Friday, December 23, 2011

TAX TALK-26.12.2011-THE HITAVADA

TAX TALK-26.12.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“ANCESTRAL PROPERTY PURCHASED IN 1936 SOLD NOW- INCOME TAX IMPLICATION”
Query 1]
We had an ancestral property purchased by our previous generation in 1936 and a house was built by them. My father and his 4 brothers were joint owners of the said property. After their death, their family members became the owners of the property. Now we sold the said property in Sept. 2011 for the total consideration of Rs. 277,44, 000/- & we (Total 18 members) received the consideration according to their ownership share. I am one of the co-owners amongst them and received Rs. 45, 77, 000/- as my share.
Now please advise me the quantum of property gain tax, I am liable to pay. How it should be calculated? Is it to be paid on whole amount received? What are the ways to avoid the gain tax, how much should I invest in house property so as to save total gain tax liability as I wish to keep some liquidity with me. What are the features of investing in RBI bonds/Government bonds?
I further wish to add that I am a Bank employee and regular tax payer and can the property gain have an impact on my yearly income?
Please also advice within how much period I have to settle all these transactions of investment / paying the tax? [Kishor V. Mujumdar - kvmujumdar.01@gmail.com]
Opinion:
1. The property sold is very old property. In such cases, the fair market value of the property as on 01.04.1981 could be taken as cost of the property for computing capital gain & income tax. You may obtain the registered valuer’s certificate about the valuation of the property as on 01.04.1981.
2. The cost of acquisition as mentioned above could be indexed to arrive at the Indexed cost of acquisition. For Indexation, you would be required to multiply the cost of acquisition by 7.85. [Cost Inflation Index for F.Y. 2011-12 is “785” & for FY 1981-82 is “100”.
3. Computing LTCG:From the sale consideration of Rs. 277,40,000/-, the cost of acquisition as mentioned above would be deducted. The resultant amount would be taxable Long Term Capital Gain. Your share in the property appears to be 16.50% and that share of LTCG would be added to your income. [However, if the value adopted by the Stamp duty authorities is higher than Rs. 277, 40, 000/-, then LTCG would be required to be calculated by taking such higher value.]
4. Taxability of LTCG:Long Term Capital Gain is taxable at a concessional rate of 20% u/s 112 of the Income Tax Act-1961. It appears that you are a regular assessee and have other income above the basic exemption limit as well. As a result, you are not entitled for any other deduction except as mentioned below.
5. Exemption from LTCG:In respect of Long Term Capital Gain arising from sale of House property, exemption can be claimed U/s 54EC or u/s 54, as under:a) 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. Investment in RBI Bonds will not enable you to claim an exemption u/s 54EC. There is a maximum ceiling of Rs. 50 Lacs in a financial year for investment in 54EC Bonds. The interest from the bond is taxable as regular income only.b) U/s 54: Exemption u/s 54 is available if the assessee invests amount of LTCG for purchase of another residential house property within a prescribed time i.e., 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.
Query 2]
I wanted to know whether section 43D is mandatory for the Nationalized banks. If so, RBI says interest on NPA need not be credited to profit and loss unless it is actually received where section 43D says that interest on NPA should be offered to tax at the time of credit or receipt which ever is earlier. As per guidelines of RBI, no bank credits such interest unless it is received. In such case, section 43D will be of no relevance Please guide. [priyamvada.shekdar@mahabank.co.in]
Opinion:
Section 43D is applicable to all the Schedule bank. It is mandatory for Nationalized banks. Section 43D provides for chargeability of interest income of a public financial institution or a scheduled bank, or a state financial corporation or a state industrial investment corporation or a public company in relation to specified categories of bad or doubtful debts. It is provided that the same shall be chargeable to tax in the year of credit of such interest to profit and loss account or in the year of receipt thereof, whichever is earlier. It may be noted that the interpretation of the word “credit” in section 43D is “credit to the profit & Loss A/c” and not credit to any other account. We are of the view that Section 43D as well as RBI guidelines are parallel and not contradictory with each other.

