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.

Saturday, August 6, 2011

TAX TALK-08.08.2011-THE HITAVADA

TAX TALK-08.08.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“INCOME TAX SLAB FOR SENIOR CITIZENS & VERY SENIOR CITIZENS”
Query 1]
1. What happens if Rural Land purchased for calming Deduction U/s 54 is sold within a period of 3 years) as sale of rural land is exempt from capital gain Tax?
2. What will be the consequences if Part of Land is sold and the other Part of Land is retained for construction of House Property?
3. Is it good to make two purchase agreements for Purchase of above land (i.e., one for Sale and one for construction of House). Is there any violation of Section 54? [ketan.kini1@gmail.com]
Opinion:
1. It may be noted that only Rural AGRICULTURAL LAND, satisfying certain conditions as to its location & population of the area, is not a capital Assets. Being not a capital assets, the transfer of said Rural Agricultural Land doesn’t give rise to any Capital Gain & as a result no income tax liability arises on sale of Rural Agricultural Land.
2. The Plot or a piece of Non Agricultural Land, even if it is in Rural Area, is a capital assets and surplus arising on its sale/transfer would be taxable as Capital Gain.
3. It may be noted that if exemption is claimed u/s 54 by investing the amount of LTCG in purchase of a residential house property (which includes the plot cost as well) & the house property so purchased if transferred within a period of 3 years from the date of its acquisition, the amount of claimed exempted earlier would be taken back.
4. On the basis of the facts mentioned by you in the query, the best advisable way could be to execute the two sale deed for two different plots. One for construction of the house property on which you will be claiming an exemption u/s 54 AND the second one for Re-sale.

Query 2]
I am a retired Government pensioner. My total income from all sources including FD in bank is less than five Lacs per anum. Bank deducts TDS from my income. Total interest received is more than Rs. 10,000/- Please intimate whether I have to file IT return in the A.Y. 2011-2012? [papiadasgupta@yahoo.com]
Opinion:
As your interest income exceeds Rs. 10,000/-, you would be required to file the return of income even though your income is below Rs. 5 Lacs. You may further refer Tax Talk dated 18.07.2011 wherein the contents of the circular exempting the employee with income up to Rs. 5 Lacs from filing income tax returns has been aptly elaborated.

Query 3]
What is the age limit for senior citizen as per the Income Tax Law? I understand that it was earlier 65 years and now 60 Years. From which year, it has been made applicable? What is the exemption limit for senior citizen for the F.Y. 2010-11 & 2011-12? [pravin.aparajit@gmail.com]
Opinion:
You are right. The age limit for recognizing the senior citizen has been reduced from 65 years to 60 years from the A.Y. 2012-13 (F.Y. 2011-12). For the A.Y. 2011-12 (F.Y. 2010-11), the age limit for recognizing the senior citizens is 65 years only. Further, a new category of “very senior citizen” is also created w.e.f. F.Y. 2011-12.
The income tax slab for senior citizen in the F.Y. 2010-11 & F.Y. 2011-12 are as under:
1] F.Y. 2010-11:BASIC EXEMPTION LIMIT FOR SENIOR CITIZENS (65 Years or More)
INCOME SLAB
TAX RATE
Up to 2,40,000
Nil
From 2,40,001 to 5,00,000
10%
From 5,00,001 to 8,00,000
20%
Above 8,00,000
30%

2] F.Y. 2011-12:A] BASIC EXEMPTION LIMIT FOR SENIOR CITIZENS (60 YEARS OR MORE BUT LESS THAN 80 YEARS)
INCOME SLAB
TAX RATE
Up to 2,50,000
Nil
From 2,50,001 to 5,00,000
10%
From 5,00,001 to 8,00,000
20%
Above 8,00,000
30%

B] BASIC EXEMPTION LIMIT FOR VERY SENIOR CITIZENS (80 YEARS OR MORE)
INCOME SLAB
TAX RATE
Up to Rs. 5,00,000
Nil
From 5,00,001 to 8,00,000
20%
Above 8,00,000
30%

Query 4]
I am a retired PSU executive. I am getting pension of Rs. 24,000/- pm and residing in a rented house, paying Rs.7400/- pm as House Rent. Please clarify whether I am entitled to get any rebate in tax for Houser Rent Paid? [gcmaji@gmail.com]
Opinion:
Any individual who is not in receipt of HRA from the employer is entitled to the benefit of deduction of rent paid for residential accommodation from its income u/s. 80GG of the Income Tax Act.The condition precedent to claiming deduction under this section is:-a] He has to prepare a declaration in Form No.10BA. b] 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.[Note: The term “Total income” means total income after allowing all deductions expect the one provided under this section itself.]

