India Tax Made Simple!

How to Minimise Tax on Gains on Sale of HUDA Land ?

noreply@blogger.com (taxworry) — Sun, 27 Dec 2009 05:32:12 PST

I bought a Residential Plot from HUDA in Ambala in the yr 1998 and got the Conveyance Deed done in 2004. Now i am planning to sell it off as soon as I find a buyer. I am also planning to reinvest the sale proceeds into another Residential Property at the earliest. Please advise me on the following:-
a. My Capital Gains will be calculated from which year - 1998 or 2004.
b. Is there any Tax Liability till I reinvest in a Property.
c. How can I legally avoid the tax liability.
d. Is there a requirement to reflect the same in my IT Return if the deal closes within this financial yr.
e. Any tax liability on Capital Gains Account Scheme.

Rajiv Mehta , New Delhi

Answer a: If the money was paid in for plot in 1998 and you were given the letter of allotment, the year in which you were allotted the land by HUDA , shall be year of acquisition. Compute capital gains from that year of allotment.

Answer b, C , D & E :

There is legal way of avoiding the tax. That is, by way of claim of exemption u/s 54F or 54EC .

Under section 54F , if you purchase another residential house within two years of sale of land or construct within three years from the date of sale of land , then amount equivalent to use of sale consideration shall not be taxable .Read How To Minimise Tax On Huge Gains on Property Sale? and don’t forget that Exemption u/s 54F is Lost if Another House Purchased Within Two Years.

If you can not purchase the house within the financial year or before filing return of income, you can deposit the amounts of sales consideration in Capital Gains Account Scheme .Read How To Use Capital Gains Account Scheme To Save Tax?

Under section 54EC , you can get exemption equivalent to investment in bonds issued by Rural Electrification Corporation (REC ) and NHAI .Read How To Make Tax Planning For Long Term Capital Gains? Remember to read interest on REC Bond Is Taxable Yearwise!

Remember that Capital Gains Account Scheme can't be used for purchasing Bonds.

Filing of return

If you get the full amount or even majority of payment and possession of land is given to the buyer, the deal as far as I T Act is concerned has happened. In that case you will have to show in the return for the financial year in which such deal has materialised.

Is Shifting Charge & Temporary Accommodation Taxable Perquisite?

noreply@blogger.com (taxworry) — Mon, 21 Dec 2009 18:39:42 PST

When I joined my present company in June 2009, I was paid a shifting charge of Rs. 30,000 and temporary accommodation (hotel) charge of Rs. 21,000. However the company has added those to expenses to my income and already deducted taxes. If I want to reduce these charges from my income (as these were expenses required to perform my duty) in my return and claim back the taxes, what documents I need to produce? I have the original bills for expenditure on hotel and transport bill for shifting. What documents/certificates I would require from my employer to claim back that tax in the return? My employer is a MNC bank. Alankar Chandra , Banglore

I do not think that shifting charges and the temporary accommodation in hotel can be taken as expense required to perform the duty.

Of course Rule 3(1) provides that if the employer provides hotel accommodation in a hotel for 15 days in case of transfer of an employee from one place to another, same may not be considered perquisites .

In your case , the transfer is not involved.

However, you can consider the reimbursement of hotel expense of Rs 21,000 as HRA and claim exemption for house rent. Shifting charge is certainly taxable in your hand without any relief.

Is Redeeming Value on ULIP Tax Free?

noreply@blogger.com (taxworry) — Sat, 19 Dec 2009 21:10:13 PST

I invested in ULIP single premium of Bajaj Allienz (1.04.2005) on 1 Lac and got the sum assured Rs 5 Lac. Subsequently invested in Top up Rs 5 lac on that. All sum was invested in Equity oriented fund . After three years now the fund value is Rs Rs 8 lac ( on 15.12.2009). What will be capital gain if i redeem full amount .Sachin Purwar , Kanpur

What i understand from your query is that you bought 5 lac assured sum under ULIP and later invested Rs 5 lakh more , by whatever name called.

Under ULIP , units are bought from the money invested in the policy. The units are capital asset under I T Act and its sale before one year gives rise to short term capital gains which is taxable.

However, in your case , since the units are 3 years old , the sale will raise long term capital gains . Mutual Fund will certainly deduct STT on the redemption of the units, and that makes the gains tax free u/s 10(38) of the I T Act.

Only thing to remember is that you must check the holding period of units . It may be that some of the units allotted to you in the year before the sale may not complete one year , therefore gain on sale of those units shall be taxable as short term capital gains.

Basics Of Mutual Fund Taxation !

noreply@blogger.com (taxworry) — Sun, 13 Dec 2009 03:24:31 PST

I want to know the tax calculation of mutual fund. How the tax calculated and what is capital gain. Sunil Prajapati

The mutual fund transaction by any one can bring two kinds of income

1. Capital Gains or loss if you are showing bought units as investment
2. Trading gains if you are actually doing regular buy or sell at much faster frequency.

