Saturday, June 1, 2013

“JOINT DEVELOPMENT AGREEMENT WITH THE BUILDER FOR DISMANTLING OF THE HOUSE & INCOME TAX IMPLICATIONS”



TAX TALK-03.06.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“JOINT DEVELOPMENT AGREEMENT WITH THE BUILDER FOR DISMANTLING OF THE HOUSE & INCOME TAX IMPLICATIONS”

Query 1]
Mr.X has an old house in a city say measuring 4,000 sq ft. He enters into a joint venture with a builder "Y" for dismantling the said house & erecting 6 flats on such Land. It is agreed upon between them that each of them shall take over 3 flats after the construction is over. All the expenses including sanction of map & building these flats are borne by "Y". Now, the construction is over & each of them takes over 3 flats. Please advise under I.T. Act, how each of them shall meet their tax liabilities? Suppose the builder has spent Rs. 60 Lacs on construction of 6 flats. The sale price of each flat is say 15 Lacs i.e., Rs. 90 Lacs in total. Three flats of "Y" shall be sold by Mr. X as he is the owner of land & he himself takes over the remaining 3 flats. Please advise whether income shall be a business income or income from capital gains & how shall the taxability be met by each of them? Whether any exemption can be claimed by Mr. X?  Please Advice. [M.R.Iqbal- daver.iqbal@yahoo.com]
Opinion:
It is always advisable to have a proactive approach as far as income tax implications on any property related transactions are concerned. After the document are signed & sealed, assessee is left with very little option but to bear the consequences. Prima-facie, in your case, it appears that it is a routine development agreement between Mr. X and the builder wherein the builder-Y, against the share in land, has given 3 flats to the landlord and have acquired the rights of 3 flats.
The income tax implication, in the hands of the Landlord & the Builder, in normal course is as under:
In the Hands of the Builder:
It appears that against the land share, the builder is offering 3 constructed flats to you. All the expense (sanctioning, Legal, advertisement, construction etc) incurred by the builder will be treated as his cost for 3 flats (though the expenses are incurred for 6 flats) which is his share in the building so constructed. The difference between the sale price of the 3 flats and the construction cost is the business profit taxable in the hands of the builder. Further, if the stamp duty valuation of the each flat is higher than the actual sale price, the difference would further be treated as income in the hands of the builder in view of the new provision [Section 43CA] inserted in the Income Tax Act -1961.
In the Hands of the Landlord:
To be precise, Mr. X was the owner of a house property which is given to the builder for constructing a flat scheme. Against the House property given to the builder, the sale consideration is in the form of constructed 3 Flats. It appears that Mr. X has transferred a residential house property (& not plot or Vacant land) & the fact appears to have been duly & clearly incorporated in the document executed, as a result of which Mr. X may have an option of claiming exemption u/s 54. [If the property transferred is any property other than residential house property, then exemption is not available u/s 54, even though exemption could be claimed u/s 54F]. Exemption u/s 54 or U/s 54F is subject to various other terms, conditions & riders which were aptly covered in earlier issues of tax talk. The same may further be accessed at www.nareshjakhotia.blogspot.com.  The tough task that remains is how to compute the capital gain in such cases. It requires various supplementary details like the year/cost of acquisition & additions, the Stamp duty Valuation of the house property which is given to the Builder/ Developer,  the Market value of the 3 Flats Mr. X is getting, the contents of the development agreement etc. Further, the year of taxability & the amount of capital gain would largely be dependent on the drafting of the agreement with the builder & the terms, conditions and stipulations incorporated therein. The opinion cannot be expressed on the basis of the piece of information provided. With above basic framework, you need to approach your CA/Tax Consultant for working out the taxability on such transaction.

Query 2]
I am a senior citizen. My source of income is pension (Nationalized Bank retiree) + Interest on deposits with the Bank. The Bank deducts TDS on Interest paid. I regularly file return. For the FY 2011-12 (AY: 2012-13), I have e-filed return on 17.07.2012 through our C.A. My wife also filed return on the same day. She received her due refund within reasonable time by direct credit to her A/c but I have still not received the refund till this date.
Refund Status enquiry does not give any satisfactory information. I sent e-mails to refunds@incometaxindia.govt.in, ask@incometaxindia.govt.in, contactus@tdscpc.govt.in, but every time the mails bounced after 2-3 days with a message of mail box full. When contacted my C.A., he checked TDS TRACES form 26AS which showed correct position of tax credit in my A/c. So, my C.A. advised me to wait for more time as nothing can be done now. I am not satisfied. If the department is not functioning properly, there should be someone to whom we can complain or say about grievance. Please guide me in the matter. [A.K.Kalamkar-akkalamkar@yahoo.co.in]
Opinion:
As far as the Refunds issues are concerned, the process has been reasonably streamlined & made simpler by the Income Tax Department. However, there are instances wherein getting the refunds become cumbersome & annoying. In most of the cases, refunds are not issued for the following reasons:
a.       Incorrect entry of PAN number
b.      Change of address without proper intimation to the tax department
c.      Wrong bank account provided in the tax return
d.      Inconsistency in TDS credit with reference to 26AS (Tax Credit Status)
e.      Delayed in tax return filing or non-filing by the Tax Deductor.