Tuesday, August 2, 2011

“TAX PLANNING: PRE-MORTEM IS BETTER THAN POST-MORTEM”

TAX TALK-01.08.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TAX PLANNING: PRE-MORTEM IS BETTER THAN POST-MORTEM”
Query 1]
a. Sir, kindly clear my doubt regarding filing of income tax return for the F.Y 2010-11 (A.Y. 2011-12) for the salary class person having taxable income, either male or female, whose income tax is deducted subject to tax liability having income less than Five Lacs rupees and having no other income. Whether such assessee is liable to file income tax return. Kindly give clarification. [pravin.aparajit@gmail.com]
b. Whether the basic exemption limit has been enhanced to Rs. 5 Lacs? Whether the salaried assessee with salary income from private employer are also exempt from filing the income tax return if the gross salary received is less than Rs. 5 Lacs or it is applicable to Government Employee only? [[MS,KA]
Opinion:
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. You may further refer Tax Talk dated 18.07.2011 wherein the circular contents has been aptly elaborated. The basic exemption limit has not been enhanced. Merely immunity from filing the income tax return is granted to the Salaried Assessee, be it a Government employee or a private employee, with salary income up to Rs. 5 Lacs satisfying certain conditions.


Query 2]
We had purchased a flat in F.Y. 2005-2006, Dated: 5/12/2005 as per Sale Deed for Rs. 9, 45,000/- & paid stamp duty of Rs. 36,000/-. The ownership is of the flat is in the name of my mother(M) & three brothers(including myself) S1, S2, S3 & we had taken Housing loan of Rs. 8,95,388/- having equal share. Now, the above said flat was sold for Rs. 22,55,431/- the receipts of which is as under:
1. 8, 73,931/- Paid by Purchaser directly to H/Loan by Cheque Dt. 17/08/2010
2. 4,60,500/- Paid to S1 by Cheque Dt. 17/08/2010
3. 4,60,500/- Paid to S2 by Cheque Dt. 17/08/2010
4. 4,60,500/- Paid to M by Cheque Dt. 17/08/2010
22, 55,431/- Total Receipts
It may be noted that till date the sale deed of above flat sold is not done. All three sons (S1, S2, S3) are salaried employee & taxable, TDS done. Only one of S1 had purchased a new flat for Rs. 7, 50,000/- & stamp duty paid Rs. 31, 470/- as per sale deed Dated: 1/6/2010. Mother has taxable income below exemption limit. Now my queries are as under:
1. Whether 8, 73,931/- paid to H/Loan Bank will be added in S1, S2, S3 & M Receipts? If yes, what proportion?
2. What will be taxable capital gain to each of them?
3. If there any tax planning is done to save tax of M, S2 & S3? [rahuldhurai@gmail.com]


Opinion:

1. On the basis of facts submitted by you, it is very difficult to ascertain the year in which the transfer of the flat took place. The sale consideration is received by all the co-owners in the F.Y. 2010-11. However, no sale deed has yet been executed in favor of the buyer. Handling over of the possession of the property in such case plays a crucial role in determining the year of transfer. If the possession is handed over to the buyer in the F.Y. 2010-11, the LTCG would be taxable in the F.Y. 2010-11. If the possession is coupled with the sale deed, then the amount would be taxable in the year of executing of the sale deed.

2. Assuming that the possession is handed over to the buyer in the F.Y. 2010-11 itself, the Long Term Capital Gain (LTCG) shall be as under: a) Cost of Acquisition = Rs. 9,81,000/- (You can further include Registration charges paid for registry, Brokerage, Legal fees etc in the cost of Acquisition)b) Year of Acquisition = 2005-2006c) Cost Inflation Index (CII) for the F.Y. 2005-06 = 497d) Sale consideration = Rs. 22,55,431/-[However, if the value adopted by the Stamp duty authorities is higher than Rs. 22,55,431/-, then LTCG would be required to be calculated by taking such higher value.]e) Year of Sale/Transfer = 2010-11f) Cost Inflation index for the F.Y. 2010-11 = 711g) Indexed cost of Acquisition is Rs. 14,03,402/- (Rs. 9,81, 000* 711/497)h) Long term capital gain = Rs. 22,55,431 (-) 14,03,402/- = 8,52,029/-.i) Taxable long term capital gain taxable in the hands of each of the co-owner shall be Rs. 2,13,007.50.
3. With above presumption as to the year of transfer as F.Y. 2010-11, replies to your other queries are as under:a] S1 is eligible for exemption u/s 54 as the LTCG is invested for purchase of another residential house property within one year before the date of transfer of house property. No LTCG would be taxable in the hands of S1.b] LTCG would be taxable in the hands of S2, S3 & M. The unutilized basic exemption limit of M can be used against her LTCG & the remaining amount of LTCG would be taxable.c] The amount of Rs. 8,73,931/- paid by the buyer to the housing loan account would not be a deductible amount while computing LTCG.d] Tax Planning Angel:As far as the tax planning is concerned, we always believe pre-mortem is better than postmortem. The other co-owners (except M) could have gifted their share in the house property to S1. Since S1 has invested the amount of LTCG for purchase of another residential house property, S1 could have claimed exemption u/s 54 even on the LTCG of S2 & S3. e] Caution Side of the Transaction:If anyone who has claimed deduction u/s 80C towards principal repayment of housing loan transfers the house property within five years of its purchase, shall have following two effect: i] No deduction shall be allowed in the year in which such transfer took place ii] All deduction allowed up to that year shall be assessed as income in THAT year in which such transfer took place.
4. Exemption u/s 54Exemption u/s 54 is available if the assessee invests amount of LTCG for purchase of another residential house property 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. If F.Y. 2010-11 is not the year of transfer of the house property, then availability of exemption in the hands of S1 needs re-examination. For exemption claim u/s 54, the transfer of your joint property should have been completed within one year from 01.06.2010.