1. Capital Gains

When you buy , the mutual fund allots you units and when you sell the mutual fund company call it redemption, which mean buyback from you on the NAV (Net Asset Value ). So there may be gains or loss when you actually do the redemption. The capital Gains can be two types having two rates under I T Act. These are Long term Gains or Short Term Gains

Long Term Gains

If you held the units for more than a year, gains on such units redemption is tax free u/s 10(38) of the I T Act.

Short term gains

When the units are sold (redemption ) within one year of being held by the investor , it becomes short term gains or loss . The Short term gains are taxed @ 15 % u/s 111A of the I T Act.

The gains or loss is very easily computed as under

   Redemption price paid by Mutual Fund Company xxxxxx

Less

     Cost of acquisition of those units                   XXXXX

2. Trading Income

Like shares, many people also trades in mutual funds and shows the buy sale as stock-in-trade . In that case gains or losses are taxed as Business Income and taxed at normal rate .

Should TDS From Prize Money Be Refunded To A Person Having No Taxable Income?

noreply@blogger.com (taxworry) — Mon, 07 Dec 2009 18:02:41 PST

I want to know about TDS, since I won a contest in which I got 1 Lakh cash prize and TDS of 33.6% is deducted from that amount, since I am a student with no income, so whether that amount will be refunded to me and if yes how. Atul Vohra , Shimla

No, the amount of tax deducted will not be refunded to you because the tax on lottery or prize has to be paid by a person even if the taxable income of the person is below exemption limit.

The reason is that the tax on the prize or lottery is payable under section 115BB oof the I T Act , which provides a a special rate of tax has been prescribed under section 115BB of the the I T Act.

115BB. Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of

(i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate ofthirty per cent; and

(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).

No exemption of even basic amount is provided . It means that if a person has no taxable income , and he wins lottery or other kind of prize of even Rs 20,000 , he will have to pay tax. He can not claim that since Rs 20,000 is below exemption limit, no tax is payable.No loss or expense is adjustable with the income from winnings of prizes or lottery.

Can You Deduct STT As Expense From Share Sale Income ?

noreply@blogger.com (taxworry) — Fri, 04 Dec 2009 19:27:55 PST

The income from share transaction can occur in following forms

1. Share trading

2. Speculative trade

3. F & O transactions

4. Capital Gains

Allowance of STT for First three types (1, 2 & 3)

From Assessment Year Asst Year 2009-10 (FY 2008-09 ) , Securities Transaction Tax (STT) is defined as an expense u/s 36(xv) of the I T Act

(xv) an amount equal to the securities transaction tax paid by the assessee in respect of the taxable securities transactions entered into in the course of his business during the previous year, if the income arising from such taxable securities transactions is included in the income computed under the head Profits and gains of business or profession.

Therefore , for share trading income, or speculative income, or Futures & Options trades , STT is an expense and deductible.

Can You Deduct STT from Capital Gains?

However , if you are selling the shares as investments , the STT can not be deducted as cost of acquisition . This is provided under the proviso to section 48 which is regarding cost of acquisition

Proviso to section 48

Provided also that no deduction shall be allowed in computing the income chargeable under the head Capital gains in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004

Thumb rule is that STT is cost for all kinds of transactions except capital gains.

Can We Continue to File Return in Name of Deceased Till Maturity of FD?

noreply@blogger.com (taxworry) — Sun, 29 Nov 2009 09:42:17 PST

My client having FDRs in Banks, Investment in NSCs, & 5 year tax saving deposits etc., Nominations for the said deposits made in the name of family members like wife, Son, daughter and grad son etc., Each year he is reporting the Income from said deposits on accrual basis.He expired on 17-8-2008. My doubts are as under. 1) In whose a/c the interest earned on said deposits for the period after his death (18-8-2008 to 31-3-2009 )reported ? Whether interest for the period from 18-8-2008 to 31-3-2009 reported in Nominees a/c ? 2) Can we continue the I.T. File of the deceased person till the maturity of the said deposits? These deposits will mature after 3 to 4 years.

Vijay Kumar Sharda ,Zahirabad

Yes, return can be continued to be filed in deceased name . However it should be signed by legal heir , which can be wife or son of the deceased. You should do this

1. Get all son , daughters wife sign a declaration that for the purpose of Income Tax Act, they authorise mother or son as legal heir.

2. In name place of return write Mrs XYZ legal heir of Sri……….. .

3. The return should be signed by widow or son who is legal heir.

The interest should be shown as it was being shown earlier on.

