Vijai TRP: May 2008

Saturday, May 31, 2008

FAQ

gah asked, What is the date for filing return this year?
answers, The last date of filing return is 31st July, 2008

sanjiv asked, Dear Sir, I am living in a house owned by my mother and paying rent to her. If i will buy a house in NCR (far from my office) can i claim both deduction from rent payment and interest on housing loan. thanks and regards
answers, can claim both the deductions, provided the house you own is in a different city and owning to your employment, you have migrated to another city and staying on Rent.

Ajay asked, hello my brother in us if he trnasfer funds to my account in india will it be taxable if yes what is the limit ? and also tell me it will be automatically deducted by bank once it is credited ?
answers, The transfer of funds by your brother is not your income and hence you are not required to pay any tax on the same.

vinod asked, should we declare mutual fund purchases while filing returns? what is the limuit above which we have to decalre?
answers, If you invest more than Rs 2 lakh in one mutual fund company during the year, you should declare such investment in yoiur income tax return.

sanju asked, hi in last year i earned around 70,000 in options and loss of 10,000 in intraday, i am salary man with form16 avaliable with me, which form should i fill ?
answers, Since you have dealt in intraday transaction, the transaction will be considered as speculative in nature and hence you will have to file return in ITR-4

ram71 asked, is Sell of unlisted company equit share after 3 year capital gain
answers, Yes, profit on sale of shares of Unlisted company is also considered as Capital gain.

rajeev asked, Hello Sir, Good evening. My house is under construction and the registartions has not been done. Completion date is around July May 2009. Do i get a tax rebate for 2008-2009. I have also paid bank installemnt of rs 20 k in month of march 2008. will i get a tax refund for that ?
answers, No. you won't be getting any tax benefits this year. You can start claiming deductions only when the construction is complete and you get the possession of the same. Till that time you can accumulate the interest paid and claim 20% of it in subsequent five years.

Balkrishna asked, hi i have sold a property worth 34 lacs i repaid my homeloan of 17 lacs with this amount,what is my tax liability of this i have already invested 5 lacs in gold and another 5 lacs in stocks please guide what is my tax treatment and liability
answers, You won't be getting any deduction for the amount you repaid or investment you made. The entire profit you made on sale of property would be taxable @ 20%.

ff asked, Hi, I gone through the kidney transplant before 4 years, how do i get the tax reduction for this for current and subsequent years. I am spending around 10000 per month for medical expenses for myself and my mother (she donated her kidney to me). Plz advice me.
answers, Sorry to inform, but there is no provision in Income Tax law for claiming such medical expenditure.

prasadvytla asked, Hi ,is it acceptable in the income tax to file your returns separately,i mean to say 1)returns from agriculture income and rental income 2)income from salary separately
answers, No. Income tax Return has to be filed per person and not per income. Hence you have to file only one return with all the income included.

amit asked, Hi , I am an NRI living overseas do not have a PAN CARD...I have gifted 100000 RS to my brother-in-law...Is either of us liable for any tax...like gift tax
answers, No. neither of you need to pay any tax in India.

CCCC asked, i have taken personal loan from my employer and it was used for margin amount. i took a resale house from one person and not builder. can i claim the personal loan principal/interest under tax dedcutions for house purpose
answers, No because it will be difficult for you to show the nexus between loan taken and utilisation of the same for purchase of house.

jay asked, what is the last date for filing returns of professional and businessmen.
answers, If the professional or businessmen have to get their books of account audited under Income tax law, the last date of filing is 30th September, else it is 31st July.

JOLKUMAR asked, hi Sir, I am salaried person with no other income source, which form I need to file for AY2008-2009
answers, Since you are having only Salary income, you need to fill ITR-1

vijayakumar asked, Sir, I worked in two companies six months each during the financial year 2007-2008. There was a shortage in Tax deducted for my total income. I want to know whether I have to pay interest under section 234B and C or not?
answers, Since there was shortage in deduction of tax, you need to pay additional tax. If this additional tax exceeds Rs.5,000/-, only then you will be paying interest u/s 234B & 234C.

VANITA asked, my sister died all alone . she had no family. we are three sisters alive and we got her bank balances and gratuity etc. equally shared amoung three of us. Will the amount so received by us during the year are TAXABLE?
answers, This amount won't be taxable.

