Monday, July 25, 2011


(Chartered Accountant)
1. Whether there is income tax deduction on donation given to charitable trust ? If yes, whether entire amount given is eligible for deduction? Whether donation done to temple by way of receipt will also be eligible for deduction? Is there any restriction on the amount of donation?
2. I am a salaried employee & not receiving any HRA from my employer. The person who receives HRA is eligible for income tax benefit. I am living in a rented premise in Nagpur. I have read in the earlier issues about the availability of deduction towards rent for persons who stays in a rented premise and not in receipt of HRA. I shall be thankful if you can explain about the availability of income tax benefit on rent payment.
3. By what date, I will be required to file the income tax return? Is there any exemption on the Interest from Bank FDR & S.B. A/c.?
4. My son has earned Rs. 32,000/- in the last F.Y. 2010-11 from the Magic show. Whether his income is compulsorily required to be clubbed with my Income? Is there any exemption or exception? If clubbing is compulsory, can it be clubbed with the income of his mother, as her income even after clubbing would be below the basic exemption limit?
5. What is the cost inflation index for the financial year 2011-12 for computing the capital gain tax liability? [SLP]

1. INCOME TAX BENEFIT ON DONATIONS:Section 80G provides for a deduction in respect of donations to certain funds, charitable institutions etc subject to the conditions that such funds/ institutions are approved u/s 80G(5)(vi) of the I.T. Act, 1961. The deduction admissible is 100% or 50% of the donation amount depending upon the fund/ institutions to whom the donation is done. The total deduction u/s 80G is restricted to a maximum of 10% of the adjusted gross total income.
2. INCOME TAX DEDUCTION ON RENT PAYMENT::An individual who is not in receipt of HRA from the employer is entitled to the benefit of deduction of rent from its income u/s. 80GG of the Income Tax Act. The conditions precedents to claiming deduction under this section are: 1) He has to file the declaration in Form No. 10BA. 2) He or his minor child , spouse or HUF of which he is a member , should not be owner of a house at the place where he ordinarily resides or performs his duties ; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) ( i.e. income from self-occupied house property )Amount of deduction – The deduction admissible shall be the lower of the following :-
(i) house rent incurred in excess of 10% of “total income”; or
(ii) Amount at 25% of “total income”; or
(iii) Rs. 2000 per month.The term “Total income” means total income after allowing all deductions expect the one provided under this section itself.

DUE DATE OF FILING INCOME TAX RETURNThe due date of filing the income tax return for salaried Assessee is 31st July. There is no exemption on interest arising out of Bank FDR & S.B. A/c.
CLUBBING OF MINOR’S INCOMEThe income of Minor’s is required to be clubbed with the income of the parent by virtue of provision of section 64(1A) of the I.T. Act, 1961. It is required to be clubbed in the hands of that parent whose income is greater. Once the income is clubbed in the hands of any of the parents as mentioned above, it will continue to be clubbed in the income of that parent irrespective of the change in the income ratio thereafter. After clubbing, the income is eligible for exemption up to Rs.1,500/- U/s 10(32). However, certain exceptions are provided. The clubbing provision is not applicable in case the income is derived by the minor from manual work or from any activity involving his skill, talent or specialized knowledge or experience.
COST INFLATIN INDEX FOR THE FY 2011-12 The Cost Inflation Index for Financial year 2010-11 has been notified by CBDT vide as “785”

Saturday, July 16, 2011


(Chartered Accountant)
“Salaried Taxpayers with total Income up to Rs. 5 Lacs are exempted from filing Income Tax Return for Assessment Year 2011-12”
Query 1]
I had retired from Central Govt. (Age 62 Years) and getting pension. My total income with pension and interest from Saving account in Bank/ CTZ A.C of Post Office is Rs. 5 Lacs p.a. Kindly confirm the following through mail and oblige me:
1. Whether I have to submit the I.T Return for FY 2010-11 (Ass. year 2011-12.)?
2. If so, Form 16 will be required to submit with return and who will provide /Issue me the Form 16 to enclose with Return. (I am receiving pension from PAO-GSI, Nagpur)
3. I have some FD in Banks and interest with maturity on FD is payable after April-2012. Whether I have to show these interests in FY 2010-11?
Query 2] My gross total income is Rs. 2, 81,760/- from 01st Apr-10 to 31st Mar-11 as per F-16. Total deduction in respect of saving is Rs. 25,135/-. I have already paid tax of Rs. 6,606/-. In the recent past, it was published in newspaper that assessee whose income is up to Rs. 5, 00. 000/- need not submit income tax return. I would like to know from you, in my case, I have to submit the return or not? Further I would like to know if any one takes home loan and in that case he/she has to submit the return though yearly income is upto Rs. 5,00,000/-? []