Other Option

If the assets of deceased has passed on legally with the period concerned, it can also be shown in the hands the heir /nominee who gets the FD . However, the interest accrued till 18/8/2008 still to be declared by filing return of income in name of deceased.

Interest after than day is taxable in hand of heir who gets the FD.

Is TDS Required If Only Provisions For Expense Made?

noreply@blogger.com (taxworry) — Sun, 29 Nov 2009 02:53:24 PST

I would like to know about TDS deductible on provision for expenses. Suppose at the end of the year, many provisions are made, say as on 31/03/09 for various payments like payments to contractors, auditors, where in normal course, TDS is applicable. In this provision case, I am simply making a provision & not crediting to a specific party. I am passing a simple entry like audit fees, labour charges etc DR to Provision for Expenses.
All the provisions made as on 31/03/09 would be reversed as on 01/04/09 & all actual expenses as per actual bills are booked on the bill date. I will deduct the TDS applicable on these payments on the basis of booking.

Vijayanand , Mumbai

As per the law regarding tax at source, a payer is liable to deduct the tax , moment of either actual payment or crediting the sum to payee.

When you make provision, it is actually neither credit to any one’s account nor it is actual payment. Therefore, law of tax at source is not applicable.

The only point one must check is whether the provisioning is not bypassing the accounting norm ne must follow.

Can You Prevent TDS on Payments To Non Resident?

noreply@blogger.com (taxworry) — Sat, 28 Nov 2009 23:48:49 PST

Yes, there is a way to prevent TDS on the payment to Non Resident. It may be partial or full . The provision regarding relief from tax at source is provided in the same provision i.e section 195 of the I T Act. The scope is given under subsection 195(2) which states that if the deductor feels that the whole amount being paid to non resident may not chargeable to tax , he/she/it can make application for appropriate relief ot Assessing Officer.

Procedure

As per I T Rule 29(2) , following conditions must be satisfied before Deductor makes an application to Assessing Officer

(i) the person (the payee) concerned has been regularly assessed to income-tax in India and has furnished the returns of income for all assessment years for which such returns became due on or before the date on which the application under sub-rule (1) is made;

(ii) the person (the payee) is not in default or deemed to be in default in respect of any tax (including advance tax and tax payable under section 140A), interest, penalty, fine, or any other sum payable under the Act;

(iii) the person (the payee) has not been subjected to penalty under clause (iii) of sub-section (1) of section 271;

(iv) he has been carrying on business or profession in India continuously for a period of not less than five years immediately preceding the date of the application, and

(v) the value of the fixed assets in India of such business or profession as shown in his books for the previous year which ended immediately before the date of the application or, where the accounts in respect of such previous year have not been made up before the said date, the previous year immediately preceding that year, exceeds fifty lakhs of rupees.

Prescribed Form

If aforesaid conditions are fulfilled then , the payer can file an application in Form No. 15D with his Assessing Officer or TDS wing of the department as the case may be .The Form 15D can be downloaded from here.

Are Individuals Foreign Citizen Exempt From TDS?

noreply@blogger.com (taxworry) — Sat, 28 Nov 2009 23:13:58 PST

Should a private ltd company in India has to deduct TDS on payments made to an individual, who is a foreign citizen of Holland? Prabha G, Chennai

Your question is very general in nature.

Section 195 of the I T Act provides for deduction of tax at source in case of payments to non resident. It starts as under:

Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ⁾ shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :

As is clear Section 195 is applicable on all kinds of non resident except a company . Thus every kind of person including individual are covered.

The law regarding deduction u/s 195 can be summed up in following lines
1. the payment is to a non resident by whatever mode

2. the payment should be taxable in India

How To Find Registered Valuer in Your Area?

noreply@blogger.com (taxworry) — Sat, 28 Nov 2009 22:36:33 PST

My Grandfather purchased a SHOP at 1975. After death of my grandfather , my father became the owner of that SHOP at 1992. My father has died on 11/5/2009. I have sold that SHOP in AUG- 2009.
Cost in 1975 Rs 20000.00
Sale in 2009 Rs 428000.00
Market Value as per GOVT Registered Office in 2009 of that SHOP -- Rs 675000.00
It is very difficult to compute the MARKET VALUE as on 1/4/1981.
How I can compute the capital gain of that SHOP.

Ramen Ghosh , Chandan Nagore

Any capital asset purchased before 1/4/1981 can be valued at market price as on 1/4/1981. This is also valid in case you receive the capital asset as Gift or inherit it. Indexation of this value considerably reduces the capital gains and in fact in many case , capital loss may come out.

However, it is equally true when the question of valuation comes for ordinary taxpayers. How the market value as on 1/4/1981 can be ascertained by ordinary taxpayer? Moreover, even if you do , tax officer may not believe it because you are not either capable of finding it or authorised person to do it.

