Friday, December 28, 2012

“WHICH ITR FORMS IS TO BE USED FOR FILING INCOME TAX RETURN?”


TAX TALK-31.12.2012-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“WHICH ITR FORMS IS TO BE USED FOR FILING INCOME TAX RETURN?”

Query 1]
I had deposited Rs. 10,00,000/- in IDBI Bank, Nagpur on 19-01-2011. Being Senior citizen of 85 years, I submitted Form No. 15H on 19-01-2011, 21-04-2011 & 07-04-12 for the F.Y. 2010-11, 2011-12 and 2012-13 respectively which were duly acknowledged by the bank . Still TDS was deducted twice and subsequently refunded in my S.B. A/c. Instead of giving full maturity value Rs. 11,41,184/- on 02-06-2012, I was paid as under in my S.B. A/c:
1. On Maturity         :           Rs. 11,35,759            on 02-06-12
2. TDS Refund          :           Rs. 2,438/-                 on 25-06-2011
3. TDS Refund          :           Rs. 2,678/-                 on 07-05-2012
        Total                  :           Rs. 11,40,875/-
Thus I was paid Rs. 309/- less. I feel that 15H forms were correctly submitted and as the tax deducted amounts were not paid to the Government. I was entitled for full maturity amount. When I visited the bank for inquiry, one of the officers said that TDS was deducted from Principle amount on 19-04-2011 for the quarter ending 19-04-2011 as 15H was submitted late on 21-04-2011 for F.Y. 2011-12. As TDS was deducted from Principle Amount, it was reduced to that extent and hence interest thereon was reduced by Rs. 309/-.
The TDS should have been deducted from accrued interest and the same amount credited to S.B. A/c on receipt of 15H form as I was not satisfied by the reply given by Bank officer. I wrote to H.O on 23.06.2012 but no reply was received. I contacted the Manager of Local branch on 21.11.2012. Instead of giving credit of Rs. 309/-, he had shown me how the diff. of Rs. 309/- has arisen The details given by him are enclosed for your perusal. Kindly throw light on this issue in Tax-Talk at your earliest. [S.M.Patil, M-2’Sarang’, Tatya Tope Nagar, W.H.C. Road, Nagpur-15]
Opinion:
1.      You have timely submitted Form No. 15H to the bank during the relevant financial year. The bank has wrongly deducted the amount of Tax (TDS) from your interest accrual.
2.      After realizing the mistake, the bank has courteously returned the same to you by crediting the same to your saving bank account.
3.      It appears that the bank, instead of returning the amount of TDS to you by crediting your saving bank account, should have retained the amount and credited it to the FD (or Interest payable) A/c only. Since, the bank had already repaid the interest (TDS) to you by crediting to your saving bank A/c, they are probably finding it difficult to pay the interest on Interest (Since the same has been already paid to you).
4.      Had they retained the amount, you would have got the interest on interest and it would have resulted in the maturity amount same as documented originally.
5.      As far as the amount of Rs. 309/- is concerned, it appears that the loss is there for no fault at your end.

Query 2]
My wife has received Rs. 1.40 Lacs from her mother-in-law as Gift. My query is, since the Gift up to Rs. 50,000/- is tax-exempt, whether the amount in excess is taxable or the aggregate will be taxed? [Vedant-vdpankey@rediffmail.com]
Opinion:
1.      In normal course, where the aggregate value of gift received from non-relative exceeds Rs.50,000/-, the entire amount of gift would be taxable (& not merely an amount in excess of Rs. 50,000/-).
2.      The gift received by Daughter-in-law from her Mother-in-law is treated as gift from relatives and accordingly nothing would be taxable in the hand of Daughter-in-law on the amount so gifted by mother-in-law.
3.      A word of Caution:
Any income arising from the assets transferred (which includes gift also) to Daughter-in-law without adequate consideration is subjected to clubbing provision and is taxable in the hands of the transferor and not in the hands of transferee. [Section 64(1)(vi) of the Income Tax Act-1961].

