Friday, February 22, 2013

“TDS: DEDUCTOR IS NOT TREATED AS ASSESSEE IN DEFAULT IF DEDUCTEE HAS PAID THE TAX”


TAX TALK-25.02.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“TDS: DEDUCTOR IS NOT TREATED AS ASSESSEE IN DEFAULT IF DEDUCTEE HAS PAID THE TAX”

Query 1]
I am a CA in service in WCL. Recently we have received a notice for short deduction of income tax from salary (TDS) in some cases (statement u/s 200A) for the financial year 2010-11 along with notice of demand u/s 156 from the IT Dept. We have taken the plea that no notice u/s 156 can be issued for the F.Y. 10-11, as the amendment to this effect is applicable from 1.7.2012 only. Similarly our alternate argument is that the statement u/s 200A must include excess TDS recoveries as well and could be for the net amount only. In some cases, excess TDS has been done from our end as well. We have issued Form 16 to the employees to enable them to pay tax on self assessment or claim refund as the case may be. Whether we could be treated as assessee in default even after the amendment in section 201 with effect from 01.07.2012 so as to attract penal provision? Whether the amendment in section 201 has retrospective effect? You are requested to kindly offer your considered opinion. [k.natarajan2007@rediffmail.com]
Opinion:
1.      It may be noted that Section 156 has been amended so as to incorporate the following proviso only:
“Provided that where any sum is determined to be payable by the assessee or by the Deductor under sub- section (1) of section 143 or sub-section (1) of section 200A, the intimation under those section shall be deemed to be a notice of demand for the purpose of this section.”
The insertion of the proviso has served only one purpose – that is, of treating the intimation itself as a notice of demand. Forgetting the amendment/proviso, the first part of the section itself empowers the Assessing Officer to issue a notice of demand where any interest, tax, penalty etc is due from the assessee and it has nothing to do with the amendment. In short, even though the Intimation may not be treated as Notice of demand for the purpose of section 156, there is nothing to bar the Assessing Officer from issuing the Demand Notice u/s 156.
2.      As far as the alternate argument that the demand u/s 156 should be for the net amount only is concerned, it may be noted that, after the TDS certificate is issued to the concerned deductees,
a] If excess TDS is done, the deductee claims the refund
b] If short TDS is done, the Deductee should pay the Self Assessment Tax.
As far as the first part (a) is concerned, it is normally presumed that after the Certificate is issued for the excess amount, it’s the deductee only who is eligible to claim the amount and not the Deductor. As a result of this, the alternate plea that the demand should be for the net amount only looks improper and illogical. I am of the opinion that the demand should be of the total amount of short deductions as is done by the Assessing Officer and could not be of the net amount.
3.       Provision related to Assessee in Default:
Section 201(1) has also been amended by inserting a proviso w.e.f 01.07.2012 so as to provide that any person who fails to deduct the whole
or any part of the tax in accordance with the provisions of this Chapter on the sum paid/credited to a resident shall not be deemed to be an assessee in default in respect of such tax if such resident-
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income,
and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. Consequent amendment has also been done in section 201(1A) for charging of the interest when the assessee is not deemed to be in default.
The amendment has been made applicable w.e.f 01.07.2012. As far as the retrospective application is concerned, it may be noted that there is another provision (section 191) which provides that person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Effectively, the latest amendment as mentioned above is in line with the existing provision as contained in section 191 and the Deductor cannot be treated to be an assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability.
4.      It is very relevant here to note that even if the assessee is not treated to be an assessee in default as a result of above amendment, there is no consequential amendment in the penalty provision as contained in section 271C. Effectively, even after the above amendment, penal provision u/s 271C would be applicable. Further, penalty u/s 217C can be waived by virtue of Section 273B if the assessee proves that there was a reasonable cause for the said failure.