For this very purpose , Govt has formulated scheme of registering Valuer who have the specialisation on valuation of different types of capital assets. These are registered with the Chief Commissioner of Income Tax . So , you should approach Public Information officer for a list of register valuer in the office of Chief Commissioner of Income Tax office , usually at Aayakar Bhavan at our place.

After that approach the valuer , pay his fees and obtain a valuation report as on 1/4 1981

Can You Claim Exemption on Leave Salary Received in case of Resignation from Job ?

noreply@blogger.com (taxworry) — Mon, 16 Nov 2009 19:08:42 PST

The receipt of leave salary is taxed as salary. However, section 10(10AA) provides for exemption computed as per Rule if the leave salary is received on superannuation or retirement or “otherwise”. Section 10(10AA) is as under

10(10AA)

(i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise ;

(ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether on superannuation or otherwise,subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government

The issue whether exemption u/s 10(10AA) is covered for resignation from employment ,under the words “otherwise” , came up before Court and it was held that the word “otherwise” include resignation from service as well.

Circular of The Central Board of Direct Taxes

The relevant portion of the Circular No. 394 dated September 14, 1984 [1984] 150 ITR (St.) 3). reads as follows (page 5) :

“6.2 It has come to notice that attempts have been made by taxpayers to claim exemption under the aforesaid provision in respect of payments received by them for not utilising leave even while in service. With a view to avoiding litigation on this point, the Amending Act has made two amendments to put the underlying intention beyond doubt.

6.3 Under one of the amendments, a new sub-clause (va) has been inserted in clause (1) of section 17 of the Income-tax Act to provide that any payment received by an employee in respect of any period of leave not availed of by him shall be regarded as 'salary'. The other amendment has been made in section 10(10AA) of the Act to clarify that the exemption under the aforesaid provision shall be allowed only where the payment is received by the employee on his retirement, whether on superannuation or otherwise. The combined effect of the two aforesaid amendments will be that payments received by an employee in respect of any period of leave not availed of by him will be exempt from income-tax only in cases where such payments are received on retirement and subject to the fulfilment of the other conditions laid down in section 10(10AA) of the Income-tax Act.”

Madras High Court in Commissioner Of Income Tax.vs R. J. Shahney. 159 ITR 160

Under the provisions of section 10(10AA), the payment received by an employee as cash equivalent of leave salary in respect of the period of earned leave to his credit at the time of his retirement whether on superannuation or otherwise, shall not be included in computing the total income. In this case, the assessee resigned and retired from the employment. Learned counsel for the Revenue sought to contend that since the words " Whether on superannuation or otherwise " qualifies retirement, unless it is a case of retirement from service on attaining a particular age, or on some other reason, a case of resignation will not take in. We are unable to agree. The retirement may be of various kinds. It may be on superannuation or it may be voluntary. If there is any voluntary retirement from service, we are satisfied that the provisions of section 10(10AA) would apply. Therefore, no question of law could be said to arise out the order of the Tribunal. The petition is accordingly dismissed with costs. “

This was followed by Bomaby High Court in CIT v.Malhotra (D P) 229 ITR 394

The retirement may be of various kinds. It may be on superannuation or it may be voluntary. If there is any voluntary retirement from service, we are satisfied that the provisions of section 10(10AA) would apply.

Is Additional Compensation on Land Acquisition Awarded By Court Taxable?

noreply@blogger.com (taxworry) — Sun, 15 Nov 2009 20:10:22 PST

I have been awarded addl.compensation for property acquired in 2002. The initial compensation has been duly accounted for in the return of income as long term capital gain.The acquiring body has filed an appeal against the judgement for addl. compensation and the appeal is pending for hearing in the High Court. Pending hearing and judgement on the appeal, the Court has allowed part amount of addl compensation to be released partly against bank guarantee and partly without guarantee.The amount to be released is in respect of addl.compensation for land, building,etc and interest for delayed payment.Is there any tax liability on the amount to be released?

R. K Agarwal, Patiala

There are two issues involved in case of additional compensation.

1. Whether it is taxable?

2. What should be accounting treatment for the purpose of taxation of compesation as there is an appeal against the order of additional compensation.

Whether it is taxable?

I have aleardy dealt with this issue in posting Is Compensation Awarded By Court Taxable? . In nut shell, in case of award by Court , moot point to consider is

1. when interest is paid to an assessee under a statute, like section 34 of the Code of Civil Procedure, the same has to be calculated as income for the purpose of the income-tax.
2. Where, however, interest to be paid, is in the discretion of the court, as is in the present case, the said payment would not amount to income for the purpose of the income-tax.

The aforesaid conclusion were reached by Supreme Court Dr. Shamlal Narula's case [1964] 53 ITR 151, and Ramanathan Chettiar's case [1967] 63 ITR 458,

Accounting treatment?