Ramesh S asked, I have my tax deducted from my salary, but my employer has not paid the tax though he has mentioned it on the salary slip. Let me know if I would face any problems in future.
answers, Of course you would be facing problem Since your employer has not paid the tax deducted from your salary, Department will not be in a position to give you credit for the amount of TDS claimed and hence you will be asked to pay additional tax alongwith interest.

RKM asked, I have not files my returns last year...Can i file it this year along with my current years returns...Will i also need to pay any penalty
answers, Yes you can file your last years return alongwith current years income tax return. The Income Tax Officer may, if he wants levy a penalty of Rs.5000/- for such late filing.

Tuikin asked, Hi Vikas, Whether the interest paid on loan from an individual for purchasing House can be tax exempted?
answers, Yes, you can claim deduciton on account of interest paid for loan taken for purchase of house, even though such loan is taken from an individual.

Bharat asked, I had taken the home loan of 12.5 lacs , & want to take a car loan of about 4 lacs, can I show the EMI for car loan in IT return in any form like any loss?
answers, No you cannot do so. Interest paid on car loan is not a deductible expenses and hence cannot claim loss.

VANITA asked, I have a PAN no. but having a PAn Card. Can i get one without cancelling my existing PAN No.
answers, Don't get your PAN cancelled. YOu can get a new PAN card with current PAN also. Just fill up Request for PAN card form and submit to the relevant authorities and you will get your PAN card.

biju asked, I am an NRI. Can I gift money to my wife? How can I do it officially so that neither of us has to pay tax for it (my income is already tax deducted abroad)?
answers, Gift received by a wife from her husband is not taxed in India.

Ramani asked, Sir, Good evening. If flat in Mumbai is given on L/L for say 10000 pm .The society ischarging 1000 pm the property tax is 4000 pa, maintenance is 900 pm. What is the amount on which IT is to be paid. thank you
answers, From the amount of rent you receive, you can deduct the amount of Property tax. From this residual income you get standard deduciton @ 30% and balance amount will be taxable.

panigrahisp asked, please confirm whether i have to pay any tax for the earning of dividend from mutual fund!
answers, No. Dividend from Mutual fund is tax-free.

jkashish asked, Last year my mother have earned 120000 as short term capital gain, Do she need to file return?
answers, If your mother is not having any otner income besides this earning, she is not required to file income tax return as the income is within the exemption limit.

ashok asked, I am selling my small flat in Delhi and I have capital gain of 5 lakhs. I taken loan three years back for a flat in bombay. Can i use this money to repay my loan.
answers, You can use this money to repay your loan. However you won't be getting any tax benefit for such repayment.

Pankajjgarg asked, Sir, whether exemption in repayment of education loan is available on both principal and interest. plz clarify
answers, For Education loan, you get deduction only for the interest component you pay during the year.

Nitn asked, Can We Claim Exemption On HRA If rent is paid to Relaitives or Family Members
answers, You can claim exemption, provided the person to whom you are paying rent is the owner of the flat.

Ravi asked, my basic is 20000 my rent is 12000 my HRA limit is 15000 how much i am taxable?
answers, Assuming that you are staying in Metro cities, Out of Rs.15,000/- HRA, an amount of Rs.5000/- will be taxable in your hands.

shekhar asked, I have give a flat on rent for which the rent is 2Lac Annually,the interest on housing loan paid is Rs 240000. can i carry forward the excess loss of 40000 on hosing property agianst my salary income .
answers, You can adjust such loss against your salary income and if at all the loss remain unadjusted, you can carry forward the same to succeding years and claim set-off.