“SECOND HOUSE PROPERTY HAS A DIFFERENT TAX TREATMENT”


TAX TALK-18.02.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“SECOND HOUSE PROPERTY HAS A DIFFERENT TAX TREATMENT”

Query 1]
I am working in PSU. I have availed Housing Loan in the year 2002 Rs. 5,51,000/- and I had taken the benefit of housing loan (principal amount) installment up to year 2011-12 and also interest benefit under IT Act. Now the said loan is repaid and account closed in Dec-2012. Further, I took new flat and Bank has sanctioned me loan of Rs. 13,43,000/- in the year 2012.  I have already taken the possession of the flat in the month of Dec-2012 and at present the flat is vacant. In this connection please advise me:
1.      Whether I am eligible for deduction of housing loan installment (principal amount for this New A/c) and if yes up to what extent?
2.      Whether I am eligible for interest benefit on this housing loan New A/c? If yes, up to what extent?
3.      In this case, what is the annual value if any?
4.      In financial year 2012-13, which type of IT return is applicable to me?
Opinion:
With many tax payers opting for second house property with the housing loan, the question becomes all the more relevant. The queries on almost similar issues have been very often covered in the earlier issues of Tax Talk. However, considering the increasing relevance & importance, we are elaborating the tax implications in such situations. The tax implication / housing loan benefit for the second house property is not similar & same as applicable to the first house property. The income from house property is taxable on the basis of its “Annual Value”. The term “Annual value” is elaborated hereunder at Point No. 3. The second house property has a different tax treatment under the Income Tax Act-1961. The tax implication in such cases is as under:
1.      One house used by the tax payer for his/her own residence does not yield any taxable income as its annual value could be treated as Nil. Where the assessee owns only one house property and it cannot actually be occupied by him because it is situated at a place other than a place where he is employed or carries on business or profession, in such a case also the annual value of the property could be taken as Nil provided the property is not actually let out.
2.      If taxpayers have two or more houses which are used for own use/ purpose, then assessee have the option to choose one of the house (according to his own choice) as self-occupied house, for which an assessee would like to get an exemption from tax and its annual value will be considered as Nil. The second house (or other houses) shall be deemed to be have to been let out [whether or not actually let out].
3.      ANNUAL VALUE:
The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property is higher, it shall be treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property.
Annual value of property is considered as higher of the following:
(i) Actual rent received a year;
(ii) Reasonable expected rent of the property.
[ The reasonable expected rent is deemed to be the sum for which the property might reasonable be expected to be let out from year to year and is normally higher of  (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]
As mentioned earlier, the assessee has the option to choose only one house as self-occupied property. Rest of property is assessable to income tax on the basis of its annual value.
4.      Deductions:
From the annual value the following deductions are available under the Income Tax Act: -
a] Municipal Tax paid.
b] 30% of the net annual value of the house property towards Repair & Maintenance charges (Deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).
c] Actual Interest paid on housing loan whether house is actually let out or is deemed to be let-out.
d] For self-occupied property, maximum interest on housing loan is restricted to Rs. 1,50,000/- p.a., subject to certain other stipulations.
5.      Effectively, if Assessee owns more than one house property & is kept for own use/ purpose,
a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above. In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.
However, for the second house property, no deduction is available for repayment towards the
principal portion of housing loan under section 80C as clause ( xviii)
to section 80C of the I T Act reads as under: -
"(xviii) for the purposes of purchase or construction of ‘a’ residential house property the income from ....."
The income tax forms for the FY 2012-13 have not yet been notified & I will highlight the form to be used by various class of assessee after the same is notified.

Query 2]
I have some queries regarding the educational institutions. Is it compulsory for all educational institutions to get registered U/s 12A of the Income Tax Act,1961 even if the receipts by them is less than Rs. 1 crore in a year? Whether is it beneficial to get registered?  [J.Agrawal-jyoti_ag@sify.com]
Opinion:
An educational institution established for the purpose of education & eligible for deduction u/s U/s 10 (23C)(iiiab) / 10 (23C) (iiiad) are not compulsorily required to get the registration u/s 12AA for exemption of income as the same is otherwise also eligible under the said section. I am of the view that the institutions in such case should get themselves registered voluntarily u/s 12AA so as to get the benefit even after the receipts crosses Rs. 1 Cr mark.

Saturday, February 9, 2013

“EXEMPTION U/S 54 TO SELF & HOUSING LOAN BENEFIT TO SON”


TAX TALK-11.02.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“EXEMPTION U/S 54 TO SELF & HOUSING LOAN BENEFIT TO SON”

Query 1]
Kindly guide me in the following matter:
1.      I am having house in my name under NIT lease. Recently, lease is renewed and expenditure of Rs. 15,000/- is incurred for stamp paper and registration.
2.      I have purchased one plot in my name and expenditure of Rs. 22,000/- is incurred for stamp paper and registration fees.
Kindly guide whether exemption under 80C is available for above expenditures.  [Deepak Pande-d_pande1@yahoo.in]
Opinion:
1.             Stamp duty & registration expense on renewal of NIT Lease would not be eligible for deduction u/s 80C.
2.             Stamp duty & Registration expense for purchase of a residential house property is only eligible for deduction u/s 80C. Expenditure for purchase of plot would not be eligible for deduction u/s 80C.

