Sunday, May 27, 2012


BY CA. NARESH JAKHOTIA (Chartered Accountant)
Query 1]
Kindly let me know whether interest earned from Post Office Monthly Income scheme (MIS) is taxable or not? If not, under which section? Also let me know what does the section 80L deal with? []
Interest on post office Monthly Income Scheme (MIS) is taxable. There is no provision in the Income Tax Act to exempt the interest on post office MIS. Section 80L is no more in vogue. Similar to erstwhile section 80L, the Finance Act 2012 has inserted a new section 80TTA in the Income Tax Act – 1961 which will provide deduction up to Rs. 10,000/- to an Individual/ HUF towards Interest on saving bank A/c maintained with a bank / society / post office. The deduction admissible shall be interest received or Rs. 10,000/- whichever is lower. (It may be noted that saving bank account interest  maintained with a post office is exempt from income tax u/s 10(15)(i) & the same is not to be considered in claiming deduction of Rs. 10,000/- u/s 80TTA)

Query 2]
My Question is regarding “Capital Gains” whether taxable? If so, please furnish the procedure & also how the Tax Code released in the context of following:
1.      My Close relative is a permanent resident of Luknow abinitio, in the State Of Uttar Pradesh.
2.      She purchased two flats at Nagpur in the same building complex from the builder in the year 1986 valued at above Rs. 5,00,000/- (Rupees Five Lacs only).
3.      Now, she sold both the flats for Rs. 70,00,000/- (Rupees Seventy Lacs only) excluding stamp duty in the month of April-2012 by Demand Draft drawn on Bank at Luknow. She carried the Bank DD to Luknow immediately on execution and registration of Sale deed.
4.      Since long, she owns her House Property at Luknow.
Now, at this Juncture, is she liable for tax payment on the Capital Gains either at Nagpur or Luknow being the fact that Purchased and resale of the said property is held at Nagpur. And besides, what shall be the Amount of tax payable after deduction of purchased value Rs. 5,00,000/-.
Please Apprise. [Chandrakant Taide, Ashish Apartment, Plot No. 371, Gandhinagar, Nagpur – 440010]
1.      Assessee can pay the capital gain tax at a place where he normally files his/her income tax return. The PAN is valid throughout India & the place of transaction is not relevant for paying the income tax.
2.      Thought the profit on sale of both the flat is Rs. 65 Lacs, the tax is payable not on Rs. 65 Lacs but could be on a lesser amount of profit. The tax is payable on the amount of Long Term Capital Gain.
  1. Computing Long Term Capital Gain:
    Long term need to be calculated after deducting from the full value consideration (i.e., Rs. 70 Lacs or the Stamp Duty Valuation if it is higher than Rs. 70 Lacs, in the given case) the following:
    (a) Indexed cost of Acquisition and
    (b) Indexed cost of Improvement.
    Further deduction is also available towards the expenses incurred WHOLLY & EXCLUSIVELY in connection with the transfer.
  2. The cost inflation index for the FY 1985-86 is “133” & for the FY 1986-87 is “140”. The cost inflation index for the FY 2012-13 has not yet been notified.
  3. Long term capital gain is taxable @ 20% u/s 112 of the Income Tax Act-1961.

Query 3]
My father is retired Govt. employee receiving pension of Rs. 7,000/- pm. He is planning to sale property consisting of land and building for Rs. 26 Lacs. He had purchased the land approx 20 years ago for Rs. 26,000/- and constructed a house for Rs.10 Lacs in 2003-04. Kindly tell us
1.      Which type of taxes and applicable rates he would be liable to pay
on this sale?
2.      If he transfer a portion of the amount received in this sale to his
children, what are tax implications on him and the receiver as well?
Kindly guide. []
1.      Your father will be liable to pay the Income Tax (Long Term Capital Gain Tax) @ 20% on the amount of capital gain arising sale of land & building. You can refer Query No. 2 above wherein the mode of computing long term capital gain is covered at length. If taxable income of your father is below the basic exemption limit, the unused basic exemption limit can further be used to reduce the amount of taxable long term capital gain.
2.      The transaction of gift by father to the children (Major) is tax neutral. Neither father nor children are liable to pay any income tax on the amount gifted.

