.com]
Opinion:
Net amount of Interest (i.e., Interest received Less Interest paid) will be taxable.

Query 3]
We are the Central Government Employee. We wants yours advise on Following points .
In Financial year 2009-10, we have availed Tax Rebate u/s. 89. Afterward, Income Tax Department had asked for explanation from our Disbursing officer. Our Disbursing officer deducted and deposited the amount in bank without our consent. Now our query is that how we can get back our deducted amount? What is the proper channel for the same? Please advise us. [J N V kanhiwada, Seoni -sarafaraj_hcet@rediffmail.com]
Opinion:
It appears that the amount of tax pertaining to the F.Y. 2009-10 has been recovered from your salary & the amount so deducted has been paid by the Disbursing Officer to the Government Treasury by way of TDS. The Disbursing Officer must have also filed the revised TDS return showing the revised TDS amount. You may ask the Disbursing Officer to issue the fresh Form No. 16 with above total TDS Amount (i.e., showing earlier as well as current deduction). With the Revised Form No. 16 so received & working of deduction u/s 89, you may file the revised return claiming the refund of excess TDS. The process of getting refund may be cumbersome, & time consuming. But you can get the refund of the excess amount of Income Tax paid on your income for the relevant year.

Friday, September 16, 2011

TAX TALK-19.09.2011-THE HITAVADA

TAX TALK-19.09.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“IS IT MANDATORY TO FILE THE ITR WITH DIGITAL SIGNATURE NOW?”
Query 1]
I have a query. Kindly provide me your opinion. I had purchased a property from a builder. I had made part/full payment to the builder. But due to some reasons I did not register the property. Now I wish to sell the property. The purchaser would make me the payment and the builder would come for the registration to register the property directly in favor of new buyer. I want to know whether the profit arising from the transaction would be considered as Capital Gain or as Income from Other Source? Kindly elaborate with section under the Income Tax Act. [Rahul Agarwal- keepwalkingalways@ gmail.com]
Opinion:
It appears that you have purchased the flat and the possession of the flat was handed over to you by the builder. Due to some technical or procedural lapses, the sale deed appears to have not been executed in your favor. Since the property is not recorded in your name, sale deed could not be executed by you and the same has to be done by the original owner i.e., the builder. If it is so, the income arising to you out of the above transactions would be taxable as “Income from Capital Gain” as you are transferring the RIGHTS in the capital assets in favor of the buyers even though the sale deed is executed directly by the builder. It may further be noted that “Extinguishment of any rights in the capital assets” is chargeable to tax as “Capital gain” income u/s 45 read with section 2(47)(ii) & 2(14).

Query 2]
Is it mandatory for audit assessees to file A.Y. 2011-12 ITR with digital signature? Kindly advice. [U.C Sahu-uttamindustries@sify.com]
Opinion:
By virtue of Notification No. 37/2011 dated 01.07.2011, a firm or an Individual or HUF who are required to get the books of accounts audited under section 44AB (i.e., Assessee covered by audit) are compulsorily required to file e-return with Digital Signature only.

Query 3]
Please guide on the following. We had taken a housing loan of Rs. 18 Lacs in 2004 in which I am the co-applicant & also the co-owner of the flat. Since then my husband has been claiming the tax deduction u/s 80C & 24B as my income was below the basic tax exemption limit. From the F.Y. 2011-12, my tax slab has increased to 30%. Can I claim the balance Principal & Interest, that remains after my husband's deductions, for deduction from my gross income this FY onwards? [Rachana Dixit - reaadixit@gmail.com]
Opinion:
In case of the Joint ownership, deduction u/s 24(b) towards Interest on borrowed capital & U/s 80C toward the principal repayment of the housing loan is available in the ratio of share of the concerned Joint-owner in the loan availed. Tax payer (i.e., Co-borrower cum co-owner) inter-se cannot decide the ratio for deduction u/s 80C & 24(b).