1. The Central Board of Direct Taxes has notified the scheme exempting salaried taxpayers with total income up to Rs.5 Lacs from filing income tax return for the assessment year 2011-12 vide Notification No. 36/2011. Individuals having total income up to Rs.5,00,000/- for FY 2010-11, after allowable deductions, consisting of salary from a single employer and interest income from deposits in a saving bank account up to Rs.10,000 are not required to file their income tax return.
2. We are producing hereunder the key elements of the circular for the mass benefit of our readers as under:
a. This exemption is available to Individual assessee only & is available for Assessment year 2011-12.
b. Total Income (after deduction 80C to 80U) of Individual must be up to 5,00,000/- only.
c. Income must be earned from Salary and/or Saving Bank Interest up to Rs 10000/-. (It may be noted that Pension is also covered under salary head).
d. Individual must have reported his PAN to his employer.
e. Assessee has earned salary only from one employer during the year.
f. Assessee has reported his income from saving Bank Interest to his employer for TDS purposes.
g. Employer has deducted the tax on his Full income, salary plus interest (if any), and TDS has been deposited in Government Treasury by the employer.
h. No refund is due to Assessee.
i. Individual has received Form No. 16 from the employer, which mentions PAN, Income detail and Tax deducted and deposit detail.If all the above conditions are satisfied then one can get immunity from filing Income tax return for the financial year 2010-11.
3. Subject to basic stipulation mentions above, it may be noted that the following classes of Assessee would be required to file the return of income & no immunity from filing income tax return would be available:
a. If his total income includes any one of following Incomes - Income from House property [Including minus Income from interest on House Loan].- Income from Business/profession- Income from capital gain- Income from Interest other than Interest from saving bank up to Rs. 10,000/- (If assessee have Interest from FDR then he can not claim exemption from return filing)- Any other Income under "Income from other source"
b. If Assessee has not reported his Saving Bank interest income to his employer for tax deduction purpose.
c. If Assessee has discharged his tax liability through advance tax or self assessment challan.
d. If Assessee has received salary from more than one employers during the year.
e. If assessment year is other than 2011-12.

4. The circular exempting return filing with income up to Rs. 5 Lacs though good & pleasing is not of much benefit to the Assessees at large. Most of Salaried persons may not be able to avail this exemption this year because of the following: a]. Very few employees declared saving Bank interest to their employer. Even few employers are also reluctant to consider other income of assessee for TDS deduction .As a result of this, even though most of the salaried persons who are having total Income below Rs. 5 Lacs can not avail this exemption. Had this circular been issued in Feb-March 2011, the position may have been different. b] Interest Limit has been fixed up to 10,000/- only. Further that is also restricted to saving bank interest only .Person having salaried income up to Rs. 5,00,000/- may have FDR Interest or other Interest income . Even assessee having FDR interest plus saving interest less than Rs. 10,000/- can not avail this Exemption.Specific Replies to Query No. 1]1. For record purpose, you are advised to keep the Form No. 16 with you. You can get it from PAO-GSI.2. As far as interest on bank FD is concerned:a] The interest to be offered for taxation depends upon the method of accounting regularly followed by the assessee in recognizing the income. If Assessee is following cash (Receipt) system of accounting then the interest income has to be offered at the end of FD Tenure. If Assessee is following mercantile (Accrual) system of accounting then interest income is required to be offered for taxation every year as income of that year only.b] In view of the Circular No. 371 dated 21.11.1983 issued by the Central Board of Direct Taxes (CBDT), we advise our readers to offer the interest on Bank FDR on accrual (due) basis only.