Saturday, December 17, 2011

TAX TALK-19.12.2011-THE HITAVADA

TAX TALK-19.12.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“RECEIVED NOTICE FOR ARREARS OF DEMAND!”
Query 1]
I have received arrear demand for the A.Y. 2002-2003 wherein the certain points as mentioned below were mentioned:
· The amounts mentioned as outstanding demand(s) are liable to be adjusted against the refunds arising on processing of return in CPC. This may be treated as intimation u/s 245 of the Income Tax Act, 1961.
· Please contact your current jurisdictional Assessing Officer for any clarifications on the Demand(s) stated in this intimation.
· Any rectification/correction of the demand can be made only by the Assessing Officer. CPC cannot carry out any modifications to the above demands nor can it clarify issues regarding these demands.
· In order to know your current jurisdictional Assessing Officer (AO) you may log on to http://www.incometaxindiaefiling.gov.in and click on “Know Jurisdiction” under “SERVICES”.
This is for the financial year 2001-2002 when arrear was paid due to pay revision.
In all the previous year IT returns, I have submitted the bifurcation sheet u/s 89 at the time of filing the return. After a period of 8-9 years, IT Department is demanding arrear amount. I am also transferred to Chandrapur from Bhopal. How to settle the issue? [s_c_swami@yahoo.com]
Opinion:
As of now, you don’t have any option but to make an application to your current jurisdictional assessing officer intimating the facts & figures, along with relevant documents/records, of the case to carry out the necessary rectifications. Admittedly, it will be a cumbersome process as the demands pertains to F.Y. 2001-02 & also there is a change in your Assessing Officer from Bhopal (Madhya Pradesh) to Chandrapur (Maharashtra). We understand the genuine hardship & problem that the tax payer may be facing as a result of the old demands. The Assessee might be facing the inconvenience due to the transitional phase of the I.T. Department from manual to e-era environment. However, wherever the demands or any communication is received from the Income Tax Department, the taxpayers are advised to take it seriously and should immediately comply to avoid the complications/ complexity like this in future.

Query 2]
I have a query on investment made from capital gains and request your advice on the same.
I was willed an ancestral property which I sold in September-2008. The capital gains so realized were invested in NHAI Bonds (Rs. 50 Lacs) & the balance was invested in construction of a residential accommodation in the stipulated time. The new accommodation has been registered in The Registrar's Office. The new accommodation has been designed and constructed in a manner that two identical & independent units can be obtained from it. I am keen to provide my only sister and her family with one such part so that the same is in her name. The other part I will use for myself and my family. My queries are as under:
1. Can I do this without going through the formalities of a WILL to be made by me?
2. Can I gift the portion to her, without any Gift Tax or any other cess?
3. Your advice on how this transfer can be done legally?
I await your reply. I may inform you that the property is located in Bareilly (U.P).
[kmpant@yahoo.com]
You will be doing a noble task and the Income Tax Act doesn’t have any provision to tax the above transactions. There will not be any Income tax / Gift Tax on the above transactions. You can do so by executing a registered Gift Deed.
For General Readers:
Our other readers may note that whenever any asset is purchased on the basis of which capital gain exemption is claimed u/s 54, 54B or 54D, 54G, or U/s 54F, it should not be sold within a period of 3 years of its acquisition. If it is sold within a period of 3 years, the exemption granted earlier would be taken back.

Sunday, December 11, 2011

TAX TALK-12.12.2011-THE HITAVADA

TAX TALK-12.12.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“TRANSFER OF FLAT BEFORE SALE DEED: WHETHER CAPITAL GAIN OR BUSINESS INCOME?”
Query 1]
Till now, I used to deposit annually Rs. 40,000/- in my & Rs. 15,000/- each in the two PPF accounts of my minor children. Now, I wish to deposit Rs. 1 Lacs each in all the three PPF accounts. Is it permissible? What will be the tax implication of the principal and interest in the accounts of the minors? Your opinion will be highly appreciated. [Parantap Chandurkar-parantap2010@gmail.com]
Opinion:
There is a limit on subscription in the PPF Account. Any individual may, on his own behalf or on behalf of a minor of whom he is the guardian, subscribe to the Public Provident Fund any amount not less than Rs. 500/- and not more than Rs. 1,00,000/- in a year.
(The limit of deposit in the PPF A/c has been increased from Rs. 70,000/- to Rs. 1,00,000/- w.e.f 01.12.2011 vide Notification F.No. 1/9/2011-NS-II, dated 25-11-2011)