In case it is found that additional compensation is taxable, in that even , keeping in mind the on going appeal , the compensation should be made part of total income , if received. If not received, same should be accounted for on cash receipt basis. In other words, when you actually receive the additional compensation, the amount should be included in total income in that year only.

In case you lose the case, file revised return or application u/s119(2)(b) to Commissioner for refund of tax paid .

Can You Claim Exemption u/s 54F for Modification or Expansion of An Existing House ?

noreply@blogger.com (taxworry) — Sun, 08 Nov 2009 07:40:23 PST

No , said the Kerala High Court in Meera Jacob vs ITO [ dt of order 9/06/2008 ] 313 ITR 411 . The small order of Hon,ble High Court is as under :

The question involved is whether the assessee, in the computation of long term capital gains, is entitled to deduction under Section 54F of the Income tax Act in respect of investment in modification/expansion of an existing residential house.

The Tribunal took the stand that exemption is available only when the investment is in the construction of a house and not for investment in modification or renovation.

Admitted facts are that assessee had a fairly big house to which assessee made addition of 140 sq. metres of plinth area. However, it is the conceded position that assessee has not constructed any separate apartment or house.

Section 54F does not provide for exemption on investment in renovation or modification of an existing house. On the other hand, construction of a house only qualifies for exemption on the investment.

Even addition of a floor of a self-contained type to the existing house would have qualified for exemption. However, since the assessee has only made addition to the plinth area, which is in the form of modification of an existing house, she is not entitled to deduction claimed under Section 54F of the Act.

We therefore uphold the order of the Tribunal and dismiss the appeal.

Therefore, it is clear that no exemption is allowed for mere extension of the existing house. However, if yu create another floor and construct another house, exemption may be allowed .

Can Loss of F & O Be Adjusted with Capital Gains?

noreply@blogger.com (taxworry) — Sun, 08 Nov 2009 04:22:42 PST

Earn profit from Short Capital gain Rs. 1,05.400/- and Long term capital gain Rs. 89,375/-and Future & option loss Rs. 68,248/-. Pl. tell me future option loss is trading loss or speculation loss it is adjustable or / no.

Satyanaryan Agarwala , Kolkata

The transaction in Future & Options is business activity now because of amendment in Section 43(5) of the I T Act . Therefore , any loss incurred on F & O is allowable to be adjusted as a business loss is adjusted.

How Business Loss is adjusted?

The provision regarding adjustment of loss is given in section 71 of the I T Act . Which reads as

71. (1) Where in respect of any assessment year the net result of the computation under any head of income, other than Capital gains, is a loss and the assessee has no income under the head Capital gains, he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.

Thus, in simple words, aforesaid provision states that any loss except capital loss , can be adjusted with income under any head . However, section 71(2A) provides that business loss can not be adjusted with salary income.

Thus the business loss of a year can be adjusted with following income of the same year

House property income
Capital Gains
Income From Other Sources

Therefore, your loss incurred on F & O can be adjusted with income earned on capital gains

What is Rule of Filing 15G to Prevent TDS?

noreply@blogger.com (taxworry) — Mon, 02 Nov 2009 19:06:46 PST

I am a male of 60 yrs, resident, having business in Delhi. My estimated total income for FY 2009-10 is 200,000/.I have invested Rs 70,00/= in PPF. Now my taxable income is 200,000- 70000 = 130,000. Since Rs 130,000 is below the taxable limit of Rs 160,000 this yr ,I want to invest in senior citizen scheme of post office having interest of 9% pa.
Can I give them form 15 G for not deducting TDS on interest.
Gopi Ram Bansal , New Delhi

Form 15G is a self declaration which if given to the tax deductor ,saves your payment from being liable to tax at source.

What are the condition? Simple rule to judge if you are eligible for filing Form 15G are : What are the condition? Simple rule to judge if you are eligible for filing Form 15G are : What are the condition? Simple rule to judge if you are eligible for filing Form 15G are : 1. You are below 65 years , and

2. Your total income is below maximum total income not taxable . For example in FY 2009-10, total income should be below Rs 1,60,000 for Male and Rs 1,90,000 for Female. and

3. Aggregate of income from Dividend , or Interest or withdrawal r surrender plan of pension plan of insurance for deduction u/s 80CCA was availed should be less than maximum total income not taxable. For example ,aggregate of such income of a MALE in FY 2009-10 should not be more than RS 1,60,000 .

If all the aforesaid conditions are fulfilled, one is eligible for filing 15G.

In your question , although your total income is less than Rs 1,60,000 , however , you have not stated what is the AGGREGATE of interest or dividend etc. Therefore check the facts your slef and if you find that te aggregate of interest or dividend for Fy 2009-10 is less than Rs 1,60,000 , you are eligible for filing 15G.

