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Your Taxes :: Business Line

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Query on Taxes :: Business Line

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Tax Query Answered :: Business Line

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I have invested in an FD, which gives a monthly interest payout, in my wife’s name. She is a homemaker and does not earn any salary. She invests the monthly interest in equity shares on the BSE or NSE from her own demat account. Are the short-term capital gains taxable in her hands or mine?

Sriman

As per the clubbing provisions of Indian tax law, any transfer of an asset to spouse without adequate consideration attracts clubbing provisions and accordingly, the income arising to the spouse out of the asset transferred is taxable in the hands of the transferor spouse.

However, if the spouse re-invests the income earned in any other income-bearing instrument and earns income from it, the second generation income shall be taxable in the hands of spouse only and shall not be clubbed with the transferor’s income.

In your case, the income earned from the fixed deposit would be clubbed with your income and taxed in your hands. However, the capital gains made by your wife by investing in shares in her name earned shall be taxable in her hands and will not get clubbed with your income.

My brother, a retired private sector employee with no pension, wants to sell a plot of land that he purchased 10 years ago. He does not want to invest the proceeds in a new property, since he has a house of his own.  Is there any way to avoid capital gains tax after making this transaction?

S Sivasubramanian

As per the provisions of Indian income tax law, any capital asset held for more than three years (other than specified securities) will be treated as a long-term capital asset (LTCA). Long-term capital gains on transfer of such LTCA shall be computed by deducting the indexed cost of acquisition of the asset and the indexed cost of improvement, besides expenditure incurred wholly and exclusively in connection with such transfer, from the gross sale consideration received or accruing on sale of the LTCA.

The resulting gain, if any, will be subject to tax at rate of 20.6 per cent (inclusive of education cess). Your brother’s land will qualify as LTCA and the gain arising from its sale shall be LTCG. In case he does not want to invest in a house property, he may invest the LTCG in specified bonds within six months from the date of such transfer subject to the limit of ₹50 lakh. The LTCG over and above ₹50 lakh shall be taxable at rate of 20.6 per cent.

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Little-known tax deductions you might have missed while filing returns :ET

Paying more tax than is due is bad enough. It's worse if you don't even know you have overpaid and are eligible for a refund. Many youngsters are not conversant with tax rules and fail to fully utilise the deductions available to them.

Tax filing portal Taxspanner.com studied last year's returns and found that nearly 51 per cent of salaried taxpayers had not fully used the tax-saving limit under Section 80C. Only one of the four taxpayers had claimed the full deduction for health insurance under Section 80D.

Here are some little-known deductions available to taxpayers. Make sure you claim them when you file your returns this year. If you have already done so, you can file a revised one to claim the deduction you missed.

1. Home loan repayment under Section 80C

If you are paying a hefty home loan EMI, chances are that you will find it difficult to put money in tax-saving options. Take heart. While the interest paid on the home loan is deductible under Section 24b, even the principal portion gets you tax benefits under Section 80C.

This is a godsend for taxpayers, who have not been able to exhaust their Rs 1 lakh saving limit under Section 80C because of the home loan EMI. The deduction for the interest paid on a home loan is capped at Rs 1.5 lakh only in case of a self-occupied house. If you have bought a second house for investment and have rented it out, the entire interest during a given year can be claimed as a deduction. This brings down the effective rate of borrowing for the buyer.

2. 30 per cent standard deduction of rental

If you let out your house, the rent is added to your income and taxed at the normal rate applicable to you. However, there is a 30 per cent standard deduction from this income. So, if you receive a rent of Rs 10,000 per month, the total rent for the year would be Rs 1.2 lakh. Of this, Rs 36,000 would be the standard deduction and you will have to pay tax only on Rs 84,000.

3. Carry forward and adjust capital losses

Certain short-term or long-term capital losses you made during the year can be adjusted against other gains. If you lost money in stocks, equity funds or gold last year, you can set off the loss against short-term capital gains or taxable long-term capital gains from the sale of property, gold or debt funds. If you are unable to adjust the entire loss, you can carry it forward for up to eight financial years.

Suppose you lost Rs 80,000 in stocks and gold funds in 2012-13 and managed to adjust Rs 30,000 against gains from debt funds. You can carry forward the unadjusted loss of Rs 50,000 and keep doing so against other gains till 2020-21. However, you can adjust only short-term losses from stocks and equity funds in this manner. If you have held the stocks and funds for more than one year, the losses cannot be adjusted.

Also, one cannot set off short-term gains from stocks against long-term capital losses from other assets. However, both short-term and long-term losses from other assets, such as gold, property and debt funds, can be adjusted. The taxpayers who earned capital gains from fixed maturity plans (FMPs) and debt funds will find this particularly useful.

30 Oct -Tax Talk :: Business Line

 

1. I have decided to buy a home for which the loan application is in process. We would like to let out the property as we are staying in my in-laws house, in the same city where we are buying the property - Bangalore. Now, can I claim interest exemption on the home loan interest if I expect the possession of the property in the current FY 2013-14?

- Kiran

Response:

As per the provisions of the Income-tax Act, 1961, deduction for interest payable on the home loan can be claimed under the head “Income from house property” once construction is complete and possession is taken. In your case, you will get the possession of the property in FY 2013-14, hence you will be able to claim deduction of home loan interest payable, in your tax return for FY 2013-14. The deduction is limited to Rs. 150,000 in the case of self occupied property or property not occupied due to employment somewhere else. However where the property is let out, the above limit is not applicable i.e. in your case, you can claim deduction of the entire home loan interest payable for the FY 2013-14 against the rental income.

Tax Talk -23 Oct:: Business Line

I own a house in Mumbai in which I live. I understand that if I give it on rent, the rental income will be added to my income. Can I reduce my tax liability by gifting the property to my wife, and then renting out the house?

