Saturday, June 30, 2012

“LIC COMMISSION INCOME: WHETHER BUSINESS OR PROFESSION”


TAX TALK-02.07.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“LIC COMMISSION INCOME: WHETHER BUSINESS OR PROFESSION”
Query 1]
Mr. X is having commission income of Rs. 15,82,760/-. The Commission is derived from LIC, Sahara & HDFC. Whether his income is professional income or business income? Because, if it is a professional income, then he has to get his books audited u/s 44AB. Otherwise, can he file his return u/s 44AD in ITR 4S. Apart from doctors, lawyers, architects, CA’s who else can be professional? What norms have to be taken into consideration? Please clarify. [saju_sak@hotmail.com]
Opinion:
1.      A person who is carrying on business is required to get its books of accounts audited if the gross sales/receipts/ turnover exceeds Rs. 60 Lacs for the Financial Year 2011-12 (The limit has been enhanced to Rs. 1 Cr from the F.Y. 2012-13).  A person who is carrying on profession, the limit for audit for the F.Y. 2011-12 is Rs. 15 Lacs (From FY 2012-13, it is Rs. 25 Lacs). The following activities are considered as profession by virtue of section 44AA & Notifications No. SO-17(E) dated 12.1.77 & No. SO 2675 dated 25.9.1992:
i.                    Legal
ii.                 Medical
iii.               Engineering
iv.                Architectural profession
v.                   Accountancy or
vi.                Technical consultancy or interior decoration
vii.              Film artists
viii.           Authorized representatives
ix.                Company Secretary
x.                  Information Technology
 The income by way of commission from the insurance/ RD is considered as business income & the tax audit would be compulsory only if the receipts exceeds Rs. 60 Lacs during F.Y. 2011-12 (Rs. 1 Cr from FY 2012-13).
2.      It may be noted that brokerage/ commission income cannot be offered for taxation u/s 44AD on presumptive basis. Hence, return cannot be filed in ITR-4S.
Query 2]
I have two queries regarding availing interest benefit on housing loan, as under:
1.      If husband and wife both are employed in Govt. service & availed housing loan and the house is self- occupied, can both of them claim interest benefit under section 24(b) individually i.e. maximum up to Rs.1,50,000/- each?
2.      On the same property, if additional housing loan for extension of house is availed, benefit of interest & principal can be claimed under 24(b) & 80C respectively subject to maximum prescribed limits?
3.      Kindly clear the position for both husband and wife separately.
[sanjayvinodia@rediffmail.com]
Opinion:
1.      Ownership is a primary condition, precedent for claiming deduction towards interest U/s 24(b) & towards Principal U/s 80C of the Income Tax Act-1961. If both the husband & wife are the co-owners in the house property, deduction towards interest for housing loan taken for purchase or construction of the house property, up to a maximum of Rs. 1.50 Lacs, can be claimed by each one of them. Similarly, deduction U/s 80C towards principal repayment, up to a maximum of Rs. 1 Lacs, can be claimed by each one of them.
2.      Deduction towards Additional Housing Loan for extension of House:
In respect of new loan to be availed by you for extension of the existing house property, the admissibility of deduction would be as under:
a] Interest Deduction U/s 24(b):
Interest related to the loan taken for addition to the existing house property, in our considered opinion, is admissible as deduction subject to the overall max cap of Rs. 1.50 Lacs u/s 24(b). [Our other readers may note that interest on loan taken for renovation is admissible as deduction subject to a maximum cap of Rs. 30,000/- only.]
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.

Query 3]
The provision for PPF as of now is EEE. As per DTC norms, will the provisions be altered to EET from the financial year 2013-14? Kindly throw some light on this. If I open a PPF now, will it be continued on EEE terms till maturity or change after introduction of EET? [plchatterji@yahoo.in]
Opinion:
Entire Direct Tax Code (DTC) is in the doldrums now & no one knows the fate of it. We will try to cover the provision of new Direct Tax Code vis a vis Income Tax Act after the Government notifies the date of its enactment.



