Saturday, February 25, 2012

TAX TALK-27.02.2012-THE HITAVADA

TAX TALK-27.02.2012-THE HITAVADA

TAX TALK

BY CA. NARESH JAKHOTIA (Chartered Accountant)

“CAN I GET A REFUND OF TDS?”

Query 1]

I am a housewife and a senior citizen of 76 years of age. I am holding Kisan Vikas Patra in my name for total amount of Rs. 2,04,000/-. The amount was invested on 09-09-2003.

After completion of its total period of 8 years and 7 months, the maturity amount of Rs. 3,77,589/-, naturally represents interest which I understand is taxable.

I have no other source of income except interest on the bank fixed deposits. Yearly income from this source is Rs. 57,800/-. As this income always remained below exemption limit prescribed for the senior citizen, I have not filed income tax return up till now. Thus the combine income of the interest of Rs. 2,31,389/- from Kisan Vikas Patra i.e., Rs 1,73,589 + Rs. 57,800/- from bank fixed deposit will still remain below present exemption limit of Rs 2,50,000/-. I am holding a PAN card in my name.

I want to have your advice on the following points:

1. Whether I can save payment of tax on interest from KVP on maturity date by producing declaration form, if any, prescribed by the post office requesting not to deduct tax at source as is done for interest on fixed deposits of bank?

2. Whether this declaration form is available at the post office?

3. Under which section of Income tax Act, can the above request be made?

4. If there is no other way for saving tax, at which rate will the tax be deducted by the post office?

5. Can I get a refund of tax so deducted from the income tax authorities on the basis of tax deduction certificate to be obtained from the post office? [amey.morey@gmail.com]

Opinion:

  1. You are a senior citizen and the tax payable on your income during the relevant assessment year is Nil. You can get the interest without deduction of tax at source by submitting the declaration in Form No. 15H. After timely submission of the Declaration form, the interest will be paid to you without deduction of Tax at Source.
  2. Normally, the declaration form is available with the Post Office/ Banks. If it is not available, it can be downloaded from www.incometaxindia.gov.in
  3. The payment of interest can be done without TDS u/s 197A (1C) of the Income Tax Act-1961 read with Rule 29C(1A) of the Income Tax Rule-1962.
  4. If the payer inadvertently deducts the tax at source despite submission of Form No.15H, you can get the refund of the same. For this, you would be required to file the return of income and claim the refund of the TDS done.

Though your query is simple but it is carrying a significant tax planning message. Your income for the year under consideration is below the basic exemption limit even if the entire interest on KVP/FDR is included in the income at the time of maturity. You haven’t filed the income tax returns of earlier year for the reason that your income (including accrued interest) was below the basic exemption limit. It has not adversely affected you as your income for the current year, even after including the entire interest income, on KVP/FDR remains below the basic exemption limit.

Our readers having long term FD’s, KVP, etc are advised to file the return of income voluntarily even if their income is below the basic exemption limit just to show the interest accrual on yearly basis. Without the accrual of income shown in the return of income, it may not be accepted on yearly basis by the Assessing Officer.

Query 2]

I Purchased a 2 BHK Flat on 25/08/1986 from West Bengal Housing Board in Kolkata.

The purchase value of the flat was Rs. 1.411 Lacs. In 2008-09, I spent around Rs. 2.00 Lacs for renovation. Bills for the renovation are available with me.

On 31.10 2011 I sold that flat at a price of Rs. 7.70 Lacs. I shall be thankful if you kindly let me know my LTCG Tax liability. Secondly, I read in news paper after last budget that age limit of Senior Citizens has been brought down to 60 years from 65 years. Will you please confirm this? [Rathin Ghose-rath_sra3848@yahoo.co.in]

Opinion:

1. Computing LTCG:
Cost Inflation Index (CII) for the relevant F.Y. 1986-87, 2008-09 & F.Y. 2011-12 are “140”, “582” & “785” respectively. The indexed cost of acquisition of the flat is Rs. 7.91 Lacs i.e., Rs. (Rs. 1.411 * 785/140) whereas indexed cost of improvement is Rs. 2.69 Lacs i.e., Rs. (Rs. 2.00 * 785/582). Long term capital Loss shall be Rs. 2.90 Lacs.
As there is a loss, no LTCG liability would be there on you. You can carry forward the loss for set off in subsequent years (up to 8 years). For carry forward benefit, you should ensure to file the return of income within due date.
[The LTCG calculation is based on the presumption that the Stamp Duty valuation of the property is not exceeding the actual sale price of Rs. 7.70 Lacs. If the Stamp Duty valuation is exceeding Rs. 7.70 Lacs, the LTCG would be required to be calculated by considering such higher valuation].

