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.