Sunday, December 6, 2015

Housing loan & tax treatment of pre-construction period interest

TAX TALK-07.12.2015-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant


Housing loan & tax treatment of pre-construction period interest


Query 1]
I have booked flat in under construction project in pune, costing Rs. 52 lacs. The possession is expected in Nov. 2017. Now my question is whether the amount paid to the builder through bank loan (Principal and Interest) before the actual possession of the flat is eligible for tax exemption? If yes, how could I claim the Refund of the said amount? [narayan.parjane@gmail.com]
Opinion:
Housing loan offers tax sops. Interest paid on amount borrowed for purchase/construction of house is eligible for deduction u/s 24(b) of the Income Tax Act-1961 up to a maximum of Rs. 2  Lacs p.a in case of self occupied house property. Earlier, there was a max cap of Rs. 1.50 Lacs which is enhanced to Rs. 2 Lacs by the Finance Act-2014 (for the FY 14-15 & onwards).  Additionally, principal repayment of housing loan is also eligible for deduction u/s 80C subject to overall maximum cap of Rs. 1.50 Lacs. Lot many taxpayer are not aware of the fact that even stamp duty, registration expenses etc paid for purchase of a house property is also eligible for deduction u/s 80C, subject to same overall cap of Rs. 1.50 Lacs.

Deduction U/s 24(b):
It may be noted that housing loan taken merely for purchase of plot is not eligible for deduction till the construction of the house property is completed. Only after the construction of the house property, deduction could be admissible. Similarly, mere payment of interest on housing loan taken for purchase of “under-construction” project is not eligible for deduction. Only after the completion of the construction & handover of the possession, deduction would be admissible.
As far Interest of pre-construction is concerned, it is deductible in five equal annual installments commencing from the year in which the construction is completed. “Pre-construction period” means the period commencing on the date of borrowing the amount and ending on 31st March immediately prior to the date of completion of construction /acquisition. If you take the possession of the flat in Nov’2017, preconstruction interest would mean interest for the period commencing from the date of availing loan to 31st March 2017.
[There is one major drawback in case the house property is not completed within a period of 3 years. In such case, deduction towards interest on borrowed capital is restricted to Rs. 30,000/- only & not Rs. 2 Lacs otherwise available in case of self occupied house property].

Deduction U/s 80C:
There is no such stringent bar towards claiming a deduction u/s 80C against Stamp duty/ registration expenses & principal repayment of the housing loan. Deduction could be claimed even if the house property is incomplete.  In short, in the FY 2015-16, you would not be eligible to claim deduction u/s 24(b) towards interest payment. However, you can get deduction u/s 80C towards principal repayment of housing loan as well towards stamp duty, registration expenses etc subject to overall cap of Rs. 1.50 Lacs.