Sunday, June 24, 2012

TAX TALK-25.06.2012-THE HITAVADA


TAX TALK-25.06.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“WRONG SUBMISSION OF FORM NO. 15G & THE CONSEQUENCES”
Query 1]
1.      I retired on Dec.-2011 under the VRS scheme. I have got all my dues and retirement benefits on Jan-2012, which is exempt from tax.
2.      My net Taxable Salary after deductions under chapter VI-A was Rs. 2,45,020/-. The employer had deducted TDS amounting Rs. 8,500/- whereas my tax liability was at Rs. 6,700/-. Later I invested my savings in FD with SBI for a period of 5 years on Jan.-12 & the interest is deposited on a monthly basis. As I was under the impression that excess tax is already deducted from my salary income, I directed the bank not to deduct TDS on interest and accordingly filled up the Form No. 15G and submitted it to the bank. Now at the year end, I came to know that the total interest I have received up to March-12 is around Rs. 37,000/-. Thus, I have to pay additional tax in excess of my TDS amount. Hence, my queries are:
a.      Would there be any complications since I submitted the Form no. 15G and later is needed to pay more tax? What are the consequences for this?
b.      Do I need to report the amount received towards PF, Gratuity, Leave Encashment & VRS which are exempt under section 10 in my return form (Sahaj)? [Piyush Meshram-zeusgold.1@gmail.com]
Opinion:
1.      Form No. 15G- When can be submitted:
Form No. 15G is a declaration form which can be filed by non senior citizens if the following two conditions are satisfied:
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 limit.
If both these conditions are satisfied, Form 15G may be furnished and in such case, the entire interest income can be paid without deduction of tax at source.
2.      Penalty for submitting false statement:
Before signing the verification, the declarant should satisfy himself that the information furnished in the declaration is true, correct & complete in all respect. Any person making a false statement in the declaration shall be liable to prosecution u/s 277 of the Income Tax Act-1961 and on conviction:
a) in case where tax sought to be evaded exceeds Rs. 1 Lacs (Rs. 2.50 Lacs w.e.f. 01.07.2012), with a rigorous imprisonment which shall not be less than 6 months but which may be extend to 7 years & fine.
b) in any other case, with rigorous imprisonment which shall not be less than 3 months but which may extend to 3 years (2 years w.e.f. 01.07.2012)& fine.
3.      Remedy now available:
It appears that you have submitted Form No. 15G under the wrong impression that tax on your estimated income for the relevant year is Nil. You may pay the balance amount of your tax liability now at the time of filing the return of income. As far as prosecution is concerned, it may be noted that the Commissioner of Income Tax is empowered to grant immunity from prosecution u/s 278AB of the Income Tax Act-1961.
4.      Exempt Income & Reporting in Sahaj:
The exempt income is required to be reported in the Sahaj in Part D (D19).

Query 2]
I have fixed deposits in various banks. They are doing deducting tax at source (TDS) but not giving credits to me by depositing it in the Government A/c.  I am not getting the credit of the amount of TDS & the same is not being reflected in 26AS. What procedure I should adopt to get the full TDS Credit? Where should I complain? [U.C.Sahu, Bhilai - uttamindustries@sify.com]
Opinion:
1.      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.
2.      For non compliance of each and every part mentioned above, there is a separate penalty and consequences under the Income Tax Act-1961 as under:
a] 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.
b] For non filing of TDS Return also, there is a penalty provision of Rs 100 per day.
The recent Finance Act-2012 has imposed a fee of Rs. 200/- per day for late filing of TDS Return. Besides, a penalty of Rs. 10,000/- to Rs. 1,00,000/- is there for non filing or inaccurate filing of TDS return. The amendment is w.e.f  01.07.2012.
3.      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. Also, unless and until the TDS return is filed by the Deductor, deductee will not be able to view the TDS Credit in Form No. 26AS.
4.      There is a general grievance that in many cases the Bank and other Tax Deductor are either not filing the quarterly TDS return (or are not issuing the TDS certificate) despite many requests & reminders by the Deductees.
5.      In such cases, Deductee can follow the following approach:
i.        Write a letter to the Deductor incorporating:
a] The details of payments done and the tax deducted therefrom.
b] Provision of Section 203 which requires the Deductor for issue of tax certificate within one month from the date of tax deduction
ii.     Keep the proof of letter issued to the Deductor
  1. 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.
  1. We advise all our readers to regularly track all the tax deducted & deposited in your account [i.e. Tax Credit in Form No. 26AS] by registering your PAN at www.incometaxindia.gov.in. In the absence of availability of TDS in form No. 26AS it would be difficult for the Assessing Officer to grant the TDS Credit.