Query 4]
I purchased one ready-built house from a builder at a cost of Rs 20.50 Lacs & the property was registered on 28th Feb 2010. I also paid the builder Rs. 2.50 Lacs for external development, electrification, gas connection and maintenance expenditure for 5 years. The stamp duty for the registration was approximately Rs. 1.10 Lacs.
But in the month of February 2011, due to some unavoidable reason, the builder has taken back the house from me on 30th April 2011 with an agreement. He has paid me Rs. 26.50 Lacs. During the period, I have paid Rs. 2.50 Lacs to bank as interest for the home loan. An agreement was signed between the builder and me on 25th March 2011 for the buy back/returns of the house.
Now my queries are:
1. Will this transaction be treated as a Sell of Property?
2. Do I need to pay Tax for the money I received? Will the money gain by me be treated as short term gain?
3. If I need to pay tax, how much I need?
4. If I invest again, will it be required to pay the tax? How much time I will get to re-invest the money so that no tax will come?I would be grateful to you if you kindly reply to my above queries.[BidhanChandra Bag- b_bag@rediffmail.com]
Opinion:
It’s a rare transaction that may occur in exceptional circumstances. The opinion will vary depending upon the facts & circumstance of each & every individual case & the view presented below are based on certain set of presumptions & assumptions and need not be applied in Generality:
1. If you are executing the Sale Deed back in favor of the builder & if there is nothing to prove anything otherwise, the transaction of this type in normal course would be considered as sale of property. If however, you are executing the Cancellation Deed due to lacunas on the part of the builder, the implication would be different depending upon the words, languages & drafting used in the Cancellation Deed.
2. If sale, the surplus arising on sale of flat would be taxable as income. As the holding period of capital assets (i.e., flat) is not exceeding 36 months, the surplus would be treated as short term capital gain only.
3. Short term capital gain is treated like any other income and would be taxable accordingly on the basis of regular slab of your income.
4. As the income arising is a short term capital gain, the benefit of exemption for reinvestment u/s 54 would not be available. Similarly, no exemption would be admissible u/s 54EC for investment in NHAI/REC Bonds.



--

Regards,
CA Naresh Jakhotia
Partner - M/s. SSRPN & Co.
10, Laxmi Vyankatesh Apartment
Telephone Exchange Square
Central Avenue Road
Nagpur-440008.
Phone Nos: (0712)2735479, 6549611
Cell No. : 094228-60300

Sunday, September 11, 2011

TAX TALK-12.09.2011-THE HITAVADA

TAX TALK-12.09.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“MCX PROFIT- WHETHER SPECULATIVE?”
Query 1]
Sir, what is the right procedure to compute Income Tax on MCX transactions (Profit or Loss)? Is it a speculative profit or loss? Income of a salaried Senior Citizen from Salary and all other sources is Rs. 2 Lacs. His profit from MCX transactions of Silver is Rs. 75,000/- & from Sugar is Rs. 25,000/-. What will be his tax liability? [srf.fatnani@yahoo.co.in]
Opinion:
1. The Central Government has notified NSE, BSE, MCX stock exchanges & United Stock Exchange of India Ltd as a recognized stock exchange for the purpose of section 43(5) as a result, the profit/loss in MCX is not considered as a speculative profit/loss. The expenses incurred like brokerage, transaction charges are deductible expenses while working out the profit/ loss from the transactions.
2. The total income of the senior citizen mentioned in the query is of Rs. 3 Lacs. It is presumed that the income pertains to the F.Y. 2010-11 & there is no amount admissible for deduction under chapter VIA (LIC, PPF, etc). With this presumption, the total tax liability would be Rs. 6,180/- after considering the basic exemption limit of Rs. 2.40 Lacs & education cess @3%.
Query 2]
I have a salary income and I have filed my salary income return for the F.Y. 2010-11 on dated 29/07/2011. I have shown salary income only & I had failed to show capital gain income in the F.Y. 2010-11. Now I intend to show the capital gain income also. My question is can I file revise return showing both incomes? [rahulkr9970@gmail.com]
Opinion:
The original return (29.07.2011) is filed by you before the due date of filing the return of income (i.e., 31.07.2011). You have an option to file the revised return u/s 139(5) of the Income Tax Act - 1961. Revised return can be filed before the expiry of one year from the end of the relevant assessment year (i.e., before 31.03.2013) or before the completion of assessment whichever is earlier. You are advised to rectify the mistake by filing the revised return at the earliest.