Is Money Received Due to Death of Relative Taxable?

noreply@blogger.com (taxworry) — Fri, 30 Oct 2009 23:56:24 PDT

I have received some amount of money due to death of my relative who had nominated me as beneficiary. I want to ask whether this would be treated as my income and taxable as per Income Tax rules. I also want to know if the amount is invested in bank, whether interest earned would be taxable as income. My son is 19 years old student; if I gift this sum into his saving/FD account, can I save income tax because interest would also be credited in his account and his income being below the taxable income. What are the documentation if I decide to gift this amount to my son.

Suraj Prakash , New Delhi

Money received without any limitation is tax free if received under a will or by way of inheritance; or in contemplation of death of the payer. As per your question, if you have received the sum on account of death of a relative, same will not be taxable as it is out of purview of income as stated in provision u/s 56(2)(vii)

56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources, namely :

…..

…..

(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,

Provided further that this clause shall not apply to any sum of money or any property received

……………..

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer or donor, as the case may be; or

…..

Interest on money kept in Fixed Deposit

Yes, the interest earned on the FD will be taxable in your hand.

Gift to son

Yes, you can gift money to your son the gift can not be his taxable income because you are father and gift from relative is not taxable income as per section 56(2)(vii).

Since your son is major, clubbing provision u/s 64 shall also not effect you. In other words , interest on FD in your son will be chargeable to tax in his hand .However, as you have rightly stated, shall be tax free because your son has income below exemption limit.

How to Give Gift

Give the money by account payee cheque to your son.
Prepare a gift deed wherein clearly state the source of fund , relationship, cheque no , bank name and date.
Write clearly that you as father is giving gift to your son and once given you will have no claim on such amount.
Get this deed signed by Notary Public ( which you can get i any court premise on payment of Rs 100 or more as the case may be )

Honorarium, Pension and Allowances under the Scheme of National Research Professorship Revised !

noreply@blogger.com (taxworry) — Thu, 29 Oct 2009 19:31:33 PDT

The Union Cabinet today approved the proposal of the Ministry of Human Resource Development for revision of rates of honorarium, pension and contingency allowances under the Scheme of National Research Professorship with effect from 1.4.2009.

The revised rates are as follows :
(i) Rate of monthly honorarium for serving National Research Professors has been enhanced from Rs.25,000 to Rs.75,000 with effect from 1.4.2009;
(ii) Rate of monthly pension for Pensioners enhanced from Rs.9,000 to Rs.25,000 with effect from 1.4.2009;
(iii) Rate of annual contingency grant for serving National Research Professors has been enhanced from Rs.50,000 to 1,00,000 with effect from 1.4.2009;
(iv) Honorarium and pension will continue to be exempt from Income Tax under Section 10(17A) of the Income Tax Act, 1961.

Background :
Government of India had instituted the Scheme of National Research Professorship in 1949, to honour distinguished academics and scholars in recognition of their contribution to knowledge. Persons of real eminence who have attained the age of 65 years and who have made outstanding contribution in their respective fields and are still capable of productive research, are considered for appointment as National Research Professors. The appointment is made initially for a period of 5 years which is extendable by another term of five years. After completion of first term or the extended second term, a NRP is entitled to a life pension.
In 1949, the rate of honorarium was Rs.2500 per month. The rates of honorarium and pension have been revised from time to time and at the time of last revision in 1998-99, the rate of honorarium was Rs.25,000 per month, the rate of pension was Rs.9,000 per month. The contingency grant was Rs.50,000/- per annum. Considering the rate of inflation and in view of the erosion of rupee value, the rates of honorarium/pension/contingency grant need upward revision.

Is Exemption u/s Sec. 54 Allowed Even if New House is Purchased from Borrowed Funds ?

noreply@blogger.com (taxworry) — Tue, 20 Oct 2009 19:42:54 PDT

Section 54 provides relief to a tax payer who gets gains on account of sale of residential house. The provision u/s 54 provides that tax will not be imposed on long term gains on sale of residential house up to the extent gains same is utilised for buying house within two years from the date of transfer of sold assets or constructing the house within three years from the date of transfer of sold assets .

But the question is whether a tax payer has to spend on new residential house the same money which he got out of sale or the tax payer just needs to buy a house within specified period , no matter, from where the money has come.

Recently , Bomaby High Court in CIT vs Dr.P.S.Pasricha has confirmed the decision of Mumbai Tribunal that for claiming benefit under s. 54(1), law does not make it mandatory that the assessee must use the same funds as received from sale. The source of funds is not relevant.