Query 2]
I have question related to Capital Gain Tax for your kind advice please.
I had purchased flat in Mumbai in Sept-2009 with registered value of Rs 55 Lakhs. Out of which, I took a home loan of Rs. 42 lakhs and balance funded by me. Now, I want to sell the same to utilize that money to start my business in Qatar. The approximate sale value will be Rs 1.50 Cr as per prevailing market rate. The other information are as under:
1.      I have been regularly in paying EMI from 2009 till now, every month. The current outstanding loan is Rs 35 Lakhs.
2.      During last 6 years, I have paid principal of Rs 7 Lakhs and interest of Rs 18 Lakhs.
3.      I have paid Society maintenance bill of Rs 4 Lakhs since owning the flat.
4.      I have done renovation at house two times total cost of Rs 4 lakhs, however, I do not have all bills or certification from third party.
5.      The current valuation of cost as per inflation index, the price of flat is coming to Rs 75 Lakhs.
With above, following are the queries:
1.      If I sell the property today at Rs. 1.50 Cr., How much would be capital gain tax applicable?
2.      Can I take rebate on society maintenance charges? I have bills and payment details.
3.      Can I take rebate on cost of renovation without bill?
4.      I have paid total Rs 18 lakhs as interest, whereas, I have taken rebate of Rs. 9 Lakhs (Rs. 1.50 Lakhs / year for tax years) in my IT return. Can I take rebate or deduct balance amount of Rs 9 lakhs as cost and deduct from sale proceeds for arriving capital gains tax?
5.      If I am investing abroad, is there any scheme by RBI / IMF/ Foreign investment promotional body which exempt capital gain tax to promote investment?
6.      Apart from capital gain tax, do I need to pay any additional tax for remitting the sale proceeds to Qatar for starting business? What kind of documentation / declaration required? Looking forward to your response please. [rosshan.aggrawal@gmail.com]
Opinion:
1.      Since, the flat is held by you for a period of more than 36 months, it would be considered as “Long Term Capital Assets” and you would be entitled for indexation benefit. The Cost Inflation Index (CII) for the relevant FY 2009-10 & FY 2015-16 are “632” and “1081” respectively. If you transfer the flat before 31st March’2016, capital gain would be computed by taking CII of “1081”. However, if the flat is transferred after March-16, the CII of subsequent year would be relevant & the same would be announced in the next financial year only. Your purchase price was Rs. 55 Lacs. You can further add the stamp duty, registration fees & other expenses incurred while purchasing the flat to arrive at the cost of acquisition. Ignoring stamp duty etc, your indexed cost of acquisition would be Rs.94.07 Lacs (Rs. 55 Lacs*1081/632). Your sale price is Rs. 1.50 Cr and if it is higher than the stamp duty valuation of the property, then Long Term Capital Gain (LTCG) would be Rs. 55.93 Lacs (Rs. 1.50 Cr less Rs.94.07 Lacs). However, if stamp duty valuation is more than Rs. 1.50 Cr, the LTCG would be required to be computed by taking such higher value as sale consideration. LTCG is taxable at a special rate of 20% plus education cess. In short, subject to what is mentioned in (3) & (5) below, your LTCG tax liability on the basis of above calculation would be Rs. 11.52 Lacs.
2.      No deduction towards the society maintenance charges paid on monthly or annual basis would be admissible while working out LTCG.
3.      Deduction is available towards all the expenses incurred for renovation or improvement in the house property. However, it is subject to availability of bills, vouchers or other documentary evidences. The onus to prove that the expenses are incurred is on the taxpayer only. If no records or document exists to justify the incurrence of expenses, deduction would not be admissible. In short, taxpayers should keep the bills/vouchers and other records properly as it would be relevant for claiming deduction if the property is sold subsequently.
4.      Interest & principal repayment of housing loan, whether or not deduction is claimed fully or partly, would not normally be available as deduction while working out LTCG.
5.      No capital gain exemption is available against investment of LTCG in IMF/RBI or other foreign investment. However, LTCG tax can be saved by investing the amount in the specified bonds issued REC/NHAI within a period of 6 months from the date of transfer. However, there is a lock-in-period of 3 years & ceiling of maximum of Rs. 50 Lacs for investment in these bonds.
6.      There is no additional income tax payable against remittance of funds abroad to Qatar or elsewhere for starting the business there.

[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at

Sunday, November 29, 2015

http://ssrpn.com/article-details.php?id=1341


How to get Income tax refund speedily?

TAX TALK-30.11.2015-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant


How to get Income tax refund speedily?

Query 1]
Kindly advice, by what time normally tax refund is received? Now a day, it is learnt that within one month tax is refunded. But in my case, despite elapse of 3 months, I did not receive refund so far. Kindly enlighten. [ kaushikpopat@gmail.com]
Opinion:
“Next to being shot at and missed, nothing is really quite as satisfying as an Income Tax Refund”.
-F.J. Raymond.