Query 3]
Sir, I am a Central Government Servant. So far, I was availing the benefit of my yearly LIC premium of about Rs. 58,500/-, towards a LIC policy having sum assured of Rs. 10 Lacs. Will I be able to get the same benefit after Direct Tax Code is implemented after 1.4.2012, at least partially? How do I plan my tax savings; since currently my savings are the above LIC premium, PF and VPF only.
[arindam.lai@rediffmail.com]
Opinion:
Under the proposed new Direct Tax Code also, the deduction towards LIC premium is admissible. Originally in the DTC, the EEE system ( Exempt Exempt Exempt) was proposed to be replaced entirely by EET system ( Exempt Exempt Tax) of taxation. However, Revised Discussion Paper on DTC released by CBDT in June-2010 has reiterated the EEE ( Exempt Exempt Exempt) system of taxation for approved Life Insurance Products in the DTC regime. However, the final law of DTC, the date of Applicability, etc has not yet been confirmed. We will try to cover the implications of DTC in due course of time.

Query 4]
I am a very senior citizen (Age-93 years) with annual income less than INR 5,00,000/- from Government Pension + Savings Interest + FD Interest from S B I. Since the income-tax on income up to INR 500000 is NIL, would I need to file ITR for F.Y. 2011 - 12 (A.Y. -2012-13)? I have no other sources of income except as stated above. Kindly advice. [jrwitthal@gmail.com]
Opinion:
You would not be required to file the return of income for the F.Y. 2012-13 as the basic exemption limit in the case of very senior citizen (80 years & above) is Rs. 5 Lacs.

Friday, September 9, 2011

TAX TALK-05.09.2011-THE HITAVADA

TAX TALK-05.09.2011-THE HITAVADA
TAX TALK BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“IS IT COMPULSORY TO QUOTE DOCUMENT IDENTIFICATION NUMBER?”
Query 1]
Sir, Kindly clarify the following points in the Tax Column of “The Hitavada”
1. Is it compulsory to mention ‘Document Identification Number’ (DIN) in the Income Tax return for Assessment Year 2011-2012? Kindly enlighten me about the procedure for getting DIN?
2. On Reorganization of share capital, company allots new shares in definite proportion to the old shares and for fractional shares, company sends cheque/draft in lieu of the same. How this amount of fractional share is treated in Income Tax. Can we assume that the Security Transaction Tax is deducted for claiming exemption under L.T.C gain?
3. On transfer of equity shares through Stock Exchange, is it not compulsory to deduct Security Transaction Tax in all the shares traded through Stock Exchange.
4. Regarding Interest on cumulative term deposit with banks, referring C.B.D.T circular, you have suggested for accounting the interest on accrual basis, though the accounting system is followed on receipt basis. Is it compulsory to account the interest on accrual basis?
5. In the new Direct tax code effective from April 2012, I understand that exemption of L.T.C Gain on share is taken away. Kindly confirm. Your esteemed reply may be given in one or more issues of Monday ‘Hitavada’. [R.Krishnan, 122, Shivaji Nagar,Nagpur]
Opinion:
1. There is no need to mention Document Identification Number (DIN) on the Income Tax Return. Originally, the Provision related to the Document Identification Number (DIN) was made applicable from 01.10.2009. Subsequently, its applicability was extended w.e.f. 01.07.2011. Lateron, considering the practical difficulties due to non availability of requisite infrastructure on an all India basis, the provision has been omitted by the Finance Act-2011 w.e.f 01.04.2011.
2. Amount of Fractional Shares Received:
(a) The difference between the cost of acquisition (Indexed cost be taken if shares are held for a period of more than 12 months) & the amount received, as related to fractional shares, would be taxable as LTCG u/s 112 @ 20%. The difference between the cost of acquisition & the amount received, related to fractional shares, would be taxable as Short Term Capital Gain if the shares are held for a period of not more than 12 Months & it will be treated as your regular income for tax purpose.
(b) If, however, the transactions pertains to listed shares & held by you for a period of more than 12 months, the difference between the cost of acquisition (without indexation) & the amount received, as related to fractional shares, could be offered for taxation @ 10% if it is less than the amount computed in (a) above.
It cannot be presumed that Securities Transaction Tax (STT) is deducted at the time of payment of the amount of the Fractional Shares. Also, there is no liability on the payment by the company in such cases.
3. Whenever the transaction (purchase or sell) is done through recognized stock exchange, the incidence of Securities Transaction Tax arises. It is attracted at the time of purchase & at the time of sale also.
4. CBDT circular suggests following mercantile system specifically in respect of recognizing Interest on Term Deposits with Banks. However, CBDT circular is not binding on the Assessee.
5. The LTCG on shares is proposed to be taxed in the new Direct Tax Code. However, the final law of DTC, the date of Applicability, etc has not yet been released. We will try to cover the implications of DTC in due course of time.
Query 2]
Sir, I had constructed a house in 1991 at Gandhidham (Kutch) Gujarat and sold in May, 2010 for Rs. 23.00 Lacs. I have also booked a Flat at Ahmedabad for Rs. 25.50 Lacs in March, 2010. A payment of Rs. 17.50 Lacs has already been made to Builder and the balance amount will be paid at the time of possession which is due in March, 2012. The sale agreement has already been executed on 15.06.2010. My queries are:
1. The payment of the Flat under construction has been made by me from the sale proceeds of the house but the sale agreement is jointly in the name of me and my son. Whether LTCG exemption can be availed even if the Flat is in the joint name or it should be in my name only?
2. I want to transfer the Flat in favor of my son’s HUF at no cost. If this can be done, what is the procedure & Income Tax implication for both of us, if any. Further, if stamp duty is payable for such a transfer and if so by whom and at what rate? [A.T. Tulsiani]
Opinion:
1. Exemption u/s 54 would be admissible even in respect of flat purchase in the joint name. Ensure that your share & investment in the house property is more than the Long Term Capital Gain (LTCG) arising on transfer of the old Gandhidham House. The name of your son can be included in the new flat purchase for the convenience.
2. If the house property in respect of which exemption u/s 54 is claimed is transferred within a period of 3 years of its acquisition, the amount of exemption given earlier would be taken back. So, if you transfer the newly acquired flat within a period of 3 years to anybody, the exemption allowed earlier would be taken back.
3. It may be noted that the exemption u/s 54 against long term capital gain is admissible if the LTCG is invested for purchase of a residential house property within 2 years from the date of LTCG. Ensure the compliance with the time frame for valid exemption.