2. The age for the purpose of recognizing the senior citizen has been reduced from 65 years to 60 years for the F.Y. 2011-12 by the Finance Act-2011.

Query 3]

I am working in a bank & have confusion with respect to Form No. 15G vis a vis Form No. 15H. I shall be thankful if you can clear the doubt as to when we should take form No. 15G & when to take form No. 15H. [lalit****@gmail.com]

Opinion:

1. Form No. 15G is a declaration form for non senior citizens whereas Form No. 15H is for a senior citizen.

2. In order to be eligible to furnish Form 15G, the non-senior citizen investor needs to fulfill the following two conditions:
a) The final tax on his estimated total income computed as per the provisions of the Income Tax Act should be nil, and
b) The aggregate of the interest etc. received during the financial year should not exceed the basic exemption slab.
If both these conditions are satisfied, Form 15G may be furnished and the entire interest income can be paid without deduction of tax at source.

3. In order to be eligible to furnish Form 15H, the senior citizen needs to fulfill just the first condition, i.e., the final tax on the assessee’s estimated total income should be nil. The second condition (as mentioned in (b) above) imposed for Form 15G is not applicable.

Monday, February 20, 2012

CIT v. Manjula J. Shah (2011) 42(I) ITCL 405(Bom-HC

CIT v. Manjula J. Shah (2011) 42(I) ITCL 405(Bom-HC)

Property acquired from previous owner– Indexation whether to be done from year in which previous owner acquired the asset
While computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. – Vide CIT v. Manjula J. Shah (2011) 42(I) ITCL 405(Bom-HC)

TAX TALK-20.02.2012-THE HITAVADA

TAX TALK-20.02.2012-THE HITAVADA

TAX TALK

BY CA. NARESH JAKHOTIA (Chartered Accountant)

SALE OF AGRICULTURAL LAND & INCOME TAX”

Query 1]

My grandfather purchased 5 Acres of Agricultural land of Rs. 20.000/- (Rs. 4,000/- Acre) in the Financial Year 1970-71. My grandfather gifted that land to my father in the Financial Year 2000-01. Now my father has sold that land for Rs. 1.20 Crore (Rs. 24 Lacs per Acre) in financial year 2011-12 & purchased agriculture land of Rs. 1 Crore.

My questions are

1. what will be the tax liability &

2. If there is tax liability, what we can do, to save tax? [manishkhonde@yahoo.in]

Opinion:

  1. In normal course, any income from transfer of agricultural land, which is being used for agricultural purpose, 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.
  2. If the agricultural land sold by you is not a rural agricultural land as elaborated above, the long term capital gain would be required to be computed & the same would be taxable @ 20% .
    Computing Long Term Capital Gain (LTCG):
    a] The property to be sold is an ancestral property acquired before 01.04.1981. You can replace the value of Rs. 20,000/- with the fair market value of the property as on 01.04.1981 for computing the long term capital gain.
    b] The fair market value of the property as taken above can be indexed by multiplying it with 7.85 to arrive at the indexed cost of acquisition. [Cost Inflation Index for the FY 2011-12 is “785”]
    c] The difference between the sale price (i.e., Rs. 1.20 Cr) and the indexed cost of acquisition as computed in (b) above, would be the amount of LTCG.
    (A word of caution: If the valued adopted by the stamp duty authorities for levy of stamp duty is higher than Rs. 1.20 Cr then the LTCG would be required to be computed by taking such higher value).
  3. Saving Income Tax on LTCG arising on sale of Urban Agricultural Land:
    Tax on long term capital gain arising on sale of urban agricultural land can be saved by claiming an e
    xemption u/s 54B
    The main stipulations incorporated in section 54B are as under: -
    a) Exemption is available to an Individual Only. [Exemption is not available to HUF or any other category of Assessee]
    b) Capital gain arises on transfer of Agricultural Land.
    c) The Agricultural Land is used by the tax payer or his parents for agricultural purpose for a period of two years immediately preceding the date of transfer.
    d) The taxpayers has purchased another land for agricultural purposes within a period of two years from the date of transfer.
    If all the above conditions are satisfied, Lower of the following shall be allowed as exemption u/s 54B:
    i) The amount of capital gain generated on transfer of agricultural land or
    ii) The amount invested for purchase of new Agricultural Land.