Gone are the days when getting the refund was stupendous task. With the passage of time, the time taken for issue of refunds has been reduced from years to months to almost weeks now. More and more taxpayers are surprisingly finding the credit of income tax refund in their bank account within unexpectedly short period and that too without even approaching or writing to their assessing officer. As far as issue of income tax refund is concerned, CBDT deserves kudos for expediting the refund mechanisms by suitably resorting to technological advancement & making income tax department as one of the most vibrant tax administrator of the country. The timely issue of refund, besides boosting the confidence of taxpayer, has also resulted in lower interest outgo for the Government. It’s for the other government department to take the lessons for improvement while working out taxpayer friendly measure.

Though refunds are issued speedily in majority of the cases, there are instances where the refunds are withheld despite repetitive reminders & letters. There are the cases where the delay in issue of refund is on account of error on the part of the taxpayers as well. The taxpayers may not know the reasons for the delay in issue of income tax refund. However, they can take care of the following points so as to avoid the withholding of the refund by the department:
1.    Non verification of ITR-V
After e-filing the return without attaching digital signature, taxpayers are required to either send the copy of ITR-V (Acknowledgment) to the CPC, Bengaluru or required to verify the ITR-V by linking it with UIN/Aadhar Card. In case the return is not verified, it is not considered as a valid return and the return remain unprocessed. As a result, the refund is not issued in such cases.
[Remedy: Submission of ITR-V within the prescribed timelines or e-verify the return by using aadhar card]
2.    Mismatch in the tax paid details:
TDS credit claimed in the income tax return is not matching with the TDS reflected in the 26AS of the taxpayers. It may be noted that Salary TDS and other TDS are required to be reported in Sch “TDS-1” and Sch “TDS-2” Separately. Also Correct TAN of the Deductor should be carefully mentioned in the return. In case the TAN of the Employer/Deductor is not correctly mentioned, no matching is possible and TDS credit will not be given.
[Remedy: Verify the TDS as per Form 16/ 16A with the online 26AS record. In case of any discrepancy, contact your employer or deductor for the rectification].
3.    Error in bank account details:
The income tax refund remained unpaid if the bank account details of the taxpayers are not given correctly by the tax payers at the time of filing income tax return.
[Remedy: Ensure that bank account details are correctly mentioned in the tax return, like bank account number, ISFC code, etc.
If the bank account has changed after the filing of returns, communicate the new account number & ISFC code to jurisdictional Assessing Officer. The AO will instruct SBI to issue a new cheque to the new account that taxpayer has intimated].
4.    ITR not e-filed but submitted physically:
In case the income tax return is filed physically as against e-filing, little longer time is taken in issuing the refund as the data is required to be punched in the income tax portal before issue of refund by the local income tax office.
[Remedy: In such case, taxpayer could wait for reasonably a little longer time. If the refund is not received, taxpayer should approach his assessing officer with a request letter for issue of refund].


5.    Incorrect data of challan recorded while filing the income tax return:
Taxpayer should ensure that there is no error in the tax challan while making the payment like PAN error, error in the head of tax payment like advance tax, tax on regular assessment, error in mentioning Assessment Year,  tax applicable (Income tax other than companies), error in quoting Challan Identification Number (CIN) etc. All the data should be carefully recorded so as to get the credit in the income tax return.
[Remedy: If there is a mistake in the payment of challan, the required correction is first required to be carried out by approaching the assessing officer. If there is mistake in quoting the CIN in the return, the facts may be updated by logging at the income tax website in the menu “My Account”].

By taking above precaution while filing the income tax return, timely credit of refund could be ensured by the taxpayers itself.