Query 3]
I would like to know about the ITR e-filling process for the persons who are paying housing loan repayment. Which ITR form, they have to use while e-filing  their income tax return (either ITR-1 or ITR-2)? Please advice me. [sharveshjay@yahoo.com]
Opinion:
1.      ITR-1 can be used for return filing if the assessee is having income from salary, house property & income from other sources.
2.      ITR-1 cannot be used by if assessee has:
a] Income from more than one house property.
b] Income from Lottery or Race course
c] Taxable Capital Gain
d] Agricultural Income exceeding Rs. 5,000/-
e] Income assessable under the head “Income from Business/ profession”

If individual assessee have income of the nature referred in (a) to (e) above, then
i] Return would be required in ITR-2 if there is no income chargeable under the head “Income from Business/ Profession”.
ii] Return would be required to in ITR-4 or ITR-3 if there is income chargeable under the head “Income from Business/ Profession”.


Saturday, December 22, 2012

“DEDUCTION TOWARDS INTEREST ON EDUCATION LOAN ! ”


TAX TALK-23.12.2012-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“DEDUCTION TOWARDS INTEREST ON EDUCATION LOAN ! ”

Query 1]
I have a housing loan with interest repayment of Rs. 1.24 Lacs and principal repayment of Rs. 2 Lacs. I have claimed for reduction of Rs. 1.24 Lacs in interest and Rs. 1 Lacs in principal repayment. But income tax officials disagree. They say that each can claim fifty percent deduction. Please clarify. [L.desikan- sowdesi2003@yahoo.co.in]
Opinion:
1.      Ownership is a primary condition, precedent for admissibility of deduction towards interest U/s 24(b) & towards Principal U/s 80C of the Income Tax Act-1961.
2.      If you own the property individually, then you alone can claim deduction u/s 24(b) & u/s 80C even though the name of any other person is incorporated in the loan documentations.
3.      It appears that the Income Tax Officials are not agreeing for the entire deductions u/s 24(b) & u/s 80C in your hands alone probably for the reason that there is some other co-owner in the ownership documents. If you can substantiate the fact of your individual ownership in the property, the deduction would not be denied.

Query 2]
Recently, one of our valued customers had purchased 1200 sq.ft. land in Chennai sub-urbs. He had withdrawn cash of about Rs. 22 Lacs and paid the amount to the seller. The money basically came from the retirement benefits of his father who was an ex-government employee. Since it was a heavy withdrawal in parts, will there be a query from the income tax?  If the query comes from the IT department, what should be done? The customer has documents for the retirement benefits and for purchase of property as well. Kindly advise. [anantharamanr@svcbank.com]
Opinion:
1.      Words of Caution:
One precaution normally every tax payer should take. As far as possible, have a transaction by account payee cheques/instruments only. There is a penal consequences under section 269SS of the Income Tax Act-1961 if any person accepts the loan or deposits of Rs. 20,000/- or more otherwise than by an account payee instruments. Even amongst the family members the loan of Rs. 20,000/- or more in cash is prohibited.
2.      In normal course, cash deposits are a matter of investigations & no special inquiry is carried out for the cash withdrawals. In the given specific case, there is nothing to worry or bother as source of fund is explainable. The withdrawals could be treated either in the capacity of an agent acting on behalf his father for purchase of flat or could be treated as gift received by son from the father. For the genuine transactions like this, the assessee should not get panic. The Income Tax Department in general is an assessee friendly.

Query 3]
Please refer Tax Talk Dated 17/05/2012. Regarding HRA claim, an employee of a private limited company, not receiving HRA from company, living in a rented house and having a
housing loan and such house is vacant can claim HRA? Please advise. [pravin.aparajit@gmail.com]
Opinion:
1.      Assessee receiving HRA from Employer:
Salaried Assessees who are in receipt of House Rent Allowance (HRA) from an employer can claim an exemption u/s 10(13A) of the Income Tax Act-1961
2.      Assessee not receiving HRA:
Any individual who is not in receipt of HRA from the employer can claim deduction towards rent payment for residential accommodation u/s. 80GG of the Income Tax Act.
The condition precedents for deduction u/s 80GG are as under:-
a] He has to prepare a declaration in Form No.10BA.
b] He or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) ( i.e.income from self-occupied house property).
3.      In your specific case,
a] Since employee is not in receipt of HRA, no deduction is admissible u/s 10(13A).
b] Since employee appeared to have a house at the place of employment, no deduction is admissible u/s 80GG as well.