Sunday, February 12, 2012

TAX TALK-13.02.2012-THE HITAVADA

TAX TALK-13.02.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“TAX COLLECTION AT SOURCE ON SCRAP”
Query 1]
a. In Steel Industry by products like DRI ASH, FLY ASH & Granulated Slag are generated from their production centers like Mini Blast Furnace or Sponge Iron Unit (Direct reduction Plant). Please enlighten me whether sale of these products attracts TCS (Tax Collection At Source) provisions under Income Tax Act? [tscbose@sunflagsteel.com]
b. Sir, we are a private limited company engaged in the business of chemicals processing & packing. We are selling our un-usable furniture & fixtures. Please elaborate whether Tax Collection at source is compulsory in such sale? We are getting the contradictory opinion on the issue. Please elaborate the legal provision. [LP]
Opinion:
a. Under Section 206C of the Income Tax Act-1961, tax is required to be collected by certain seller on sale of “Scrap” to certain buyer.The explanation to section 206C outlines the meaning of buyer, scrap & seller. According to explanation (b) to section 206C,"Scrap" means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons.We are of the opinion that all the three items mentioned are within the purview of waste or scrap generated from manufacturing and are not usable at the factory & as such TCS provision shall be applicable.
b. It may be noted that the “Scrap” would not include any waste or scrap:(i) which doesn’t arise from manufacturing or mechanical working of material; or(ii) which is usable as such.The unusable furniture & fixtures that you are selling can not be said to be arising from manufacture & accordingly TCS provision would not be applicable in case on sale of unusable furniture & fixtures.
c. It may be noted that no Tax is required to be Collected At Source from a resident buyer who purchases goods for the purpose of manufacturing, processing or producing any article or thing and not for the purpose of trading. For this, resident buyer has to give the declarations in Form No. 27C in duplicate to the seller that the goods to be purchases are going to be utilized by him for the purpose of manufacturing etc.

Query 2]
The amount of LTCG has been deposited in a public sector bank for 3 years under capital gain fixed deposit Account Scheme. Will it be taxable after maturity period if the maturity amount is not invested / utilized for purchase of land/building etc? The Bank is deducting TDS from the annual accrual of interest on the above deposit. Please advice. [gouramahananda@yahoo.com]
Opinion:
If the amount deposited in the Capital Gain Deposit Account Scheme is not utilized within the specified period for the intended purpose [U/s 54, 54B, 54D, 54F or 54G], the amount not so utilized shall be charged to tax as capital gain of the previous year in which the period of 3 years from the date of LTCG expires and it will be taxable as LTCG of that pervious year. The assessee then shall be eligible to withdraw the amount from the scheme. As per scheme, he is required to submit an application in Form G after getting the approval of the Assessing Officer.