Further, taxpayer can check the status of the income tax refund online also. For this, login at https://tin.tin.nsdl.com/oltas/refundstatuslogin.html by entering PAN along with assessment years. The information is available for the past 10 years.
After submitting the request, the status message will display the reason for non issuance of the refund. Broadly, the status messages could be as under:

1        Refund not determined:
It meant that the taxpayer return has not been processed so far. The department is still working on it and there are no specific deadlines or guidance available on the period for processing of such return with the said status.
2        No e-filing has been done for this assessment year:
It meant that taxpayers has not send the acknowledgement slip (ITR-V) to the CPC, t Bengaluru or the department has not received it for some reason or the return is filed physically. In such case, either taxpayer should forward signed copy of ITR-V to the CPC, Bengaluru or should e-verify the return using aadhar linking facility. If the return is filed manually, the taxpayer should approach his assessing officer.
3        Refund is paid:
It may meant that the money is adjusted against any outstanding tax demand of other years, according to the record of the department. Further, non receipt could also be on account of change in address of the taxpayers.
4        No demand no refund:
It meant that there is no tax payable or refundable to the taxpayer. This could also be because there are some deductions taxpayer is not eligible for & so no refund is permissible. In such cases, the taxpayer needs to file a revision.
5      Contact your jurisdictional assessing officer:
It meant that CPC has processed the return and the same has been referred to the jurisdictional assessing officer either because the department has initiated assessment proceedings under Section 143 or there is a rectification, which cannot be processed by the CPC. In such case, taxpayer has to approach jurisdictional assessing officer.


By tracking the refund status online at the above referred links, taxpayers can ensure the speedily issue of refund.


[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
 or email it at



Monday, November 23, 2015

http://ssrpn.com/article-details.php?id=1339

http://ssrpn.com/article-details.php?id=1339

Sunday, October 25, 2015

TAXATION OF SHARES & DERIVATIVES- FUTURE & OPTIONS

Easy money-Complicated taxation. Its all about shares & derivatives - Readable format accessible at http://ssrpn.com/article-details.php?id=1331

Sunday, September 13, 2015

Government have its share in your lottery income. Tax Talk- My weekly Column. Word readable format available at- http://ssrpn.com/article-details.php?id=1318

Government have its share in your lottery income. Tax Talk- My weekly Column. Word readable format available at- http://ssrpn.com/article-details.php?id=1318

Sunday, August 2, 2015

NRI: Basic exemption limit cannot be reduced from LTCG

TAX TALK-03.08.2015-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant


NRI: Basic exemption limit cannot be reduced from LTCG

Query 1]
I am an NRI Sir in AY 2015-16. I am having taxable house property income of Rs. 42,631/- and long term capital gains (LTCG) taxable income at Rs. 10,70,567/-. When form 2 is being filled up, the tax payable is calculated @ 20% on LTCG of Rs. 10,70,567/- at Rs. 2,14,113/- + cess. The basic exemption of Rs. 2,50,000/- is not being given. As per this, the tax would be Rs. 11,13,198/-  less basic exemption Rs. 2,50,000/- i.e., Rs/  8,63,198/- @ 20%. = Rs. 1,72,640/- + 3% cess.  Please guide me as to the correct calculation.  [Ajay Agrawal- akagrawal87@gmail.com]
Opinion:
1.      Long Term Capital Gain (LTCG) is taxable at a special concessional rate irrespective of the applicable individual tax slab of an Individual.
2.      Additionally, benefit of adjusting any taxable capital gain against the room left over in the basic exemption limit is a special concession conferred on to the resident taxpayer only. Government knows the earning of NRI & the concession in the form of reduction of unexhausted basic exemption limit against LTCG is not bestowed on NRI.
3.      Resultantly, NRI cannot reduce the amount of unutilized basic exemption limit from the amount of LTCG.