Thursday, June 21, 2012

TAX TALK-18.06.2012-THE HITAVADA



TAX TALK-18.06.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“INVEST IN BUSINESS & SAVE LTCG TAX”
Query 1]
Presently I am a salaried assessee working in a private company & will be resigning from the company. I will be getting around Rs. 27 Lacs as retirement benefit which I intend to utilize for setting up of a new business. I am also planning to sell an agricultural land and plot in the current financial year & wish to utilize the amount for setting up of my own business. I had already purchased an Industrial plot in the year 2008 at Butibori, MIDC. In the recent budget, I have heard about the new scheme which makes profit arising on sale of property, tax free if it invested in setting up of a business. Whether I can save my tax on sale of plot & agricultural land if I invest it in the new business? Please advice. [rao2319k@gmail.com]
Opinion:
A new section 54GB has been incorporated in the Income Tax Act-1961 which provides exemption in respect of long term capital gain arising from transfer of residential house property from the A.Y. 2013-14.
For the mass benefit, we are elaborating in detail the provision of section 54GB which is are applicable from the assessment year 2013-14, as under:
1.      Exemption is available to an individual & HUF.
2.      Exemption is available if the assessee transfers a residential property (a house or a plot of land). The residential house property should be a long term capital assets i.e., should have a holding period of more than 36 months.
[In your case, it may be noted that exemption is not available if the capital gain arises from transfer of an agricultural land or from transfer of plot which is not a residential plot]
3.      The transfer should take place in between 01.04.2012 to 31.03.2017.
4.      For exemption, the assessee will have to utilize the net sale considerations for subscription in equity shares of an “eligible company” before the due date of furnishing of return of income under section 139(1),
5.      The “eligible company” should utilize this amount for the purchase of a “New Assetwithin one year from the date of subscription in equity shares. If, however the company does not utilize this amount for the purchase of a “New asset” before the due date of furnishing of return of income by assessee (i.e., transferor of residential property), it will be required to be deposited by the company in Capital Gains Deposit Account Scheme(CGDAS). In such a case, exemption would be available on the basis of amount deposited in the CGDAS.
6.      Amount of exemption is as follows (It cannot, however, exceed the amount of capital gain): = Investment in “new asset” by the eligible company/Net sale considerations*Capital gain
7.      Net sale consideration is sale considerations minus expenditure on transfer incurred by the transferor.
8.      Meaning of “eligible company” as mentioned above:
It means a company which satisfies the following conditions-
a.       It is incorporated on or after April 1st of the financial year in which residential property is transferred but on or before the due date of submission of return of income under section 139(1) by the assessee (i.e., transferor of residential property).
b.       It is engaged in the business of manufacture of any articles or thing.
c.      The assessee (i.e., transferor of residential property) should have more than 50% share capital (or voting right) after subscription in the shares of the company.
d.      The company qualifies to be a SME (i.e., small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006)(i.e., where the investment in plant and machinery is more than Rs. 25 Lacs but not more than Rs. 10 Crore).
9.      Meaning of “New Asset”:
 It means new plant and machinery but does not include the following-
1.        Any plant or machinery which is used in India or outside India by any person before its installations by the eligible company.
2.        Any plant or machinery which is installed in office premises/residential accommodation/guest house.
3.        Any office appliance.
4.        Computers
5.        Computers software
6.        Any vehicle
7.        Any plant or machinery which is allowed 100 per cent deduction (by depreciation or otherwise) in any ‘previous year.

10.  Words of Caution:
In the following cases, exemption will be taken back and the amount of exemption (or proportionate exemption) given earlier under section 54GB will become a long term capital gain of the assessee (i.e., transferor of residential property). It shall be taxable in the year in which the assessee or the eligible company commits the following defaults:
1.      If the equity shares in the eligible company are sold or otherwise transferred by the assessee within 5 years from the date of acquisition.
2.      If the “New Asset” is sold or otherwise transferred by the eligible company within 5 years from the date of acquisition.
3.      If the deposit account is not utilized fully or partly by the eligible company for purchasing the new asset within 1 year from the date of subscription in equity shares (by the assessee).

