Saturday, November 26, 2011


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

Thursday, November 24, 2011


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

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

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

Saturday, November 12, 2011


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

Friday, November 4, 2011


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