Query 2]
I'm in Govt. service. I have three properties of my own at Nasik, Pune and Bhopal. Though small flats, they were purchased to reduce tax burden. All the relevant details with query is as under:
1.      Nasik flat- is self occupied purchased in 2007. No loan on this.
2.      Pune flat - purchased in May’2012 is a 28 years old property for 20 lacs and now consideration value is about 28 lacs. Loan cleared in the last year. The property is rented out with annual let out income after all calculations is about Rs. 60,000/-
3.      Bhopal flat - Purchased in Mar’2014. The flat is rented out and the annual let out value is again about Rs. 60,000/-. Total interest component is about 2.85 lacs, EMI Rs. 40,000/- plus.
4.      Actually, plan was to sell off Pune property and buy third/second at Bhopal, but could not sell it off in 2014 since it was attracting STCG. So decision was delayed to this year. 
5.      For tax calculations this year, I am including both the rental incomes and then subtracting the same from Rs. 2.85 lacs to arrive at net negative income of approx Rs. 1.20 lacs.
6.      My queries:
Now that three years are over for Pune property, I want to sell it off. What is my total capital gain?  Whatever sale proceeds are, apart from capital gains / otherwise, Can I repay the loan of third property and bring down the EMI since as per rule one needs to reinvest in property after the sell to avoid LTCG? However, here the property was purchased last year. What does the rule say? I’ll be happy if you throw some light. [
svdeshu@hotmail.com]
Opinion
1.      From sale of Pune flat, you would be earning Long Term Capital Gain (LTCG).
2.      LTCG arising on sale of a residential house property could be claimed as exempt u/s 54 of the Income Tax Act-1961. To claim an exemption u/s 54, taxpayers have to invest LTCG in purchase/construction of another house property within a prescribed time frame. The prescribed time periods are as under:
a] For purchase:
One year before or two years after the date of sale.
b] For Constructions:
Three years from the date of sale.
3.      As discussed above, to save LTCG tax, taxpayer have to invest the amount of LTCG for purchase a house property either one year before or two years after the date of transfer of house property. For construction, the time limit is 3 years from the date of transfer. Since Bhopal flat was purchased by you in March’2014 and condition of “1 year before” is not possible now, LTCG arising out of sale of Pune flat could not be claimed as exempt against Bhopal flat. The repayment of the loan availed for purchase of Bhopal flat out of the sale proceeds of the pune flat now would not serve the purpose of saving LTCG tax. You may have following two easy saving options at your disposal:
a] Claim an exemption u/s 54 as mentioned above or
b] Claim an exemption u/s 54EC by investing the amount of LTCG within a period of 6 months in a specified bonds issued by NHAI / REC. These capital gain tax saving bonds have a lock-in-period of 3 years. In your specific case, you can add the stamp duty as well as registration expenses to the cost of acquisition to arrive at the cost of acquisition. Ignoring it, your indexed cost of acquisition would be Rs. 25.38 Lacs [CII for FY 2012-13 & FY 2015-16 (if you sale the flat in FY 2015-16) are “852” & “1081” respectively]. Further, considering your present sale value of Rs. 28 Lacs as not less than stamp duty valuation & ignoring your transfer expenses like brokerage, legal fees etc, your LTCG would be Rs. 4.98 Lacs. By just investing the amount of Rs. 2.62 Lacs in the bonds as mentioned hereinabove, you could save LTCG tax of 20.60%.

Query 3]
I have done FD of Rs. 1,00,000/- on 16th Dec. 2015. Do I have to show interest accrued from 16th Dec 2015 to 31st March 2015 in the ITR for the AY 15-16? Also, I want to ask that if I give an Unsecured loan to a company upon which I am receiving interest, can I claim deduction u/s 80 TTA for the interest received? Please guide me. [adityapatel025@gmail.com]
Opinion
1.      In your specific case, it is always better to offer the income from 16th Dec’2015 to 31st March’2016 in the ITR for the AY 2015-16. This will be in accordance with the CBDT guidelines on the issue & would also enable to spread over & leverage your income in different financial years.
2.      Deduction up to Rs. 10,000/- under section 80TTA is available only against interest received from Saving Bank Account of bank or post office. Interest received from any other source, be it from FDR, KVP, Deposits or unsecured loans to companies or others, would not be eligible for deduction u/s 80TTA.