Monday, July 11, 2011


(Chartered Accountant)
Query 1]
I have some queries regarding sec 80C and 24. Please help me:
1. I have taken HBA of Rs. 4 Lacs from bank 8 years back which is going to be over by this year ending for house located in Gramin / Rural Nagpur. I am claiming principal & Interest benefit for this loan. Recently I have purchased a flat in city area with HBA of Rs. 10 Lacs from another bank for 10 years period. I am staying in the flat & given old house on rent for Rs. 2,000/-. Please let me know, now how I can get maximum benefits of both HBA loan under section 80C and u/s 24 for interest and principle?
2. My father-in-law has made a gift deed in favor of my wife (before marriage) for old house located at our native place. She is getting rent of Rs. 3,000/- per month from that. She is housewife. Since the gift deed is made before marriage, whether this rent is to be clubbed with my income or she should file IT return showing the rent received? Also since the total income is less than the exemption limit for women she has to file return? Please clarify. []
1. You will be letting out the first house property owned by you. You will be using the second house property for your own residence. The tax treatment shall be as under:a] The rent of the first property will be includible in your income. The income from it shall be taxable on the basis of its “Annual Value”.Annual value of property is considered as higher of the following:(i) actual rent received a year; (ii) municipal value; (iii) fair rent of the property.You can get the deduction u/s 24(b) towards the interest paid. You can further get the deduction u/s 80C towards the principal portion of the house property also.b) In respect of second house property, it shall be treated as the self occupied house property. You can get the interest deduction u/s 24(b) towards this self occupied house property. Whether deduction u/s 80C shall be admissible or not in respect of second house property loan repayment question with no legal clarity. We are of the considered opinion that the principal repayment of the second house property loan would also be eligible for deduction u/s 80C.
2. The Rental income in respect of the house property gifted to your wife by her Father will not be includible in your income. The said income will be assessable in her hands only. If her Gross Total Income (i.e., income before deduction u/s 80C towards LIC, PPF etc) is below the basic exemption limit, it would not be mandatory for her file the return of income.
Query 2]
I had a house property in the name of my wife. I had purchased it in April-2007. I have sold it in Baroda @ Rs. 40 Lacs & registered the documents also got executed in May-2011. I am planning to buy a property in the name of my wife here in Nagpur @ Rs. 33 Lacs in which the owner wants Rs. 18 Lacs in cash & Rs. 15 Lacs in cheque. The documents here will be executed for Rs. 15 Lacs only. How much CGT (Capital Gain Tax), I will have to pay? Whether it can be levied or reduced to as low as possible or zero? []
1. In the absence of details like cost of acquisition of the property purchased by you or your wife in the year 2007 & other relevant details, exact amount of Long Term Capital Gain (LTCG) could not be worked out. Long term capital gain is taxable @ 20% u/s 112 of the Income Tax Act-1961.
2. LTCG tax can be saved by investing the amount of Long term Capital Gain for purchase of another house property within a period of 2 years (for construction- 3 years period is permissible) from the date of transfer of the house. The main stipulations u/s 54 for claiming exemption from long term capital gain tax are as under: -a) The capital gain should arise from the transfer of long-term capital assets being buildings or lands appurtenant thereto, being a residential house.b) The transferor must be an individual or the Hindu Undivided Family.c) The transferor must purchase a residential house within a period of one year before or two years after the date of transfer; or, in the alternative, the assessee must constructed a residential house within a period of three years from the date of the transfer of the original house.d) The amount invested in the purchase or construction of new residential house should either be equal to or more than the gain, or where it is less than the amount of capital gain, the shortfall would be taxable as LTCG.
3. We cannot make comment on the cash part Rs. 18 Lacs to be paid by you to the builder. The only thing which every one knows & are aware of that the generation and circulation of black money causes great losses to the country's treasurer.
Query 3]
I want to know regarding Long Term Capital Gain on Sale of flat. I have purchased one flat. The date of agreement is 01-06-2008. Please note that I have given the complete amount to the builder before 01-06-2008. Builder took three years to complete the construction work. The flat is ready and builder has given possession of flat today i.e. 30-06-2011. The sale deed of flat will be in the month of August, 2011. My purchase cost is Rs 30 Lacs. My question is when I will get benefit of Long Term Capital Gain if I sale the above said flat. Whether I will have to deposit Income Tax or I will be able to take the benefit of Long Term Capital Gain in the situation as hereunder:
a. If I sale the flat tomorrow itself.
b. If I sale the flat after Sale deed.
c. If I sale the flat three years after possession i.e. after 30-06-2014.
d. If I sale the flat three years after sale deed i.e. after August, 2014.
You are requested to please guide. []
For computing the LTCG, the date of purchase plays a vital & crucial role & not date of payment. It may be noted that the date of payment for purchase of property is not synonymous with the date of purchase/ acquisition of house property. In normal course, the date of executing the sale deed or the date of taking the possession of the house property is to be taken as the date of purchase/ acquisition.
With above basic propositions, in situations mentioned in (a) & (b) above, the surplus would be treated as short term capital gain only & no benefit otherwise available in case of LTCG would be admissible. In case of (c), technically the amount of would be long term capital gain. However, you would be required to substantiate & prove the date of possession of the property. The best undisputable option for income to be categorized as LTCG would be (d) i.e., to sale the flat after August-2014.