Query 2]
Sir, If am planning to sell my house property for Rs. 81 Lacs. At the time of executing the agreement to sale (registered agreement to sale), I will be getting certain amount & I will be receiving the final payment at the time of sale deed. I am planning to spread the transactions in two financial year i.e., agreement to sale in one financial year wherein I will be receiving part amount and sale deed in the next financial year wherein I will be receiving the balance amount. My query is whether I can invest Rs. 50 Lacs in the Capital Gain exemption bonds in both years, outer time limit being 6 months from the final sale? [******06@rediffmail.com]
Opinion:
1. It’s true that an assessee can invest maximum amount of Rs. 50 Lacs in a financial year in specified bonds (NHAI/REC) for claiming an exemption u/s 54EC.
2. However, for claiming an exemption from Long Term Capital Gain u/s 54EC, an assessee is required to invest the amount of LTCG in NHAI/REC Bonds within a period of 6 months after the date of transfer. The date of transfer is relevant for the purpose of section 54EC & not the date of agreement to sale or the date of receipt of payment etc. Merely depositing the amount in the 54EC bonds received at the time of agreement to sale may not enable an assessee to claim an exemption from LTCG U/s 54EC.
3. At the most, you can transfer the house in such a way that the subsequent period of 6 months falls in two financial years (i.e., in between October to March). It may enable you to invest the amount in the way you want to.

Query 3]
1. I am presently in the 10% tax bracket. Apart from my regular income, I also have income by way interest from bank FDR.
2. If I transfer Rs. 5 Lacs to my son's account & he puts the fund in FD with bank that earns interest for him which remains lower than taxable limits, would this be acceptable way of reducing tax?
3. My son is a major (above 21 yrs) and has PAN also.
4. Would any paper record of some kind be necessary other than Bank statements showing the transfer from one a/c to the other? [jrwitthal@gmail.com]
Opinion:
1. If you transfer the fund by way of GIFT from your account to your son’s A/c. the resultant income would be treated as his income and would be assessable in his hands only. It would a valid tax planning tool.
2. Apart from transferring the fund from your account to his account, you may further declare the gift by making a Gift deed. The Gift deed, for the purpose of Income Tax Act, may be done even on a plain paper.
Query 4]
1. Mr. A has entered into an agreement for purchase of House property with the builder on 10.11.2009 for Rs. 20.00 Lacs. Till date, the house has not been completed & now Mr. A is no more interested in keeping the property with him due to dispute with builder, and hence he has decided to sell it to another person.
2. The figures are :Total Cost of Property cost Rs. 20,00,000/-Payments till date Rs. 16,00,000/-Balance Rs. 4,00,000/-
3. The agreement to sale with builder was duly registered and appropriate stamp duty has been paid around Rs. 1,00,000/- (Dec 2009)
4. Mr. A is selling the property for Rs. 25,00,000/-
5. Now whether his income will be assessable as capital gains or regular business income? Mr. A is a businessman (Trader) & this is first house, he was purchasing.
6. Can Mr. A deposit this amount in 54EC Bonds to claim exemption?Please advice. [*****md@rediffmail.com]
Opinion:
1. Capital assets include the “RIGHTS” in the property also.
2. Mr. A is not engaged in the business of land trading /builder-ship / layout etc. As a result, the income would be taxable as capital gain income.
3. No exemption u/s 54EC shall be available as the capital asset (Rights in the property) is a short term capital assets. 54EC is available against LTCG only.