Monday, June 11, 2012

TAX TALK-11.06.2012-THE HITAVADA



TAX TALK-11.06.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“RECEIPT OF SALARY IS NOT THE CRITERIA FOR ITS TAXABILITY”
Query 1]
The Quarterly TDS certificates are sent by the Companies/Banks by post or courier. But for some reason or other, if it is not received, then involves unnecessary follow up with the companies. To avoid this, can I use TDS-data/information like TAN of Deductor etc reflected in Form 26-AS, for filing Income Tax Return. Please advice in the matter. [vdpankey@rediffmail.co]
Opinion:
Assessee can file the Income Tax return on the basis of TDS credit reflected in Form No. 26AS rather than waiting for the TDS Certificate from the concerned Deductor. Now, the income tax department is also relying mainly on the amount reflected in 26AS for granting TDS Credit to the assessee. However, it is advisable to get the copy of the TDS certificate for record purpose as the option of filing the revised TDS return is always available with the Deductor.

Query 2]
I need some clarification about the Senior Citizen saving account scheme. Last FM Shri Chitambaram in his last or a year earlier brought this scheme/ instrument under 80C is his budget proposal.
Should I conclude that:
1.      The investment & the interest accrued are free of Income tax as covered by section 80C?
2.      Should interest be a part of Income & also be a part of items covered under 80C or a part of section 80C only?
3.      In case of Bank FD' for 5 years, the interest is exempt. Since the investment in this scheme is for 6 years or more, is the interest accrued also exempt from IT?
4.      Whether the interest income from senior citizen deposit account scheme will be subject to tax deduction? [shivdev_gupta@hotmail.com]
Opinion:
1.             Investment in an account under the senior citizens Savings Scheme Rules-2004 is eligible for deduction u/s 80C.
2.             The Interest income on deposit made in the Senior citizen saving scheme is not eligible for deduction u/s 80C.
3.             Interest on specified Bank FD with a 5 years term is taxable (& not exempt as mentioned in the query) Similarly, Interest on amount deposited under the Senior Citizens Savings Scheme, 2004 is also taxable.
4.             Interest payable on the amount invested in the senior citizen deposit account scheme is subject to deduction of tax at source (TDS). Interest payment has not been exempted from deduction of tax at source. (GOI letter F. No.2/8/2004/NS-II dated March 28, 2006)

Query 3]
Kindly guide me in the following matter regarding non payment of salary even after deducting TDS from salary. I have Resigned from the private company after giving one month notice as per agreement/bond & was relieved on 10th of March 2012. Company has deducted TDS from my salary of March-2012 (10 days salary) & did not pay the balance salary (i.e., total salary less TDS).
1.      Kindly guide me whether company has right to hold back the net salary after effecting the TDS payable for the month of March 2012? Is there any provision under IT rule compelling the company to make the payment of balance salary once the TDS is deducted from it?
2.      Also guide me how to file the return as Form No. 16 will show total amount paid but actually not received the above mentioned 10 days salary till date as the TDS is deducted on this 10 days salary of March? [D.R.P. -*_******@yahoo.in]
Opinion:
1.      Basis of charge in respect of salary income is fixed by section 15 of the Income Tax Act-1961. It is chargeable to tax either on due basis or on receipt basis, whichever matures earlier. It may be noted that receipt of salary income is not the criteria for its taxability. 10 days salary is taxable as your income whether the same is received or not. There is no provision in the Income Tax Act that can compel the company to make the payment of the salary even if the TDS is done on that salary.
2.      You have to incorporate the 10 days salary, as reflected in Form No. 16, as income in your income tax return.