Saturday, July 2, 2011


(Chartered Accountant)
Query 1]
I have few doubts & request you to please clear it through Tax Talk column in the Hitavada:
1. Since I haven’t shown Interest (on accrual basis) from FD & Company Bonds earlier, Can I show the interests from FD, Company Bonds on receipt basis in my IT return i.e. on completion of tenure on maturity? Whether this is correct or not?
2. Will there be any fine if I show interest on receipt basis instead of accrual basis?
3. Also I would like to know since few company bonds are in my minor child's name (having separate PAN no.). At the time of maturity, the exemption on interest received will be only Rs. 1,500/- or Rs.7,500/- (for 5 years on receipt basis). []
The interest to be offered for taxation depends upon the method of accounting regularly followed by the assessee in recognizing the income.If Assessee is following cash (Receipt) system of accounting then the interest income has to be offered at the end of FD Tenure. If Assessee is following mercantile (Accrual) system of accounting then interest income is required to be offered for taxation every year as income of that year only.
In view of the Circular No. 371 dated 21.11.1983 issued by the Central Board of Direct Taxes (CBDT), we advise the readers to offer the interest on Bank FDR on accrual (due) basis only.
In your case, it appears that you haven’t offered the interest income for taxation every year on mercantile basis. You are advised to offer the income for taxation on cash (i.e., Receipt) basis at the time of Maturity or on completion of tenure.
As far as the Minor’s income is concerned, the exemption shall be restricted to Rs. 1,500/- only & not Rs. 7,500/- depending upon the number of years to which the said income pertains.

Query 2]
Kindly refer to the Tax Talk dated 20th June 2011, which is very informative. Thanks for the same. Please throw more light on the following.
1. Whether exemption is available u/s 54 or54F of the Income Tax Act 1961 for capital gain arising from a typical development agreement by a plot owner in which the plot owner hands over the plot to a developer and in return obtains consideration in the form of cash/cheque and/or flat or flats.
2. Our clients insist that exemption u/s 54 is available and put forth the argument that majority of CAs and IT Practioners are allowing exemption U/s 54 as it is beneficial to the assessee.
3. Since the plot owner in effect is transferring the undivided share in the land to the buyers of flats built by the developer, What is transferred by the land owner is right in land and he is not transferring a residential house property. In my view Section 54 is not applicable, only Section 54F is applicable.Please examine and throw more light. [CAPM]
On transfer of plot, exemption could be admissible u/s 54F only & not u/s 54. You may further refer to the query No. 3 hereunder wherein the SHARE OF LAND may have been transferred & not the residential house property.

Query 3]
I own two houses, one at Delhi and the other one at Nagpur. We have a residential house built by my father in 1970 at Manali.
Our father died in 2001. We are three legal heirs of our father (Myself, My sister & Our Mother). We have entered into an agreement with a builder to demolish the old house and build an apartment scheme of seven independent flats. The consideration is fixed at Rs. 54 Lacs to be paid as Rs. 18 Lac in cash (that is, Rs. 6 Lacs to each of the co-owner) and the remaining Rs. 36 Lacs in the form of a flat in the said scheme to be held in the name of all the three legal heirs (that is, Rs.12 Lacs each).
Now my queries are as follows:
1. Are we eligible for exemption U/s 54 or 54F? What are we selling a Residential house Property or a share in land? Our tax consultant says you are selling a share in the land and not residential house property. Hence, exemption U/s 54F only shall be applicable.
2. If the exemption is U/s 54F, are we required to invest entire Rs. 54 Lacs in house property as required in section 54F?
3. If section 54F is applicable, am I eligible for the investment in house property of Rs. 12 Lacs as mentioned above, since I already own two houses? [Roshan L)
It’s a very interesting & practical query, various readers may be facing while entering in to a Development agreement with the builders. Whether exemption would be admissible u/s 54 or under section u/s 54F could best be inferred from the words, sentences & drafting used in the Development Agreement. If the development agreement suitably & appropriately reflects the transfer of house property to the builder & not merely share of land ONLY, exemption u/s 54 could be available to the Assessee.
With above basic proposition, the point wise replies to your queries are as under:
1. Exemption u/s 54 or U/s 54F would depend upon the drafting used in the Development Agreement. If the transfer agreement clearly stipulates the transfer of house property to the builder, exemption u/s 54 could be available. If transfer of share of land is only stipulated, exemption u/s 54F could be available & not u/s 54.
2. If exemption is admissible u/s 54F, entire sale consideration (i.e., Rs. 54 Lacs) is required to be invested for claiming the full amount of LTCG as exempt.
3. Since you already own two house properties, exemption u/s 54F would not be available to you. For exemption u/s 54F, Assessee should not be owner of more than one house property on the date of transfer of the original asset.