Query 4]
We have availed the Education Loan for my son to study abroad. I am co-applicant in the said loan account. First installment of Loan is availed in the month of August-2012 and course period is of 2 years. I am not regularly paying the interest applied on the loan. However, I want to repay the entire interest amount by March-2013. My query is whether I shall get the IT exemption for the interest amount repaid by me and whether the interest amount could be paid any time during the F Y? [spvijaykar@gmail.com]
Opinion:
An individual assessee can get deduction in respect interest paid on education loan taken from the financial institution for pursuing higher education either for himself or for specified relatives.
As far as the deductibility of the interest amount is concerned, it may be noted that
1.      The deduction is allowed in computing the taxable income of the initial assessment year (i.e., the assessment year in which the assessee starts paying the interest on the loan) and 7 year immediately succeeding assessment years ( or until the above interest is paid in full, whichever is earlier)
2.      No deduction is admissible towards Principal repayment.
3.      Interest has to be paid out of the income chargeable to tax.

In your specific case, you can claim deduction towards the interest paid on education loan taken by you as a co-applicant and it can be paid any time during the financial year out of your income chargeable to tax.


“LOAN AGAINST FDR & DEDUCTION TOWARDS HOUSING LOAN”


TAX TALK-17.12.2012-THE HITAVADA

TAX TALK 
BY CA. NARESH JAKHOTIA
Chartered Accountant

“LOAN AGAINST FDR & DEDUCTION TOWARDS HOUSING LOAN”

Query 1]
I have sold my Plot. Now I am planning to purchase a flat at Nagpur. I want to know that which expenditures from the amount I received from sale of plot, are exempt while purchasing the flat? Whether expenditures on stamp papers other taxes such as service tax, VAT, and expenditures on Interior decoration, Modular Kitchen, Painting cost, POP ceilings, Electricity connection charges, water connection charges, One time maintenance cost by Builder, club house charges, Electric items like fans, sanitory items, Solar heater cost or any other statutory expenditures made on Flat to be ready for residence can be included for exemption purpose?  Please tell all the expenditures we can make to get exemption under section 54?  [R.V.Deshmukh- rvdsh@rediffmail.com]
Opinion:
Subject to various other terms & Stipulations, Assessee can save amount of Long Term Capital Gain (LTCG) arising from transfer of plot by investing the amount of net sale consideration for Purchase of another house property. If all the expenses as mentioned above are forming the integral part of the purchase price, exemption could be claimed u/s 54F. However, if the expenditure (like POP, Solar heater etc) is incurred additionally as a luxury measure subsequently (after the house is habitable), then the additional amount may not be considered for the purpose of claiming an exemption.

Query 2]
Sir, if a person has kept Rs. 30/- Lacs in a bank as fixed deposit and if he raised the demand loan/overdraft for purchase of a plot or flat, whether he can claim exemptions available in IT Laws while repaying the installments and interest? I presume but please confirm that it will be termed as a loan taken from the bank irrespective of the fact whether the loan is from own deposits or otherwise, and he can very well claim repayment of installments & interest and ask for tax exemption? Kindly clarify and oblige.
Opinion:
1.      Deduction towards Interest on Borrowed Capital:
Deduction is admissible u/s 24(b) for the interest on amount borrowed for purchase/ construction of the house property. For claiming the deduction, assessee has to get a certificate from the lender about the interest paid for purchase/construction of the house property.
2.      Deduction towards Principal Repayment of the Loan:
The deduction is admissible in respect of repayment of loan taken for purchase or construction of the house property.