Query 2]
My father had purchased a house for Rs. 7,000/- in 1978.  He expired in 2009. Now, the said house was transferred in joint name of me and my mother.  On 26.12.2011, we sold the said house for Rs. 35,00,000/-.  Due to some problem, we got the purchase money late.  By that time, we were not able to pay the advance tax nor could deposit it in the capital gain bond.  As a result, we are left with the only option of purchasing another house till 26.12.2013. Now, the rates are very high of property & we are not in a position to purchase a new house. My question is can we pay the tax now and what will be tax liability with penalty, if any? We both have a PAN number and can we file the return separately. You are requested to kindly guide accordingly. [kundanchouhan@yahoo.com]
Opinion:
It appears that none of you have so far filed the return of income for the FY 2011-12. You can pay the tax on Long Term Capital Gain (LTCG) arisen from sale of inherited house property now also. You would be required to pay the interest for delay in the payment of tax & no other penalty is leviable in such case if the return for the relevant year is filed on or before 31.03.2013. Both of you have to pay tax individually & have to file the return of income separately.

Query 3]
I have sold my first house property in Feb -2013 for Rs. 15 Lacs. I had availed housing loan earlier at the time of purchasing the property and same is repaid and nothing is outstanding as of now. I have availed Income Tax benefit on repayments of housing loan. Now, I have to buy new property at Nagpur in the name of my son for Rs. 24 Lacs. The amount of Rs. 15 Lacs is to be paid to Owner ( sale of first property by me) and balance amount will be arranged from Housing  Loan in the name of my son because I will be retiring my services in 30.04.2013  and new property will be used by me. My query is, whether on sale of first property of Rs. 15 Lacs, the Tax will be applicable or not as the same is utilized for purchase of new property?
Opinion:
An exemption u/s 54 can be claimed on the amount of Long Term Capital Gain (LTCG) arising from the sale of the house property. For exemption, taxpayer has to invest the amount of LTCG for purchase or construction of another residential house property within a prescribed period. In your specific case, you have earned the amount of LTCG on sale of house property whereas the house property is sought be purchased in the name of your son so as to enable him to claim the income tax benefit on the housing loan to be availed for the balance amount (Rs. 9 Lacs).
To be precise, you want
a] to claim exemption towards the entire amount of LTCG arising from the transfer of your first house property and
b] to have the benefit on housing loan to your son as he will be having taxable income after your retirement and he will be repaying the amount of housing loan from his income.
For claiming an exemption u/s 54 in your hands AND future benefit of interest & principal repayment by your son, the new house property should be purchased in the joint ownership. The new house property should clearly incorporate the ownership ratio of the joint owners. Your share in the new house property should be more than the amount of LTCG and the share of your son should exceeds the amount of Housing loan sought to be availed by him and the housing loan should be recorded as his contribution in the house property.

Query 4]
While making a donation to a public trust, they advised me that Donation given to them is exempt under the income tax laws. However, in the certificate issued to them by the Income Tax Department, it is quoted that the exemption is available up to 31/1/2010. On making an enquiry with the trust, they told me that this exemption limit has been automatically renewed by the IT Department. Kindly clarify and oblige. Further, also please clarify how much donation is exempt out of the total exemption limit and can we preclude the donation amount from the total taxable limit or should we first pay the tax and then claim the refund in the next year? [K.s.popat- kaushikpopat@gmail.com]
Opinion:
1.      It’s true that the validity of all the trust & institutions approved for the purpose of section 80G has been automatically extended w.e.f. 01.10.2009 till it is not cancelled.
2.      Under Section 80G, the deduction admissible is @ 100% or 50% of the donation amount depending upon the fund/ institutions to whom the donation is done. The total deduction u/s 80G is restricted to a maximum of 10% of the adjusted gross total income. If the receipt of Donation reveals the fact of approval of the said trust U/s 80G(5)(vi), then you can claim deduction. Recently, by the Finance Act-2012, Section 80G has been amended so as to provide that payment exceeding Rs. 10,000/- will be allowed as deduction u/s 80G only if such is paid by any mode other than cash.
3.      The taxable income and the tax liability would be required to be computed keeping in mind the deduction admissible u/s 80G. There is no question of first paying the tax and subsequently claiming the amount of refund towards the tax already paid.