Saturday, May 19, 2012


BY CA. NARESH JAKHOTIA (Chartered Accountant)
Query 1]
I have recently sold my inherited property at Rs. 60 Lacs. I want to park the money in the REC/NHAI. I am told that maximum of Rs. 50 Lacs can be deposited there. My queries are:
1.      What should I do with the balance Rs. 10 Lacs? If I keep in bank fixed deposit, then am I required to pay tax at the highest slab i.e., @ 30% for this 10 Lacs of Rupees?
2.      I am told that the amount parked in REC/NHAI can be kept for 3 years. After three years when this money is transferred to bank, do I need to pay tax on these Rs. 50 Lacs then? [S.K. Roy, Santi Nagar, Bhilai -]
1.      U/s 54EC of the Income Tax Act-1961, there is a maximum investment ceiling of Rs. 50 Lacs in a financial year for deposit in the specified bonds issued REC/NHAI. For exemption, amount is required to be invested within a period of 6 months from the date of transfer. The amount of Long Term Capital Gain (LTCG) is taxable at a special rate of 20% (and not as per the rate of regular tax slab like @ 30% in your case). It may be noted that sale consideration is not relevant for claiming an exemption u/s 54EC. If assessee can invest the entire amount of LTCG, he will be eligible for exemption for the entire amount. In your case, Rs. 60 Lacs is the sale consideration (& not LTCG) that you have received on sale of inherited property. You need to compute the LTCG on the transaction & if it is less than Rs. 50 Lacs, you can invest the amount of LTCG to have a full LTCG exemption.
 In a situation where the capital gain is more than Rs. 50 Lacs, the assessee could further explore the possibility of claiming simultaneous exemption under other section like exemption u/s 54 or 54F or 54B etc in addition to an exemption u/s 54EC
2.      It’s true that there is a lock in period of 3 years u/s 54EC. After completion of the holding period of 3 years, the principal amount received back is NOT TAXABLE.
Query 2]
1.      I was an employee of Infosys as Sr. Software engineer & I quit my job in July-2011 after 4 years of service, for higher studies. I got salary from April-2011 to June 2011 (around Rs. 75,000/-) & PF and other returnable around Rs. 1.75 Lacs, which is below tax limit, I guess. Is it necessary to file the IT returns (Form 16 or Saral) for the year 2011-12?
  1. My father retired from defense services in Aug-2010, i.e., during the financial year 2010-11. He filed IT returns & paid IT on his salary & other income like interest on SB account. In the year 2011-12, he received arrears on difference in gratuity pay on gratuity & commuted pension amount, which crosses the taxable limit. Please let me know what retirement benefits (like gratuity and commuted pension & their arrears or DA arrears etc) are taxable? Is it necessary for him to pay tax on complete amount of annual pension, DA arrears, Gratuity arrears & commuted pension arrears? []
1.         Filing of the income tax return for an Individual/ HUF is not mandatory if the gross total income is below the basic exemption limit. If your Gross Total Income during the financial year 2011-12 is below Rs. 1.80 Lacs, then you won’t be required to file the return of income. The different component included in Rs. 1.75 Lacs is not mentioned in the query & first you have to assess the taxable components included in Rs. 1.75 Lacs. As far as the taxability of CPF Accumulation is concerned it may be noted that, in case of withdrawal from the recognized provident fund, the amount is exempt only if it is withdrawn from the PF account maintained for more than 5 years continuously. If it is not so, the amount withdrawn is to be included in the income of that year, and is taxed as per the prevailing income tax slabs / brackets.
  1. The tax treatment of various components of salary normally received by an employee at the time of retirements are as under:
    A] Provident Fund:
    Lump sum payment received from Statutory Provident Fund received by the Government employee is fully exempt from income tax u/s 10(12).
    B] Gratuity: 
    In the case of Government employee, Gratuity amount is exempt from income tax u/s 10(10)(i) of the Income Tax Act- 1961.
    C] Commutation of Pension: 
    Commuted pension received by a employee who has joined the Central Government before 01.01.2004 is fully exempt from tax u/s 10(10A)(i).
    D] Leave Salary:

    In the case of Government employee, any amount received as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of retirement/ superannuation is exempt from tax u/s 10(10AA)(i)

    It is taxable. Even the arrears received is also taxable. However, in respect of arrears, assessee can claim a relief u/s 89(1).

Query 3]
I had purchased a shop for Rs. 9.88 Lacs for which I had paid registry charges of Rs. 41K. This whole sum of money was arranged after my father had taken a home loan of Rs. 8 Lacs & Rs. 2.50 Lacs Personal loan. I also borrowed a loan of Rs. 5 Lacs from other bank to maintain stocks in my shop & clear personal loans of my father. I had mortgaged my shop to take this loan of Rs. 5 Lacs. Now, I  want to sell the said shop for Rs. 13 Lacs so that I can clear all  loans . Kindly let me know what will be the tax liabilities? []
1.      The repayment of Rs. 5 Lacs to the bank with whom you have mortgaged the property for availing the loan is not deductible while computing the amount of income [i.e., Long term capital gain (LTCG)]
  1. The year of purchase/ sale, other income, etc is not mentioned in the query in the absence of which exact LTCG & tax liability could not be worked out. Your cost of acquisition is Rs. 10.29 Lacs whereas the sale price is Rs.13 Lacs. [If the Stamp Duty valuation of the property is more than Rs. 13 Lacs, LTCG would be required to be calculated by considering such higher amount.] If the shop is sold after a holding period of more than 3 Years, then the indexation benefit could also be availed by you.