[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at SSRPN & Co, 10, Laxmi Vyankatesh Apartment, C.A. Road, Telephone Exch. Square, Nagpur-440008 or email it at nareshjakhotia@ssrpn.com]

Sunday, July 12, 2015

Income from funds transferred to Wife attracts clubbing provision

TAX TALK-13.07.2015-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant


Income from funds transferred to Wife attracts clubbing provision

Query 1]
I am a salaried person and pay Income Tax. I transfer my salary from salary account to a joint saving account where I am the 1st holder and my wife is 2nd holder. My wife transfers this account's deposit into term deposits where she is 1st holder and I am 2nd holder. She is having PAN and submits 15G in bank. Total interest is below Rs. 2.50 Lacs. Please tell me whose is the tax liability on the interest received from term deposit? [S.Nandi , Jabalpur-snandi1957@gmail.com]
Opinion:
"The husband who wants a happy marriage should learn to keep his mouth shut and his checkbook open." - Groucho Marx
Its not your case alone. It a global phenomenon as has been rightly recognized by Joey Adams also when he says "Marriage is give and take. You'd better give it to her or she'll take it anyway."
It happens with everyone. Wife is the only person to enjoy the privileges. However, the Tax implication is left with the Husband. Even though the ownership of funds may be transferred in favor of wife, still liability to pay income tax would be that of husband. There is a clubbing provision in the Indian Income Tax Act-1961. As a result of clubbing provision, where an asset/property/money is transferred by an individual to his/her spouse or minor Child or Daughter-in-law, directly or indirectly, otherwise than for an adequate consideration, any income from such asset by way of interest/rent etc is deemed as the income of the transferor by virtue of section 64(1A) / 64(1) (iv) / 64(1)(vi) of the Income Tax Act-1961. Effectively, even if FD stands in the name of wife, still interest come thereon would be treated as yours only & would be clubbed with your other income.

Query 2]
1.      There are saving bank a/c’s with a facility of term deposit-sweep/reverse sweeps, in which after a certain limit excess amounts are credited in term deposit and to savings a/c, whenever necessary. These term deposit A/c’s give higher rate of interest for the time the amount remains in term deposit A/c’s. Please clarify if interest of such bank A/c’s also qualify for exemption of Rs. 10000/-?
2.      A house previously given on rent has not fetched any income this year due to not getting suitable tenant. Can we show municipal taxes as loss from house property and carry forward it for future? [Chandan s fatnani-cnn_fatnani@yahoo.com]
Opinion:
1.      Section 80 TTA offers deduction of interest on deposits in saving account up to a maximum of Rs. 10,000/- and explicitly provide for exclusion of interest on "time deposits" from deduction. To my knowledge, Sweep in /out facility in a saving bank account is a benefit providing combination of both, saving A/c as well as fixed deposit A/c. It’s a bank internal feature that allows account holder to transfer funds (automatic or manual) from saving a/c to virtual fixed deposits accounts and vice versa too, to enable higher interest. An important question raised by you is whether interest, for the purpose of section 80TTA includes interest from deposits in Sweep or Flexi Account? Though deposit in Flexi/Sweep Account is a kind of term deposit, explanation to section 80 TTA clearly provides that "for the purpose this section, 'time deposit' means deposit repayable on expiry of fixed period". In normal course, Sweep Transfers are never repayable on expiry of fixed period even though there may be a fixed period for crediting interest thereon. Sweep transfers, in general, are repayable on demand & not after a fixed period. It appears to be an extension of saving account only as the customer has to merely issue a cheque for withdrawals and these deposits automatically get transferred in the account to the extent of required payment. In my considered opinion, the interest would be covered by section 80TTA and deduction up to maximum of Rs. 10,000/- would be admissible in such cases.
2.      Deduction towards municipal taxes paid is not available if there is no rental income against the property. Other readers may further note that municipal tax is deductible only if it is borne by the landlord. The deduction is available on payment basis. When municipal taxes have become due but not actually paid, the deduction would not be admissible.




[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at SSRPN & Co, 10, Laxmi Vyankatesh Apartment, C.A. Road, Telephone Exch. Square, Nagpur-440008 or email it at nareshjakhotia@ssrpn.com].