Friday, June 1, 2012

TAX TALK-04.06.2012-THE HITAVADA



TAX TALK-04.06.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“PURCHASED RESIDENTIAL PROPERTY & USED FOR COMMERCIAL PURPOSE”
Query 1]
I am a CA Student & I would like to obtain your opinion on the following issue.
My parents are practicing doctors. They have purchased a residential flat in Joint Name & are planning to conduct their practice from the said flat.
1.      Can my Father and Mother, individually, claim benefit of stamp duty paid for the purchase of the flat and Amount of Repayment of Principal as deduction u/s 80C? The flat will be used purely for commercial purpose.
2.      My mother is a pathologist. She conducts her practice in a Partnership firm, XYZ, whose operations are carried on in the above mentioned flat. Can XYZ (the partnership firm) show payment of rent to my father (who happens to be a part owner) for taking his part on rent and claim it as an expense? And can my father show payment of rent to my mother (who is also a part owner) for taking her part on rent and claim it as an expense?
3.      My Father and mother have availed Housing Loan. Can the two of them, in their individual returns claim benefit of interest, showing their share as let-out?
4.      As the property is being shown in the books as let-out, no depreciation will be claimed. I wish to confirm as to whether the Department will insist on calling it a Business Asset as it is being used for business purpose, We do not want to treat it as a business asset and wish to claim the entire indexed purchase cost as deduction while calculating Capital Gain as and when we happen to sell it. Is that option possible? [Satyamedh Nandedkar- satyamedh@gmail.com]
Opinion:
Indeed it’s an interesting query with a lot of practical sense. Opinion on the various parts of the queries raised by you is as under:
1.      As far as the claim for stamp duty u/s 80C for purchase of house property is concerned, it may be noted that there is no bar on use of the property. Section 80C speaks about the admissibility of deduction if a residential house property is purchased. We are of the opinion that the deduction will be available even if the property is subsequently used for commercial purpose.
2.      The mode proposed sounds a bit confusing & questionable. The best way could be the letting out of the property (or part of the property) by the joint owners to the firm. The rent could be apportioned amongst the joint owners in the ratio of their ownership in the flat. Even if the mother is a partner in the firm, the deduction would be admissible in the hands of the firm for rent payment. Both the joint owner can show their share of rent received from the firm as income in their Individual return.
3.      The income from flat, even though let out for commercial purpose, is assessable under the head “Income from House property”. As far Interest deduction u/s 24(b) is concerned, there is absolutely no bar in claiming such deduction even if the residential house property is used for commercial purpose. As far deduction u/s 80C towards the principal part of the repayment is concerned, we are of the opinion that the deduction can be claimed as there is nothing to prohibit the assessee’s claim u/s 80C. Subject to reasonableness, the firm is eligible for deduction towards rent payment, even in case the rent is paid to the partner of the firm.
4.      The assets could be treated as a capital asset if no depreciation is claimed by the assessee. Also, the income from the assets let out is proposed to be offered as “Income from House property” (& not Income from Business/Profession) which further strengthens the treatment of assets as capital assets.)

Query 2]
Sir, I am working in public sector bank.  My wife is a housewife.  She had received Rs.1,00,000/- from her father 10 years back as he had sold his house & gave some money to his daughter. She deposited the money in bank and then in RBI bonds. After maturity, she again deposited the money in bank in her name and her sons' name (Her name is first).  Over the period, amount increased to Rs. 1,80,000/-.  She has submitted form 15G to the bank for non deduction of TDS as the amount of interest exceeds the prescribed limit. She does not have any other source of income. Kindly let me know whether she has to file income tax return for this income every year or only submission of form 15G is sufficient? [sanjay.deshpande@sbi.co.in]
Opinion:
She can submit Form No. 15G & filing of the income tax return is not at all mandatory in her case. It may be noted that while submitting Form No. 15G, quoting the PAN is mandatory.

Query 3]
We wish to get your advice on following points:
1.      Is NSC-VIII interest is tax free or not?
2.      If not and it is assumed that interest is reinvested in the NSC then whether tax will be paid on total interest calculated in last year after maturity?
3.      If someone, without actually receiving the total interest earned on old NSC maturity, directly repurchases new NSC from the interest earned, then, is total interest earned on old NSC maturity considered as reinvested? Will such interest be treated as tax-free or whether such interest will enjoy reinvestment benefits for next 5 years? kindly advise. [S.K.Ghai, Jabalpur- sanjayghaiye@rocketmail.com]
Opinion:
1.      Interest from National Saving Certificate is not exempt & is taxable.
2.      According to Rule 15 the NSC (VII Issue) Rules, 1989 the interest on N.S.C shall accrue to the holder(s) of the certificate at the end of each year and the interest so accruing at the end of each year shall be deemed to have been re-invested on behalf of the holder and aggregated with the amount of face value of the certificate. So, Interest on N.S.C. should be offered for taxation on accrual basis every year. It may further be noted that the interest accrued every year is deemed as reinvested therein and is also eligible for deduction u/s 80C.
3.      At the time of maturity, the reinvestment for purchase of another NSC’s, won’t make the interest income exempt from income tax.