Friday, February 1, 2013

“INCOME TAX IMPLICATIONS ON 2nd HOUSE PROPERTY PURCHASED FOR PARENTS”


TAX TALK-04.02.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“INCOME TAX IMPLICATIONS ON 2nd HOUSE PROPERTY PURCHASED FOR PARENTS”

Query 1]
I am having one house property which is self occupied by me. I had availed the housing loan earlier at the time of purchasing the first property and the same is repaid back and nothing is outstanding as of now. I have availed the income tax benefit on housing loan repayment on such loan. Now, I want to buy another house property by availing the housing loan in my name only. This property will be used by my father and I will not be letting it out. Whether I will be eligible for the tax benefit in respect of this second house property which will be used for self residence of my father? What will be the tax effect of this property? [J.H.Shorte]
Opinion:
1.             The income from house property is taxable on the basis of its “Annual Value”. The term “Annual value” is elaborated at point No. 6 hereunder.
2.             The tax implication / housing loan benefit for the second house property is not similar/ same as applicable to the first house property. The second house property has a different tax treatment under the Income Tax Act-1961.
3.             One house used by the tax payer for his/her own residence is exempt from tax as its annual value is treated as Nil.
4.             Where the assessee owns only one house property and it cannot actually be occupied by him because it is situated at a place other than a place where he is employed or carries on business or profession, in such a case also the annual value of the property is taken as nil provided the property is not actually let out.
5.             If taxpayers have two or more houses which are used for own use/ purpose, then assessee have the option to choose one of the house (according to his own choice) as self-occupied house, for which an assessee would like to get an exemption from tax and its annual value will be considered as Nil. The second house (or other houses) shall be deemed to be have to been let out [whether not actually let out].
6.             What is Annual Value of house property and how it is determined?
The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property is higher, it shall be treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property.
7.             How to calculate annual value/taxable value of property:
Annual value of property is considered as higher of the following:
(i) Actual rent received a year;
(ii) Reasonable expected rent of the property.
[ The reasonable expected rent is deemed to be the sum for which the property might reasonable be expected to be let out from year to year and is normally higher of  (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]
As mentioned earlier, the assessee has the option to choose only one house as self-occupied property. Rest of property is assessable to income tax on the basis of its annual value.
8.             Deductions:
From the annual value the following deductions are available under the Income Tax Act: -
a] Municipal Tax paid.
b] 30% of the net annual value of the house property towards Repair & Maintenance charges (Deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).
c] Actual Interest paid on housing loan whether house is actually let out or is deemed to be let-out.
d] For self-occupied property, maximum interest on housing loan is restricted to Rs. 1,50,000/- p.a., subject to certain other stipulations.
9.             Effectively, if Assessee owns more than one house property & is kept for own use/ purpose,
a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above. In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.
However, for the second house property, no deduction is available for repayment towards the
principal portion of housing loan under section 80C as clause ( xviii)
to section 80C of the I T Act reads as under: -
"(xviii) for the purposes of purchase or construction of ‘a’ residential house property the income from ....."

Query 2]
I want to know the following about tax rebate on joint loans for house purchase:
1.      If my brother and I take a joint loan in 50:50 proportions, can we both claim Rs. 1.50 Lacs on interest payment?
2.      What are the documents that would be required from bank to claim the tax rebate?
Opinion:
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. If both of you are owner in the property and have 50:50 share in the amount borrowed, deduction of Rs. 1.50 Lacs can be claimed individually by both of you. The certificate from the bank about the repayment in the joint name would be sufficient to claim the deduction u/s 24(b) & u/s 80C.

Query 3]
I have some queries regarding the educational institutions. Is it compulsory for all educational institutions to get registered U/s 12A of the Income Tax Act,1961 even if the receipts by them is less than Rs. 1 crore in a year? Whether is it beneficial to get registered?  [J.Agrawal-jyoti_ag@sify.com]
Opinion:
An educational institution established for the purpose of education & eligible for deduction u/s U/s 10 (23C)(iiiab) / 10 (23C) (iiiad) are not compulsorily required to get the registration u/s 12AA for exemption of income as the same is otherwise also eligible under the said section. I am of the view that the institutions in such case should get themselves registered voluntarily u/s 12AA so as to get the benefit even after the receipts crosses Rs. 1 Cr mark.