The facts of the case was as under

The facts borne out from the record are that assessee has acquired a residential flat in the building known as 'Dilwara' at Cooperage, Mumbai at cost of Rs. 3,22,464. The said property was sold during the year for a total consideration of Rs. 1,40,00,000. After claiming deductions for the expenses incurred for sale and cost of long term capital gains was worked out by the assessee at Rs. 1,24,02,738. The assessee claimed an exemption under section 54(1) of the Act to the extent of Rs. 1,04,78,750 and returned the taxable capital gain at Rs. 19,23,988. After the sale of the above property, the assessee purchased a commercial property at Kolhapur for a total consideration of Rs. 125.28 lakhs and gave the said property on rent to M/s. Huges Telecom Ltd. Thereafter, within the period specified under section 54(1) of the Act, the assessee purchased two adjoining residential flats at Mumbai for a total consideration of Rs. l,04,78,750 on which deduction was claimed under section 54(1) of the Act.

The Tribunal Held as as under

Since the assessee has purchased the residential house before the due date of filing of the return of income, its claim is not hit by sub-section (2) of section 54 of the Act. We, therefore, of the view that assessee is entitled for deduction under section 54(1) of the Act.

The order of Tribunal was challenged by Income Tax Department which ha snow been decided by Mumbai High Court in following words

Having seen the finding of fact recorded by the Tribunal in paragraph No.9, that the assessee had initially utilized the sale proceeds of sale of his residential flat for purchase of commercial properties and later on he purchased two residential flats within a period specified in sub section (2) of Section 54 of the Act. In this view of the matter, the view taken by the Tribunal cannot be faulted. The appeal is without any substance. Hence, the same stands dismissed in limine with no order as to costs.

Can Derivative Loss Be Adjusted With Other Income?

noreply@blogger.com (taxworry) — Sun, 18 Oct 2009 06:28:52 PDT

I got loss from derivatives [Future and option] nifty stock [ F.Y. 08-09]. and I also got loss from short term and long term shares [F.Y. 08-09 loss]. I can not carry forward this loss by virtue of late filing of return. so please tell me how to present [write] this losses in computation of total income, should I consider loss from derivatives in business income and this loss can i set off against normal business income of previous year [F.Y. 08-09]. Means which section this losses I can write off only, or not carry forward for next year.
Aruna thakur ,Mumbai

Derivative Loss is now business loss by virtue of amendment to section 43(5) of the I T Act. Section 43(5) of the I T Act defines “ Speculative Transaction” and “transactions in Futures & options “ carried out through BSE and NSE are now business loss.

Business loss can be set off with all kinds of income except Salary. So, if you have income under other heads , adjust derivative losses (business losses ) with those income. However , salary income can not be adjusted.

Whatever business loss which remained after being adjusted , can be carried forward . However, one of the condition, as you already know , is filing return of income within due date. Since you did not file return of income within due time, carry forward of such business loss may not be allowed.

As far as long term and short term capital loss is concerned, same can be adjusted only with capital gains and in case there is no such gains, can be carried forward for 8 years. However, since you have not filed return within due time, you can not carry forward such capital losses .

Are All Kinds Of Transporters Out of TDS Now On Production of PAN?

noreply@blogger.com (taxworry) — Sat, 17 Oct 2009 22:11:21 PDT

Nowadays you don’t need to deduct TDS on Transporters. I want to know which payments you considers for non deducting the TDS.
Like freight & cartage
Loading and unloading
transportation of employees
please explain in details.
Praveen , Delhi

Section 194C Substituted by the Finance (No. 2) Act, 2009, w.e.f. 1-10-2009 which provided vide subsection 6 that tax shall not be deducted in case of plying,hiring or leasing of goods carriage if person who is paid for such services furnishes PAN to person paying sums. Read the exact wordings below

(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.

What is Goods carriage?

Clause (14) and clause (16) of section 2 of the Motor Vehicles Act, 1988, define “goods carriage” means any motor vehicle constructed or adopted for use solely for the carriage of goods, or any motor vehicle not so constructed or adopted when used for the carriage of goods;’

Conclusion

Therefore, it becomes clear that only in case of Goods Carriage plying or leasing or hiring, TDS may not be applied if the contractor of gooods carriage provides payer his/her PAN. Other transporters are still covered u/s 194C.

In other words, loading unloading or transportation of employees are not covered under subsection 6 which exempts certain payments from TDS levy.

However, I feel if the loading and unloading is made part of work of Goods Carraige, consolidated payments i.e payment for goods carriage as well as loading unloading shall also be covered u/s sub-section 6 of section 194C and TDS may not happen on those payments.

Are Receipts Collected for Using Swimming Pool liable to Service Tax?

noreply@blogger.com (taxworry) — Sun, 11 Oct 2009 06:06:49 PDT

We own a swimming pool. Are the receipts collected from members liable to Service Tax? GOURAV GONDKAR , Pune

It is no doubt that providing swimming pool to members for a fee is a kind of service .In my opinion ,swimming pool fascilities for charges may come within the service category "Health Club and fitness centre " which is defined u/s 65(52) of the Finance Act 1994 to mean any establishment , including a hotel, or resort , providing health and fitness service.