Query 3]
I am working with a Govt. Department & I have some doubt about tax benefits:
1. I got injured in accident before 6 months & got operated. I want to know whether I can get tax benefit. If yes, then under which section? Please elaborate about the deduction u/s 80DDB.
2. My second doubt is can we take tax benefit of HRA & Home loan at the same time. If yes, under which section? [kiran.kene73@gmail.com]
Opinion:
1. Deduction towards HRA & Home loan can be claimed simultaneously. For claiming an exemption u/s 10(13A) towards HRA, Assessee should have incurred the expenditure on payment of rent and should not be the owner of the same house property.
It is presumed that you are talking about the tax benefit in respect of medical expenditure incurred by you as a result of operation. General deduction towards medical expenses resulted out of accident is not available under the Income Tax Act-1961. However, you may examine if the deduction is admissible u/s 80DDB or U/s 80U of the Income Tax Act-1961.
Deduction u/s 80DDB :The deduction u/s 80DDB is available if the expenses for the medical treatment of specified disease or ailment is incurred by assessee on himself or on dependant. The specified disease for the purpose of section 80DDB is prescribed in Rule 11DD as under: 11DD. (1) For the purposes of section 80DDB, the following shall be the eligible diseases or ailments : (i) Neurological Diseases where the disability level has been certified to be of 40% and above,— (a) Dementia ; (b) Dystonia Musculorum Deformans ; (c) Motor Neuron Disease ; (d) Ataxia ; (e) Chorea ; (f) Hemiballismus ; (g) Aphasia ; (h) Parkinsons Disease ; (ii) Malignant Cancers; (iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ; (iv) Chronic Renal failure ; (v) Hematological disorders : (i) Hemophilia ; (ii) Thalassaemia.The amount of deduction allowable under section 80DDB is the expenditure actually incurred or Rs. 40,000/- (Rs. 60,000/- for senior citizen) whichever is lower.
Section 80U of the I.T. Act, 1961 allows a deduction to an individual who is resident and who at any time during the previous year is certified by a medical authority to be a person with disability. If accident has resulted in the disability mentioned hereunder, then you can opt for deduction u/s 80U.“Person with Disability” means a person suffering from not less than 40% of any of the disability given below: i) blindnessii) low visioniii) leprosy-curediv) hearing impairmentv) locomotor disabilityvi) mental retardationvii) mental illnessviii) austimix) cerebral palsyx) multiple disability referred to in clauses (a), (c), & (h) of section 2 of the National Trust for welfare of persons with Austim Cerebral Palsy, Mental Retardation & Multiple Disabilities Act-1999.The deduction under this Section is a sum of Rs 50,000/- in normal cases and if the person is suffering from a severe disability (80% or more) then with effect from F.Y. 2009-10, a sum of Rs. 1,00,000/- is allowable as deductions

Monday, February 6, 2012

TAX TALK-30.01.2012-THE HITAVADA

TAX TALK-30.01.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“CAPITAL GAIN DEPOSIT ACCOUNT SCHEME”
Query 1]
1. My father, aged 71 years, sold his flat for Rs. 12,50,000/- in the month of June-2011 [Market value being Rs. 14,51,000/-].
2. The flat was purchased by him in May-1999 for Rs. 2,25,000/- (Market value at the time of purchase was Rs. 3,57,000/-. Stamp duty paid was Rs. 6,250/- & Registration fee paid was Rs. 3,590/- in May-1999
I shall be highly thankful if you can kindly give the amount of capital gain & ways of saving the tax thereon? By what time, we should deposit the LTCG amount in the capital gain account scheme? Kindly explain the capital gain Deposit Account scheme. [vikeshsatpute@gmail.com]
Opinion:
1. Computing LTCG:Cost Inflation Index (CII) for the relevant F.Y. 1999-2000 & F.Y. 2011-12 are “389” & “785” respectively. The indexed cost of acquisition of the flat is Rs. 4,73,906/- i.e., Rs. (2,25,000+ 6,250/- + 3,590/- ) * 785/389. Long term capital gain shall be Rs. 9,77,094/- (i.e., Rs. 14,51,000 – 4,73,906).
2. Taxability of LTCG & Exemption:LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961. However, your father can save LCTG tax by opting for an exemption u/s 54 or U/s 54EC, as under: - i) Exemption Under Section 54:Invest the amount of Long term Capital Gain from sale of flat (i.e., amount of Rs. 9,77,094/-) for purchase of another house property within a period of 2 years or construct a house within 3 years period from the date of transfer of the flat. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income for the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.ii) Exemption Under Section 54EC:One can invest the amount of Long term Capital Gain in Specified bonds issued by the Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer of asset to get exemption under this section.
3. SCHEME OF DEPOSITS: a] Although under section 54/54F, the assessee is given 2 years to purchase the house property or 3 years for construction of the house property, but the capital gain on transfer of the original assets is taxable in the previous year in which the transfer took place. The return of income of that previous year is to be submitted by the specified date. Hence, the assessee will have to take a decision for the purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable.To avoid the above situation, the Income Tax Act has specified an alternative in the form of a Deposit under the Capital Gain Deposit Accounts Scheme-1988.The amount of the capital gain, which is not utilized by the assessee for purchase or constructions of the new house before the date of furnishing the return of income, should be deposited by him under the Capital Gain Accounts Scheme, before the DUE DATE of furnishing the return. After Deposits, the amount already utilized by the assessee for purchase/ constructions of the new house, along with the amount so deposited, shall be eligible for exemption under section 54/54F in the year in which LTCG has arisen..b] Types of Accounts:There are two types of accounts in which deposit can be made:a] Deposit Account-A – This is a saving account.b] Deposit Account-B- This is a term deposit account. c] Where Accounts can be opened: The account can be opened in any State Bank of India or any bank which is authorized for this scheme. For this purpose, one has to fill up and submit the Form A in the bank and deposit the money in the account. d] Withdrawing Money from the Account:From savings account , the money can be withdrawn by filing Form C with the Bank. However, in case of withdrawal other than initial withdrawal, Form D is required to be submitted to the Bank in duplicates. In case of withdrawal from Account Type-B, firstly it has to be converted into Type A by filing Form B and then all the methods of withdrawal of money from account A shall follow.e] Utilization of the amount of withdrawal:The amount withdrew has to be spent only for the purpose for which it was deposited as per respective provision under which capital gains arisen. There is also time limit of sixty days from the date of withdrawal within which it has to be spent. The balance, if any, has to be deposited in the bank.f] Closing the Account:The depositor will get the approval from his assessing officer in Form G and submit it to the bank.