Query 3]
I am a senior citizen living in my own flat which was bought by me about ten years back. There is no other flat/house in my name and the present value of my flat has increased substantially as compared to my buying price. I wish to sale my flat and stay near to my only daughter, who stays in different city, due to age related problems.  In this regard I have some queries related to income tax as below:
1.      If I sale my flat and stay in my daughter's flat as tenant what tax implication will be on the sale value of the flat?
2.      If a flat is bought with the help of my daughter and I sale my present flat after 2-3 years how the sale value will be taxed?
3.      Can my daughter take loan from bank/financial institution to buy a flat in my name?
4.      If my daughter buys a flat in her name through bank loan and I pay her EMI through accrued interest of fixed deposit of the sale value of my present flat as tenant, how tax will be fixed on me/her?
5.      If the entire sale value is transferred to her account since she bought the flat (though in her own name) for my stay, will she be taxed?
Point wise early response will be of immense help for taking correct decision. [D.S.Basu-ds_basu@yahoo.co.in]
  
Opinion:
1.      On sale of flat, the resultant Long Term Capital Gain (LTCG) would be taxable in your hands.
2.      If you sale the existing flat within a period of one year after buying the new flat and if the investment in the new house property is more than the amount of LTCG than the entire amount of LTCG could be claimed as exempt u/s  54 of the Income Tax Act-1961. If however, you sale the existing flat after a period of one year from the date of buying new flat, then the exemption would not be available against the amount of LTCG and the amount of LTCG would be taxable.
3.      Normally, Bank can sanction the loan of flat by taking your daughter as a co-applicant in the loan documentations. It appears that you are incorporating her name in the loan documents for availing the housing loan only. If it is so, then in such case, incorporating her name in the loan document won’t carry any tax implications.
4.      If you sale the flat and invest the sale consideration in Bank FDR, the resultant interest income would be taxable in your hands. The payment of EMI by you in your Daughter’s loan A/c could either be considered as Loan or Gift to your Daughter, as per your intention. In either case, the amount would not be taxable as her income.
5.      If you gift the entire amount to your daughter for purchase of flat, there will not be any tax on the amount of gift in the hands of your daughter. But, it appears that your daughter is already owner of one house property and the new property will be the 2nd house property in her name. The second house property carries a different tax treatment as compared to first house property. The detailed discussion on the topic has been covered in my Tax Talk Dated 29.10.2012. The same can further be retrieved from www.ehitavada.com or from www.nareshjakhotia.blogspot.com.

“SPECULATION INCOME VS NON SPECULATION INCOME”


TAX TALK-10.12.2012-THE HITAVADA

TAX TALK 
BY CA. NARESH JAKHOTIA
Chartered Accountant

“SPECULATION INCOME VS NON SPECULATION INCOME”

Query 1]
Sir, I am a working with a private sector bank. I am also doing shares investment / trading to some extent. Please guide & elaborate the provision for calculation of the profit from such trading activity - whether intra-day transactions in the share market considered while calculating short-term gains/losses? If yes, how this income is different from other income i.e., advantage vis a vis disadvantage? Whether the loss can be set off against salary income? Whether F & O also give rise to speculative income/loss? Please elaborate as the dealing in shares is done by many people in regular course. [ranjit8r9@gmail.com]  
Opinion:
For the mass benefit, we are covering in detail the income tax implication with regard to investment profit/loss & intra day transactions profit / loss from shares transactions.

