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.