Saturday, February 4, 2012

TAX TALK-06.02.2012-THE HITAVADA

TAX TALK-06.02.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“RECEIVING INCOME WITHOUT TDS”
Query 1]
I request you to please respond to my following points:
1. My gross total income for the current FY is Rs.3,05,956/-. I am a senior citizen. What is my tax liability? To save tax, what should I do? I am retired and all the income is from Fixed Deposits in bank. There is no deduction of tax at source. If I am to pay tax, will it be OK if I pay it at the time of filing the return?
2. My wife is a housewife. Her yearly income is: -From FD in bank-Rs. 12,859/- -From House rent: Rs. 1,98, 000/-Her income is less than Rs. 2.40 Lacs, is it required that she should file the return? She has got the PAN card also. [bltiwari@gmail.com]
Opinion:
The basic exemption limit for the senior citizens for the F.Y. 2011-12 is Rs. 2.50 Lacs.
1. In your case, on income of Rs. 3,05,956/- the income tax liability works out to Rs. 5,764/-. You can save the entire income tax liability on you by investing the approx amount of Rs. 55,960/- in the mode prescribed u/s 80C like purchase of NSC, Investment in PPF, 5 Years tax saving FD with the Bank, etc. If you don’t want to invest, you can pay the tax at the time of filing the income tax return itself & there is no liability on you to pay it by way of advance tax.
2. If the income of any individual is below the applicable basic exemption limit, the filing of the income tax return would be optional & not mandatory in such case. Merely having a PAN doesn’t fix an obligation on the individual assessee to file the income tax return. The income of your wife is comfortably below the basic exemption limit and as such, she is not compulsorily required to file the income tax return.

Query 2]
I am working as a broker/ agent in real estate activities. I am getting commission from the companies which are paid to me after 10% T.D.S. I have a team of sub-agents working under me. From the commission I am receiving, I have to pass on about 80% to 90% commission to the sub-agents as a result of which at the end of the year I have to claim the income tax refund back which takes its own time & energy. Is there any remedy to avoid TDS? What is the way out? Can it be given without TDS or by doing deduction at a rate lower than 10% as is presently done presently by the payer company? Also, please let me know whether the dividend received from the credit co-operative society is tax free or not? I learned somewhere that the dividend is not taxable as the same is specifically exempt from income tax as the same is paid out of the tax paid income of the payer.[SMP]
Opinion:
1. Yes, you can get the Commission after Tax Deduction at Source (TDS) at a lower rate or even without TDS also. For this, you have to apply to your Assessing Officer in the prescribed Form No. 13 u/s 197 of the Income Tax Act-1961 read with rules 28 and 37G stating that you may either be exempt from TDS or TDS should be at a rate lower than the prescribed rate. To justify your demand, you have to attach documents of last three years to make your point. The CBDT has delegated the power to the Assessing Officer either to exempt the payment from TDS or to subject the payment at lower rate of TDS.
2. The dividend from Co-operative society is taxable in the hands of recipient. As per section 10(34), only that dividends, on which Companies are paying pay tax u/s 115-O (Dividend Distribution Tax) are tax free in the hands of shareholders.