1.      Intra-day trading is the trading of shares within the same day. Generally, delivery is not taken in case of intra-day trading, and thus, these are said to be speculative transactions. As per Section 43(5) of the Income Tax Act, 1961, the said transactions shall be considered as speculation business transactions and the income therefrom would be either speculation gains or speculation losses. However, if based the on facts and circumstances of your case, you can prove that though delivery was not actually taken it was within your normal business transaction, it could be treated as non-speculation business income or a short-term capital gain.
2.      As regards taxation, the income from speculation gains is taxed at the normal rates. Your tax liability would thus depend upon your net taxable income. If the income is treated as non-speculation business income/short-term capital gain (Securities Transaction Tax not paid), the taxation is at normal rates. However, if the same is treated as a short-term capital gain and the STT is paid, the tax is chargeable at specified rate, viz. 15% plus education cess /higher education cess as applicable.
3.      Speculation losses can be set off only against speculation gains and not against any other head of income or non-speculation business income.
4.      As far as the set off provision is concerned, it may be noted that
a] Non-speculation business loss (Norma Business Loss) can also be set off against the Long Term or Short Term Capital Gains made during the said year.
b] Short-term capital loss can be set off only against income from capital gains, whether long term or short term.
c] Non-speculation business loss cannot be set off against salary income.
  1. Profit / Loss in derivatives (futures and options) is treated as non-speculation business even though delivery is not effected in such transactions.

Query 2]
Sir, despite repetitive request to the bank, I am not getting the TDS certificate from the bank in respect of my tax deducted in the month of May-2012 & July-2012. I came to know that the same can be viewed in 26AS in the income tax site but the amount is not there in 26AS also. Please guide as to the alternative available with respect to this? [ ritashok1@rediffmail.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
iii. 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.



Monday, December 10, 2012

“SPECULATION INCOME VS NON SPECULATION INCOME”


TAX TALK
BY CA. NARESH JAKHOTIA
Chartered Accountant

“SPECULATION INCOME VS NON SPECULATION INCOME”

Query 1]
Sir, I am a working with a private sector bank. I am also doing shares
investment / trading to some extent. Please guide & elaborate the
provision for calculation of the profit from such trading activity -
whether intra-day transactions in the share market considered while
calculating short-term gains/losses? If yes, how this income is
different from other income i.e., advantage vis a vis disadvantage?
Whether the loss can be set off against salary income? Whether F & O
also give rise to speculative income/loss? Please elaborate as the
dealing in shares is done by many people in regular course.
[ranjit8r9@gmail.com]
Opinion:
For the mass benefit, we are covering in detail the income tax
implication with regard to investment profit/loss & intra day
transactions profit / loss from shares transactions.

1.      Intra-day trading is the trading of shares within the same day.
Generally, delivery is not taken in case of intra-day trading, and
thus, these are said to be speculative transactions. As per Section
43(5) of the Income Tax Act, 1961, the said transactions shall be
considered as speculation business transactions and the income
therefrom would be either speculation gains or speculation losses.
However, if based the on facts and circumstances of your case, you can
prove that though delivery was not actually taken it was within your
normal business transaction, it could be treated as non-speculation
business income or a short-term capital gain.
2.      As regards taxation, the income from speculation gains is taxed at
the normal rates. Your tax liability would thus depend upon your net
taxable income. If the income is treated as non-speculation business
income/short-term capital gain (Securities Transaction Tax not paid),
the taxation is at normal rates. However, if the same is treated as a
short-term capital gain and the STT is paid, the tax is chargeable at
specified rate, viz. 15% plus education cess /higher education cess as
applicable.
3.      Speculation losses can be set off only against speculation gains
and not against any other head of income or non-speculation business
income.
4.      As far as the set off provision is concerned, it may be noted that
a] Non-speculation business loss (Norma Business Loss) can also be set
off against the Long Term or Short Term Capital Gains made during the
said year.
b] Short-term capital loss can be set off only against income from
capital gains, whether long term or short term.
c] Non-speculation business loss cannot be set off against salary income.
5.      Profit / Loss in derivatives (futures and options) is treated as
non-speculation business even though delivery is not effected in such
transactions.

Query 2]
Sir, despite repetitive request to the bank, I am not getting the TDS
certificate from the bank in respect of my tax deducted in the month
of May-2012 & July-2012. I came to know that the same can be viewed in
26AS in the income tax site but the amount is not there in 26AS also.
Please guide as to the alternative available with respect to this? [
ritashok1@rediffmail.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
iii. 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.
5.      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.