The best approach in case the refund is delayed beyond a years time or so is to visit the income tax office for the follow up of the refund or send a grievance letter addressed to the concerned Income Tax Assessing Officer, with the copy of the tax return acknowledgement. If there is a severe delay, a letter could be addressed to the Jurisdictional Chief Commissioner of the Income Tax, with a copy to the Grievance Cell and the concerned Income Tax Officer wherein one can attach copies of previous letters which may have been written to the Income Tax Assessing Officer, along with a copy of the tax return filed.

“PERSON WITH DISABILITY ARE ENTITLED FOR THE INCOME TAX BENEFIT U/S 80U”



TAX TALK-27.05.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“PERSON WITH DISABILITY ARE ENTITLED FOR THE INCOME TAX BENEFIT U/S 80U”

Query 1]
Kindly enlighten me in the following matter through your Tax Talk column:
A person is polio affected, with disorder in his legs.
1.      What is the relief available at the hands of employer for TDS in salary payments?
2.      How much and under which section TDS relief is available?
3.      Whether any documentary proof he needs to submit and at what frequency? [d_pande1@yahoo.in]
Opinion:
Deduction U/s 80U
Section 80U of the I.T. Act, 1961 allows a deduction to an individual who is resident and who at any time during the previous year is certified by a medical authority to be a person with disability. The deduction under this Section is a sum of Rs 50,000/- in normal cases and if the person is suffering from a severe disability (80% or more) then a sum of Rs. 1,00,000/- is allowable as deductions.
“Person with Disability” for the purpose of section 80U means a person suffering from not less than 40% of any of the disability given below:
i) blindness
ii) low vision
iii) leprosy-cured
iv) hearing impairment
v) locomotor disability
vi) mental retardation
vii) mental illness
viii) austim
ix) cerebral palsy
x) multiple disability referred to in clauses (a), (c), & (h) of section 2 of the National Trust for welfare of persons with Austim Cerebral Palsy, Mental Retardation & Multiple Disabilities Act-1999.
With above basic provision about the deduction u/s 80U, pointwise reply to your queries are as under:
1.      Polio leads to locomotor disability & the disability is well covered within the meaning of the word “person with disability”. The deduction can be considered by DDO while working out the TDS of the employee. [Circular No. 8/2012 [F.NO. 275/192/2012-IT(B)], Dated 05-10-2012 issued by the CBDT]
2.      The deduction is admissible U/s 8OU. The amount, as elaborated above,  could be either Rs. 50,000/- or Rs. 1,00,000/-.
3.      The following documents should be obtained by the DDOs before considering the deduction u/s 80U:
a] A copy of the certificate issued by the medical authority as defined in Rule 11A(1) in the prescribed form as per Rule 11A(2) of the Rules. The deduction should be allowed only after seeing that the Certificate furnished is from the Medical Authority defined in this Rule and the same is in the form as mentioned therein.
b] Further, In cases where the condition of disability is temporary and requires reassessment of its extent after a period stipulated in the aforesaid certificate, no deduction under this section shall be allowed for any subsequent period unless a new certificate is obtained from the medical authority as in 1 above is furnished.

Query 2]
One of my women relative, not a senior citizen, is working as a teacher in a school. Her gross total annual income from salary for the F.Y.2012-13 is Rs. 3,40,000/-. Her annual savings under Section 80C is Rs. 1,00,000/-. So, after deduction, the net total income is Rs. 2,40,000/-. She does not have any other income source apart from salary. My queries are:
1.      As her gross total annual income for F.Y. 2012-13 is above Rs. 2,50,000/-, is it required to file Income Tax return even if Net total income is below Taxable limits?
2.      Is it mandatory for the school to provide Form-16, as gross total annual income is above 2,50,000/-? If the school does not provide the same, as the Net Total Income is less than Rs.2,50,000/-, can my relative still file the Income Tax return on the basis of her self computation? Though this query seems quite simple, but would help numerous teachers and other professionals. [Dr. Partho B. Choudhury- pompanagpur@gmail.com]
Opinion:
An Individual is required to file the Income Tax Return if his/her total income without allowing deductions exceeds the basic exemption limit.
For A.Y. 2013-2014 (i.e., FY 2012-13) , the basic exemption limits are as under:
a.       For Men & Women below the age of 60, the exemption limit is Rs. 2 Lacs.
b.      For senior citizens whose age is between 60 to 80 years, the exemption limit is Rs. 2.50 Lacs.
c.      For very senior Citizens (i.e., 80 years & above), the basic exemption limit is Rs. 5.00 Lacs.
There is no gender basis discrimination in the FY 2012-13 in the basic exemption limit as was there earlier.
With a look at the basic exemption limit applicable for the FY 2012-13, the replies to your queries are as under:
1.      The Gross total income (i.e., income before allowing deductions u/s 80C, 80D, 80G etc) is Rs. 3.40 Lacs. Since, the income is above the basic exemption limit, it is mandatory for her to file the Income Tax Return. It may be noted that she, being a non senior citizen, the basic exemption limit would be Rs. 2 Lacs and not Rs. 2.50 Lacs.
2.      If the employer has not deducted any tax at source, then it is not obligatory on part of the employer to issue Form No. 16. But in the given case, after allowing the deductions u/s 80C, taxable income is of Rs. 2.40 Lacs on which probably tax of Rs. 4,120/- may have been deducted. In such situations, it is compulsory for the school to issue TDS Certificate failing which the penal provisions get attracted. In any case, where Form No. 16 is not issued to the employee for any reason whatsoever, the employee can still file the income tax return on the basis of self computations also.