Monday, August 22, 2011

TAX TALK-15.08.2011-THE HITAVADA

TAX TALK-15.08.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“INCOME TAX ON ACQUISITION OF AGRICULTURAL LAND”
Query 1]
I had bought an agriculture land (6 acres) for Rs. 15,000/- in 1987-88 situated in Rural area, 35 kms from Nagpur. Now govt. wants the land for industrial development. It offered Rs. 13 Lacs per acre. I am in Government Service with annual salary of Rs. 6.50 Lacs & in tax bracket of 30%. I don’t have any other income. My queries are
1. Whether LTCG is applicable for project affected land?
2. If yes, what are the tax implications there on?
3. What are the remedies to minimize the taxes?
4. My uncle posses 5 acre land at same place as ancestral property. Will he be also required to pay LTCG tax? [bondre_vira@yahoo.in]
Opinion:
Rural Agricultural Land is not a capital assets & income arising from transfer of agricultural land is not at all chargeable to tax as Income from capital gain. Agricultural Land is considered as Rural Agricultural Land if it is not situated:
(a) in any area which is comprised within the jurisdiction of a municipality (Whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or
(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in items (a), as the central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Official Gazette. For Nagpur, the area is notified as 8 Kms.
In short, Profit arising on sale of Rural Agricultural land used for agricultural activity situated 8 Kms beyond the municipal limit or a cantonment board with a population of less than 10,000 would be tax free.
As far as Urban Agricultural Land is concerned, it may be noted that in the case of an Individual/HUF, Capital gain arising on transfer by way of compulsory acquisition of urban agriculture land is exempt from income tax if such compensation is received after 31.03.2004 and the agriculture land was used by the assessee or by any of his parents for agricultural purpose during the 2 years immediately prior to transfer.
The provision would remain the same even on transfer of ancestral agricultural land.