Sunday, May 13, 2012


BY CA. NARESH JAKHOTIA (Chartered Accountant)
Query 1]
I would like to seek your opinion with reference to deduction on repayment of housing loan & Interest under the following scenarios:
a.      House is jointly owned by husband and wife. Loan is in the name of both.  Their share in the property & loan is not defined.  Wife is not working. Husband is paying entire EMI.  Whether full benefits are to be extended to the husband alone?
b.      House is jointly owned by husband and wife. Loan is in the name of both.  Their share in the property and loan is not defined. Wife is working and paying full EMI from her account and wants to claim entire benefit of repayment of loan and interest and willing to give undertaking to the extent that husband will not claim exemption from his office.
c.      House is owned by both husband and wife. Bank insisted for adding spouse’s name as co-borrower.  His / Her income was not considered for Loan.  Their share in the property is not defined.  Whether full benefits can be extended to either who is paying full EMI?
d.      House is owned by wife. Loan is in the name of both.  Wife is not working. Husband is paying entire EMI.  Whether husband can claim full benefits?
e.      House is owned by wife. Loan is in the name of both.  Wife is working. Husband is paying entire EMI.  Whether husband can claim full benefits?
f.        In your earlier tax –talk, you have specifically mentioned that benefit is to be extended to the extent of their share in house property if the house property is jointly owned by husband and wife. However, in the earlier issues of tax talk, it was mentioned that if the property is jointly owned by husband and wife (implied 50%) and their loan is in the ratio of say 70:30 or 80:20, then benefits can be claimed by both in the proportion of their ratio of loan. []
Ownership is a condition precedent for claiming deduction towards Interest u/s 24(b) and towards Principal Repayment u/s 80C. It may be noted that Right to claim deductions originate from ownership. Without ownership, deduction would not be admissible. With this basic concept, the admissibility of the deduction in the instances elaborated by you are as under:
a.       The mere fact that Husband is paying the entire EMI or wife is not working or  not claiming the deduction or is not having taxable income doesn’t automatically make Husband eligible for deduction u/s 24(b) or U/s 80C. Depending upon the ratio of husband in the loan, he can claim proportionate deduction.
b.      Similar to above, the submission by the wife that Husband will not claim the deduction doesn’t mechanically make her eligible to claim entire amount as deduction. In the absence of anything to the contrary as to the ratio in the property & loan, it is presumed at 50:50 & subject to payment by each of the co-owner, the claim can be done in 50:50 ratio only.
c.      If it can be proved that Husband is the actual & beneficial owner and wife name is included for the name sake and wife doesn’t have any financial involvement / interest, the entire amount of deduction could be claimed by the Husband.
d.      If wife is the actual and beneficial owner of the house property, the deduction cannot be claimed by Husband for the mere reason that the repayment is done by Husband. As already mentioned, Right to claim deductions flow from ownership.
e.      Subject to repayment by the wife, she is the only person who can claim deduction (as she is the owner of the house property). As discussed earlier, without ownership, husband would not be able to claim deduction u/s 24(b) or U/s 80C.
f.       The ratio of the co-owners “in the  loan” could be different from the ratio “in the ownership” . If it is so, the deduction would be admissible in the ratio of share of loan and not in the ratio of ownership of the house property. Unless there is anything to prove otherwise, the ownership / loan ratio is normally presumed at 50:50 ratio.
Query 2]
Please help me to plan my financial tax planning. I am the only legal heir for one “Ancestral farm land property” which is ready for sale & I am likely to get amount of more than Rs. 75 Lacs.
My queries are:
1.      What will be tax liability?
2.      How to save Tax?
3.      How to plan the investment of the amount so as to have a zero tax liability? []
  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 (LTCG) would be required to be computed & the same would be taxable @ 20% .
  3. Computing Long Term Capital Gain (LTCG):
    a] The property to be sold is an ancestral property (acquired before 01.04.1981). The fair market value of the property as on 01.04.1981 can be taken as cost of acquisition for computing the LTCG.
    b] The fair market value of the property as taken above can be indexed by multiplying it with cost inflation index (CII) for the F.Y. of the year in which it is sold to arrive at the indexed cost of acquisition. It may be noted that CII for the FY 2012-13 has not yet been notified.
    c] The difference between the sale price (or the Government valuation if it is higher than the sale price) and the indexed cost of acquisition as computed in (b) above, would be the amount of LTCG.
  4. 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 exemption u/s 54B or U/s 54F or U/s 54EC.
    i) Exemption Under Section 54B:
    The main stipulations incorporated in section 54B are as under: -
    a) Capital gain arises on transfer of Agricultural Land.
    b) 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.
    c) The taxpayers has purchased another land for agricultural purposes within a period of two years from the date of transfer.
    ii) Exemption Under Section 54EC:

    To save tax u/s 54EC, One can invest the amount of LTCG in the Specified bonds REC/ NHAI within a period of 6 months from the date of transfer.
    ii) Exemption Under Section 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.