“HOW TO CARRY OUT THE CORRECTION IN THE TAX PAYMENT CHALLANS?”



TAX TALK-20.05.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“HOW TO CARRY OUT THE CORRECTION IN THE TAX PAYMENT CHALLANS?”

Query 1]
While filing the online tax return for the period Assessment Year 2011-2012, we came to know of PAN being wrongly entered in the Tax Challan. Can this amount so deposited by an error be adjusted in subsequent return/statement or refund can be claimed by us? Kindly guide us on the process involved? [MPBPL- A R Temurnikar- miners_bookshop@yahoo.co.in]
Opinion:
There are numerous instances where there is an error while making payment of Tax either electronically or manually. To rectify these errors, Income-Tax Department has issued new guidelines effective 01-09-2011 which allows Banks to correct physical challans only. For correction in electronic challans, request will have to be made to the concerned Assessing Officer. For general benefit, I am elaborating the the procedure for correction in the tax challan.
a] Correction in physical challans:
Fields that can be corrected by bank:
·                  Assessment Year
·                  Major Head Code
·                  Minor Head Code
·                  TAN/PAN
·                  Total Amount
·                  Nature of payment (TDS Codes)
Time frame for correction request:
-         Request for correction has to be made within 7 days of deposit of challan for correction in PAN, TAN and Assessment Year
-         For Major head, minor head and nature of payment, request can be made within 3 months of deposit of challan.
Remedy available after time frame is over:
- After lapse of time frame, request can be made to the Assessing Officer.
Time frame given to bank to carry out correction:
-         After receipt of request, bank must carry out the correction within 7 days.
Other conditions for correction:
-         Correction in name is not allowed
-         Any combination of correction of Minor Head and Assessment Year together is not allowed
-         PAN/TAN correction will be allowed only when the name in the challan
matches with the name as per the new PAN/TAN.
-         The change of amount will be permitted only on the condition that the amount so corrected is not different from the amount actually received by the bank and credited to Govt. Account.
-         For a single challan, correction is allowed only once. However, where 1st correction request is made only for amount, a 2nd correction request will be allowed for correction in other fields.
-         There will be no partial acceptance of change correction request, i.e. either all the requested changes will be allowed, if they pass the validation, or no change will be allowed, if any one of the requested changes fails the validation test.
Procedure for requesting correction:
-         The tax-payer has to submit the request form for correction (in duplicate) to the concerned bank branch.
-         The tax-payer has to attach copy of original challan counterfoil.
-         In case of correction desired for challan in Form 280, 282, 283, the copy of PAN card is required to be attached.
-         In case of correction desired for payments made by a tax-payer (other than an individual), the original authorization with seal of the non-individual taxpayer is required to be attached with the request form.
-         A separate request form is to be submitted for each challan.
B] Correction in Electronic Challans:
For correction in electronic challans and for correction after the time period for application to bank lapses in physical challans, a written request in prescribed format has to be made to the Assessing Officer. Assessing Officer has power to rectify the error , in bona fide cases, to enable credit of tax to assessee
Form of application to bank:
Income-tax department has given a format in which application can be made to the bank.

In your specific case, you have to make an application to your Assessing Officer elaborating the facts of the case along with all the relevant documents to prove the payment.

Query 2]
For the FY:2012-13 my wife & me jointly applied for income tax rebate (50 % share each) on home loan, as the property and loan are jointly basis. We have also submitted home loan share certificate to our employer.  Now, for the F.Y. 2013-14, may I eligible for 100 % rebate on home loan, as my wife has decided not to claim for rebate on home loan. Can I have to go for another home loan share certificate (i.e., 100% share)? Kindly suggest the procedure with your valuable guidance. [S Y Gajbhiye - syg6147@gmail.com]
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. In your case, it appears that you have 50% share ONLY in the loan as well as in the property. Simply, because your wife is not claiming the deduction doesn’t make you eligible to claim the deduction. Apparently, you are entitled for 50% deduction only.