Query 2]
1. Will the deposits made in the Post Office under senior citizen's deposits scheme is eligible for the benefit of deduction under Sec 80 C of the income tax ?
2. Will a senior citizen who will become above 80 years of age during the financial year 2011-2012 having income from only pension and interest from deposits totaling less than Rs. 5,00,000/- during the financial year have to file the return for the Assessment year 2011-12 or 2012-13?
3. Will the premium on life insurance of sons/daughters (polices taken when they were dependents) qualify for deduction under Sec 80C even after they are no longer dependents? Will this apply to the subscriptions made under Public Provident Funds also? [cvkrishnan_2001@yahoo.com]

Opinion:
1. Investment in an account under the senior citizens Savings Scheme Rules-2004 & Five year time deposits in an account under the post office Time Deposits Rules-1981 is eligible for deduction u/s 80C.
2. 2. For the A.Y. 2012-13, the very senior citizen who have attained the age of 80 Years at any time during the year would not be required to file the return of income if his/her total income doesn’t exceed Rs. 5 Lacs. (For the A.Y. 2011-12, there is no such category of very senior citizen. They would be required to file the return of income if it exceeds Rs. 2.50 Lacs).
3. An individual is eligible for deduction U/s 80C towards the LIC premium payment of the policies in the name of son/ Daughter. The deduction is admissible irrespective of the fact that the son/ daughter are no longer dependant on the parents. The deduction is admissible even in respect of the deposit in the PPF A/c of the Son/Daughter.

Query 3]
Can you please enlighten me whether all the educational institutions are compulsorily required to get themselves registered U/s 12AA of the Income Tax Act, 1961 to avail exemption from tax U/s 10 (23C)(iiiab) and 23C(iiiad)? [jyoti_ag@sify.com]
Opinion:
An educational institution established for the purpose of education & eligible for deduction u/s U/s 10 (23C)(iiiab) / 10 (23C) (iiiad) are not compulsorily required to get the registration u/s 12AA for exemption of income for which they are otherwise eligible under the said section.

Sunday, August 21, 2011

TAX TALK-22.08.2011-THE HITAVADA

TAX TALK-22.08.2011-THE HITAVADA
TAX TALK BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“NO LOAN SHOULD BE TAKEN AGAINST LTCG BONDS”
Query 1]
a] Sir, I have paid the insurance premium of the policy taken out by my mother as proposer for me. Similarly, I have also paid the premium of my younger brother. The premiums were paid by me by cheques only & my bank passbook reflects both the above payments. The LIC Premium receipts are, however, issued in their name (Mother & Brother). I want to know whether I will be able to get income tax deductions towards these payments. Similarly, if I make the LIC Premium payment of my father in the F.Y. 2011-12, whether I will be eligible for income tax deduction? Please elaborate.
b] I have read in the earlier issues regarding the investment in the REC/ NHAI Bonds for saving Long Term Capital Gain Tax. Accordingly, I have invested in the bonds issued by NHAI, 1 ½ years back. I am in need of some amount for purchase of one agricultural Land. The bank is not willing to give the loan for purchase of that agricultural land but has agreed to give the loan against the pledge of the NHAI Bonds. One of my Relative who is also legal consultant has advised me to avail the loan against the pledge of these bonds. I remember of having read the caution given in the Tax Talk against loan on the security of the NHAI Bonds. I shall be thankful if you can guide. Whether I can take the loan against the pledge of these bonds? Is there any restriction/ barrier under the Income Tax Law against such transactions? Please elaborate & advise. I shall be very much thankful if you can kindly re-produce the relevant part of the Income Tax Act. [Kailash A. Agrawal]
Opinion:
1. You will be eligible for deduction u/s 80C of the Income Tax Act- 1961 on the LIC Premium paid by you in respect of the policy taken in your name even though the proposer of the policy is your mother and the receipt is in her name.
2. In the case of Individual Assessee, deduction u/s 80C towards Life Insurance premium is available towards the premium payment of the following:
a] Self
b] Spouse
c] Any child of such Individual.
3. You will not be eligible for deduction in respect of the Life Insurance Premium payment done by you in respect of the policy standing in the name of your Brother & Father.
4. A perfect recall. If one has claimed an exemption from LTCG by investing in the specified bonds issued by REC/NHAI then no loan should be taken against the security of such bonds, else the exemption granted earlier would be withdrawn. For the benefit of our all our readers, the relevant part of section 54EC (2) as well as Explanations thereto is reproduced hereunder:
“(2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head Capital gains relating to long-term capital asset of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money.
Explanation: In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken”