TAX TALK-12.12.2011-THE HITAVADA

TAX TALK-12.12.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“TRANSFER OF FLAT BEFORE SALE DEED: WHETHER CAPITAL GAIN OR BUSINESS INCOME?”
Query 1]
Till now, I used to deposit annually Rs. 40,000/- in my & Rs. 15,000/- each in the two PPF accounts of my minor children. Now, I wish to deposit Rs. 1 Lacs each in all the three PPF accounts. Is it permissible? What will be the tax implication of the principal and interest in the accounts of the minors? Your opinion will be highly appreciated. [Parantap Chandurkar-parantap2010@gmail.com]
Opinion:
There is a limit on subscription in the PPF Account. Any individual may, on his own behalf or on behalf of a minor of whom he is the guardian, subscribe to the Public Provident Fund any amount not less than Rs. 500/- and not more than Rs. 1,00,000/- in a year.
(The limit of deposit in the PPF A/c has been increased from Rs. 70,000/- to Rs. 1,00,000/- w.e.f 01.12.2011 vide Notification F.No. 1/9/2011-NS-II, dated 25-11-2011)

Query 2]
Sir, If am planning to sell my house property for Rs. 81 Lacs. At the time of executing the agreement to sale (registered agreement to sale), I will be getting certain amount & I will be receiving the final payment at the time of sale deed. I am planning to spread the transactions in two financial year i.e., agreement to sale in one financial year wherein I will be receiving part amount and sale deed in the next financial year wherein I will be receiving the balance amount. My query is whether I can invest Rs. 50 Lacs in the Capital Gain exemption bonds in both years, outer time limit being 6 months from the final sale? [******06@rediffmail.com]
Opinion:
1. It’s true that an assessee can invest maximum amount of Rs. 50 Lacs in a financial year in specified bonds (NHAI/REC) for claiming an exemption u/s 54EC.
2. However, for claiming an exemption from Long Term Capital Gain u/s 54EC, an assessee is required to invest the amount of LTCG in NHAI/REC Bonds within a period of 6 months after the date of transfer. The date of transfer is relevant for the purpose of section 54EC & not the date of agreement to sale or the date of receipt of payment etc. Merely depositing the amount in the 54EC bonds received at the time of agreement to sale may not enable an assessee to claim an exemption from LTCG U/s 54EC.
3. At the most, you can transfer the house in such a way that the subsequent period of 6 months falls in two financial years (i.e., in between October to March). It may enable you to invest the amount in the way you want to.

Query 3]
1. I am presently in the 10% tax bracket. Apart from my regular income, I also have income by way interest from bank FDR.
2. If I transfer Rs. 5 Lacs to my son's account & he puts the fund in FD with bank that earns interest for him which remains lower than taxable limits, would this be acceptable way of reducing tax?
3. My son is a major (above 21 yrs) and has PAN also.
4. Would any paper record of some kind be necessary other than Bank statements showing the transfer from one a/c to the other? [jrwitthal@gmail.com]
Opinion:
1. If you transfer the fund by way of GIFT from your account to your son’s A/c. the resultant income would be treated as his income and would be assessable in his hands only. It would a valid tax planning tool.
2. Apart from transferring the fund from your account to his account, you may further declare the gift by making a Gift deed. The Gift deed, for the purpose of Income Tax Act, may be done even on a plain paper.
Query 4]
1. Mr. A has entered into an agreement for purchase of House property with the builder on 10.11.2009 for Rs. 20.00 Lacs. Till date, the house has not been completed & now Mr. A is no more interested in keeping the property with him due to dispute with builder, and hence he has decided to sell it to another person.
2. The figures are :Total Cost of Property cost Rs. 20,00,000/-Payments till date Rs. 16,00,000/-Balance Rs. 4,00,000/-
3. The agreement to sale with builder was duly registered and appropriate stamp duty has been paid around Rs. 1,00,000/- (Dec 2009)
4. Mr. A is selling the property for Rs. 25,00,000/-
5. Now whether his income will be assessable as capital gains or regular business income? Mr. A is a businessman (Trader) & this is first house, he was purchasing.
6. Can Mr. A deposit this amount in 54EC Bonds to claim exemption?Please advice. [*****md@rediffmail.com]
Opinion:
1. Capital assets include the “RIGHTS” in the property also.
2. Mr. A is not engaged in the business of land trading /builder-ship / layout etc. As a result, the income would be taxable as capital gain income.
3. No exemption u/s 54EC shall be available as the capital asset (Rights in the property) is a short term capital assets. 54EC is available against LTCG only.