— Shrikar M Shetty

According to section 64 of the Income Tax Act, 1961 (the Act), any transfer of an asset to spouse without adequate consideration attracts clubbing provisions and accordingly the income arising to the spouse out of the asset transferred is taxable in the hands of the spouse, who had transferred the asset.

However, if your wife re-invests the rental income so received, in any other income bearing instrument and earns income, the second generation of income shall be taxable in her hands and shall not be clubbed with your income.

Please note that you may be required to execute registered deed/gift deed to document the gift transaction and comply with the stamp duty requirements.

Tax Talk: 9th Oct: Business Line

I am a public sector bank employee and will be retiring in October this year. My terminal benefits include gratuity and leave encashment. What will be the income tax liability on these benefits?

- Shamsundar

As per the Income-tax provisions, the treatment of retiral benefits received by you shall be as follows:

Gratuity

Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 (employees of Public Sector Banks are covered under this Act) shall be exempt to the extent of 15 days salary based on the rate of salary last drawn, for every completed year of service or part thereof subject to a maximum Rs 10 lakh.

The wages for 15 days shall be calculated by dividing the monthly rate of wages last drawn by him by 26 and multiplying the quotient by 15.

Leave encashment

The least of following shall be tax exempt:

(a) Leave encashment actually received.

(b) Cash equivalent of unutilised earned leave (earned leave entitlement cannot exceed 30 days for every year of actual service)

(c) 10 months average salary

This is further subject to an overall limit of Rs 3,00,000. Salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

My sister withdrew her PF balance last year upon quitting the job. She is confused regarding the tax liability on the same. Though her employer has deducted TDS on the same, she wants to know if all the tax deduction benefit she claimed on her PF amount would be reversed. She has served two companies so far and her PF accumulation date starts from December 1, 2007 with the first company. After quitting the first company, she joined the second company. In the second company, she transferred the PF balance accumulated with the first one.

She left the job in December 2011 and applied for PF withdrawal soon after.

She hasn't filed the return due to the confusion surrounding it. Does she need to notify the details about her and employer's contribution in I-T return too?

- Anuj

As per the tax rules, the accumulated balance due and becoming payable to an employee participating in a Recognised Provident Fund shall be not be taxable in case any of the conditions listed below is met:

a) The individual has rendered a continuous service, for a period of five years or more, with the employer (one or more) provided he transfers his old PF accumulation in the PF maintained by his new employer and the total combined continuous period of employment with all the employers is 5 years or more.

b) The service has been terminated by reason of the employee's ill-health or by the contraction or discontinuance of the employer's business or other cause beyond the control of the employee in case the individual has not rendered such continuous service.

Since your sister has not met any of the above conditions (continuous service under both the employers taken together is less than 5 years) the withdrawal from Provident Fund account referred above will be taxable in her hands. The income so taxable has to be disclosed in the return of income. The tax on the accumulated balance shall be calculated as per the method specified under the Schedule IV of the Income-tax Act,1961.

(The author is a practising chartered accountant)

REC TAX FREE ISSUE : 100% Allotment on All Valid Applications

Please note that all Valid Applications in REC-Tax Free Issue have received 100% Allotment.

To check allotment status : http://associates.indiainfoline.com/AllotmentStatus.aspx

or  http://mis.karvycomputershare.com/ipo/

Tax Queries: Sept 18th :: Business Line

I am a Union Government pensioner and my total pension exceeds the basic exemption limit applicable to senior citizens. Canara Bank from this fiscal has started deducting TDS every month. Since TDS is purportedly a form of advance tax, I think the bank should not deduct TDS and leave it to the individual to pay at the time of ITR filing. Is my assessment correct?

- M. P. Rastogi

As per the provisions of the Income-tax Act, 1961 (the Act), salary includes pension due from a former employer. The Act further prescribes that any person (in your case, Canara Bank) responsible for paying salary, shall at the time of payment of such salary, deduct income tax on the amount payable at the average rate of income tax applicable during the concerned financial year. Thus, in your case, Canara Bank is required to deduct tax on your taxable pension income. You can claim the credit of tax deducted by Canara bank at the time of filing your tax return for the concerned financial year.

Our investments in equity shares are held in a joint demat account with my wife. We propose to transfer 50 per cent of our holding from existing demat account to my son and remaining 50 per cent to my daughter. This way we plan to divide our demat holding equally between our son and daughter. Does the off market transfer from demat account trigger any liability for capital gains tax on notional gain?

- B.S. Iyer

According to the prevailing tax law, gift of a capital asset would not qualify as a transfer of the capital asset. Accordingly, in absence of transfer of the capital asset, no capital gain/ loss implication would arise on such gift transaction. Since, in your case, you are gifting your shares to your children by way of an off market transfer, the said transaction would not qualify as a transfer of capital asset under the tax law and therefore no capital gain tax liability would arise in your /your wife’s hands.

Further, the tax law provides that in case any property is received as a gift from a relative (which include parents), then the same would not be taxed in the hands of the recipient. Accordingly, shares gifted by you and your wife to your children would not be taxed in their children hands.

It is advisable that you give a written confirmation or deed to your children, confirming the details of shares gifted by you to your children, so as to be able to substantiate the nature of the transaction, in case of any tax scrutiny that may happen in future.

(The author is a practising chartered accountant)

Sept 12 -Tax Talk :: Business Line

My wife has some money which has been gifted by her father and brothers on various festivals.

Now, if she puts that money in a bank's fixed deposit, would the interest income so generated be considered totally her income or would any clubbing provisions come into play?

I have learnt that gifts obtained from some relatives attract tax for the donor (clubbing provisions). Gifts obtained from which type of relatives are taxable?

- Suresh Vegda