Saturday, May 5, 2012


BY CA. NARESH JAKHOTIA (Chartered Accountant)
Query 1]
Post Budget 2012-13, what are the provisions to get tax exemption on home loan's principal amount and interest amount? []
There are no changes proposed in respect of deduction available towards principal repayment & interest payment u/s 24(b) or U/s 80C of the Income Tax Act-1961.
For the mass benefit, we are elaborating the income tax benefit towards principal & interest available in respect of home loan, as under:
Interest payable on Home loan:
1.      U/s 24(b) of the Income Tax Act-1961, deduction up to Rs. 150,000/- is admissible against the interest payable on the loan availed for purchase / construction of the self occupied house property.
[However, the acquisition or construction of the house property should be completed within 3 years from the end of financial year in which home loan was taken; otherwise, the deduction would be restricted to Rs. 30,000/-]
  1. In respect of loan taken prior to 01.04.1999, the deduction can’t exceed Rs. 30,000/-.
  2. Pre-construction period Interest [Loan taken against/for under construction property]:
    The interest paid during the period the house property is under construction is not deductible in the year of payment. Interest in respect of pre-construction period is deductible in five equal annual installments commencing from the previous year in which the house is constructed/acquired. For this purpose “pre-construction period” means the period commencing on the date of borrowing and ending on March 31 immediately prior to the date of completion of construction /acquisition.
  3. In respect of self occupied house property, it may be noted that for purchase / construction, interest deduction is admissible up to Rs. 1.50 Lacs whereas there is a ceiling of Rs. 30,000/- only in respect of loan taken for Repairs/ Renewal or Reconstruction.
Principal repayment of the home loan:
In respect of principal repayment of home loan, deduction is admissible u/s80C. Overall deduction U/s 80C (which also includes deduction towards LIC/ PPF, Tuition fees etc) can’t exceed Rs. 1 Lacs.

Query 2]
I am a State Government servant and had obtained loan of Rs.1,48,000/- from Govt. of Maharashtra in the year 1997 for purchasing a ready-built house. It was to be repaid in 172 installments and interest was to be paid thereafter in 48 installments.  
Since I intended to renovate the ground floor and construct a first floor of the said house, I approached a Co-operative Bank for grant of loan.  The Bank asked me to first clear the Govt. loan and was not ready to take over the said loan.  Accordingly, I have repaid the entire Govt. loan along with interest (i.e., Rs. 1,00,000/- towards interest + Rs. 36,000/- towards remaining amount = Total Rs. 1,36,000/-) in the month of November, 2011 and obtained loan of Rs. 8 Lacs from the Co-operative Bank (i.e. Rs. 2.50 Lacs for renovation of ground floor and Rs. 5.50 Lacs for construction of first floor, Total Rs. 8.00 Lacs.  
My office informed me that now I cannot take the benefit of housing loan.  My query is whether I can take the benefit of the housing loan while computing the income for the financial year 2012-13?[]
1.      Existing Loan Repayment:
In respect of existing loan repaid by you, you shall be eligible for deduction u/s 80C towards the repayment of the principal part of the loan. As far as payment of interest is concerned, it may be noted that the interest deduction u/s 24(b) is available on accrual basis. Interest pertaining to the FY 2011-12 is eligible for deduction u/s 24(b) [and not entire interest amount of Rs. 1 Lacs paid by you at the time of foreclosure].
2.      New Loan Repayment:
In respect of new loan availed by you for renovation AND addition to the existing house property, the admissibility of deduction is as under:
a] Interest Deduction U/s 24(b)
i) Interest related to the loan taken for renovation (i.e., Rs. 2.50 Lacs) is admissible as deduction subject to a maximum cap of Rs. 30,000/-
ii) Interest related to the loan taken for addition to the existing house property (i.e., Rs. 5.50 Lacs), in our considered opinion, is admissible as deduction subject to the overall max cap of Rs. 1.50 Lacs u/s 24(b).
b] Deduction U/s 80C towards Principal repayment:
No deduction u/s 80C is available in respect of loan taken for addition, alternation or renovation or repairs of the house property.