As per the definition contained in section 65(51) "health and fitness service " means

service for physical well-being such as sauna and steam bath, Turkish bath, solarium, spas , reducing or slimming salons , gymnasium ,yoga , meditaion, massage (excluding therapeutic massage ) or any other like services;

Although , swimming pool service is not directly included in the definition, but the plain reading of th elaw shows that any kind of service which is associated with fitness and health shall fall within ambit of aforesaid definition.

Should Return Necessarily Be Processed Even When 143(2) Notice Issued?

noreply@blogger.com (taxworry) — Wed, 07 Oct 2009 20:19:12 PDT

Central Board of Direct Taxes in its Circular No. 549 dated October, 31, 1989 [see (1990) 182 ITR St. 1] has advised the Assessing Officers to issue intimation under Section 143(1) before issuance of notice under Section 143(2) of the Act

However,the question "whether the return should necessarily be processed u/s 143(1) even when notice u/s 143(2) has already been issued? " hounts both the mind of tax practitioner and even A.O.

The answer to this question has been legally settled by Supreme Court in Commissioner of Income Tax v. Gujarat Electricity Board [2003] 260 ITR 84 in which the question before Apex Court was :

whether it is open to the Revenue to issue intimation under section 143(1)(a) of the Income-tax Act, after notice for regular assessment has been issued under section 143(2) of the Income-tax Act, 1961 ?

Supreme Court held as under

There is no dispute that section 143(1)(a) of the Act enacts a summary procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the Assessing Officer determining the income, it is open to the assessee to ask for rectification under section 154.

Apart therefrom, the provisions of section 143(1)(a)(i) indicate that the intimation sent under section 143(1)(a) shall be without prejudice to the provisions of sub-section (2).

The Legislature, therefore, intended that, where the summary procedure under sub-section (1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee to make a regular assessment under sub-section (2) of section 143.

The converse is not available; a regular assessment proceeding having been commenced under section 143(2), there is no need for a summary proceeding under section 143(1)(a).

In the result, we see no infirmity in the judgment of the High Court. The appeals are dismissed. There shall be no order as to costs.

Recently Orissa High Court also , relying on the Apex Court's judgment on this issue gave verdict in favour of assessee in "In view of the well settled legal position as has been decided by the Hon'ble Supreme Court, we are of the opinion that after issuance of notice under Section 143(2) of the Act, it is not open to the Assessing Officer to make adjustments as provided under Section 143(1) of the Act and to issue intimation under the said Section"

Should Tour Operator Deduct Tax On Hotel Booking ?

noreply@blogger.com (taxworry) — Tue, 06 Oct 2009 20:37:41 PDT

We are providing services of hotel booking . Is TDS applicable at the time of payment to a hotel ? At what percentage if it is applicable ? Saurin Mehta , Ahmedabad

Rental of space is covered u/s 194I . Therefore , your question is relevant.

Question No. 20 of the Circular No. 715 dated 8-8-1995 issued by the Central Board of Direct Taxes is related to applicability of the provisions of section 194-I of the Income-tax Act in respect of payments made to a hotel for rooms. The relevant question and answer is reproduced below :

. . . Q. No. 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?

Ans. : Payments made by persons other than individuals and HUF for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I. [Emphasis supplied]

CBDT later on issued a circular no No. 5/2002, dated 30-7-2002 for clearing the doubts as to what constitutes hotel accommodation taken on regular basis for the purpose. The circular clarifies in following words :

2. The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.

Furthermore, for purposes of section 194-I, the meaning of rent has also been considered. Rent means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . . [Emphasis supplied]. The meaning of rent in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on regular basis. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on regular basis. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.

3. However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate-contract agreements.
A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation taken on regular basis, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.

To sum up , you will need to deduct tax

1. If you are Company or Firm or individual having turnover exceeding Rs 40 Lakhs and
2. The rental of hotel property is taken on regular basis under an agreement for specified period

In case of travel agents , merely making a contract for lower rate (what is called rate contract) shall not make travel agent liable to deduct tax u/s 194I.

So, casual or booking rooms for traveller occasionally will not require TDS on payments.

Return Filing & Obtaining Tax Audit Report Date Extended For Pune, Satara, Kolhapur and Sangli Taxpayers !

noreply@blogger.com (taxworry) — Mon, 05 Oct 2009 19:54:27 PDT

Central Board of Direct Tax has extended the date of filing the return as well as for obtaining the tax audit report to 31st October 2009 for taxpayers of Pune, Satara, Kolhapur and Sangli districts in Maharashtra in view of Swine Flu and riots in those places. Download the notification from here