Saturday, August 13, 2011

TAX TALK-15.08.2011-THE HITAVADA


TAX TALK-15.08.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“INCOME TAX ON ACQUISITION OF AGRICULTURAL LAND”
Query 1]I had bought an agriculture land (6 acres) for Rs. 15,000/- in 1987-88 situated in Rural area, 35 kms from Nagpur. Now govt. wants the land for industrial development. It offered Rs. 13 Lacs per acre. I am in Government Service with annual salary of Rs. 6.50 Lacs & in tax bracket of 30%. I don’t have any other income. My queries are
1. Whether LTCG is applicable for project affected land?
2. If yes, what are the tax implications there on?
3. What are the remedies to minimize the taxes?
4. My uncle posses 5 acre land at same place as ancestral property. Will he be also required to pay LTCG tax? [bondre_vira@yahoo.in]
Opinion:
Rural Agricultural Land is not a capital assets & income arising from transfer of agricultural land is not at all chargeable to tax as Income from capital gain. Agricultural Land is considered as Rural Agricultural Land if it is not situated: (a) in any area which is comprised within the jurisdiction of a municipality (Whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in items (a), as the central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Official Gazette. For Nagpur, the area is notified as 8 Kms.In short, Profit arising on sale of Rural Agricultural land used for agricultural activity situated 8 Kms beyond the municipal limit or a cantonment board with a population of less than 10,000 would be tax free.
As far as Urban Agricultural Land is concerned, it may be noted that in the case of an Individual/HUF, Capital gain arising on transfer by way of compulsory acquisition of urban agriculture land is exempt from income tax if such compensation is received after 31.03.2004 and the agriculture land was used by the assessee or by any of his parents for agricultural purpose during the 2 years immediately prior to transfer.
The provision would remain the same even on transfer of ancestral agricultural land.

Query 2]
1. Will the deposits made in the Post Office under senior citizen's deposits scheme is eligible for the benefit of deduction under Sec 80 C of the income tax ?
2. Will a senior citizen who will become above 80 years of age during the financial year 2011-2012 having income from only pension and interest from deposits totaling less than Rs. 5,00,000/- during the financial year have to file the return for the Assessment year 2011-12 or 2012-13?
3. Will the premium on life insurance of sons/daughters (polices taken when they were dependents) qualify for deduction under Sec 80C even after they are no longer dependents? Will this apply to the subscriptions made under Public Provident Funds also? [cvkrishnan_2001@yahoo.com]
Opinion:
1. Investment in an account under the senior citizens Savings Scheme Rules-2004 & Five year time deposits in an account under the post office Time Deposits Rules-1981 is eligible for deduction u/s 80C.
2. For the A.Y. 2012-13, the very senior citizen who have attained the age of 80 Years at any time during the year would not be required to file the return of income if his/her total income doesn’t exceed Rs. 5 Lacs. (For the A.Y. 2011-12, there is no such category of very senior citizen. They would be required to file the return of income if it exceeds Rs. 2.50 Lacs).
3. An individual is eligible for deduction U/s 80C towards the LIC premium payment of the policies in the name of son/ Daughter. The deduction is admissible irrespective of the fact that the son/ daughter are no longer dependant on the parents. The deduction is admissible even in respect of the deposit in the PPF A/c of the Son/Daughter.

Query 3]
Can you please enlighten me whether all the educational institutions are compulsorily required to get themselves registered U/s 12AA of the Income Tax Act, 1961 to avail exemption from tax U/s 10 (23C)(iiiab) and 23C(iiiad)? [jyoti_ag@sify.com]
Opinion:
An educational institution established for the purpose of education & eligible for deduction u/s U/s 10 (23C)(iiiab) / 10 (23C) (iiiad) are not compulsorily required to get the registration u/s 12AA for exemption of income for which they are otherwise eligible under the said section.