Wednesday, May 28, 2008

Jurisdiction-free' tax returns by 2009-10

Taxpayers who are unable to file returns in the ward in which they are assessed to pay tax will be able to file their returns anywhere in the country from 2009-10, following enhanced computerisation in the income tax department.
A taxpayer's ward is determined on the basis of his or her place of work, business or residence. Every income tax officer has a specific jurisdiction (ward) that is a geographically contiguous area. Returns have to be filed in the specific ward. If a taxpayer's location changes, the department has to be notified of the address change.
This practice is complicated because of the crucial Permanent Account Number card without which a return cannot be filed. The tax department has to be separately notified to change the PAN address (even though the number remains the same).
Over 31 million tax returns were filed in 2007-08 and given this volume, tax department officials said it was not possible to scrutinise every single filing to check taxpayer compliance, hence the move to ease locational restrictions.
This will be made possible by the setting up of central tax return processing centres in Delhi, Mumbai, Kolkata, Chennai and Bangalore.
"Filing returns would be jurisdiction-free in the long-run," said Ajai Singh, member, Central Board of Direct Taxes, who is in charge of the department's computerisation drive.
"Once the comprehensive restructuring of the tax administration is complete, taxpayers can file returns from anywhere, check accounts online and may get refunds even in a week after their return is processed. The interface with taxpayers will be minimised to issues like scrutiny and disputes," Singh added.
Tax return filing is partly "jurisdiction-free" for returns filed online (e-returns). Around 2 million e-returns were filed in 2007-08. The number is expected to go up to 5 million in 2008-09, said Singh.
To make anywhere filing of returns possible, the department is setting up a pilot central processing centre at Bangalore to process returns collected from any region. This facility will be linked to a national database.

HOW ONE CAN CREATE HUF(HINDU UNDIVIDED FAMILY)

Though every body is interested in this question and this question has been asked by many and generally not have any answer in text book also ,why it so ?The answer is very Interesting that the above question is wrong the correct question is"how we can create capital for Huf 'we can not create Huf but can arrange capital for it"Till the time the HUF has an empty kitty,it is like a balloon that no one has yet blown air into. A balloon can rightfully be called a "ball"oon only when it swells up with air inside it. Without the air the balloon is inert,dormant. An HUF too is inert and dormant without funds."....................CA Sanjeev Bedi(ludhiana)"The million-dollar question indeed is: How to blow funds into the HUF and turn it into a balloon that floats?
A member of the HUF throwing his money into the common pool, or to use that overused cliché' the family hotchpot, is out of the question, thanks to Section 64(2) which would tax the income earned by the HUF on that money in the individual member's hands only.
But the clubbing provisions can be bypassed if the HUF invests the money in instruments yielding tax-free income. The tax-free income can then be reinvested to earn even taxable income--income on income is out of the clubbing provisions.
Strangers can make gifts but only up to Rs 50000 (Section 56).
A way-out is to receive gifts from members of bigger HUFs, who though your relatives, aren't members of your smaller HUF.
A father may make a gift of money to his son's newly-created HUF, clearly specifying in the Gift Deed that the gift is to his son's smaller HUF and not to the son himself. This will keep both Section 64(2)and Section 56(2) at bay.
After the HUF has a nucleus of its own and gets going, care has to be taken to keep the HUF's affairs completely distinct from the individual members' affairs. Where the members of the HUF carry ontheir individual businesses, as they normally do, the distinction between what constitutes the individual's income and what is HUF'sincome may get blurred.
Some other people, who aren't members ofthe HUF but are relatives in terms of Section 56(2) can also be found out.Now every body comfortable with the question because creating a capital by transfer ,gift and all like stuff as hinted by Sanjeev we all know to some extent .so to have capital in huf account we should take following steps
we should have opened a bank account first (not must) but it is advisable so that we can have transaction by cheques .
Apply for permanent account number (pan)
Formation of capital of huf,Transfer money by gifts etc to HUF capital keeping in view the clubbing provisions and tax on gifts under Income tax act,Remember there is no Tax on gifts in kind though they may attract clubbing provisions in some cases.Regarding Huf an Interesting and detailed reply has been given by our group star contributor CA Sanjeev Bedi we are giving abstract of the answer.
The Hindu Undivided Family has its roots in the ancient Hindu law like the Manu Smriti, compiled by a male chauvinist Hindu "Scholar"called Manu, who lived around 200 BC; the Yajnavalikya Smriti compiled by Yajnavalikya and Narada in 100 and 200AD (it merely embellished what had already been laid down by Manu); and Mitakshara codified by a guy called Vijneshwara somewhere around the year 1100AD. Mulla, the foremost authority on Hindu law, has described the Mitakshara as "the quintessence of the Smriti law,its precepts and injunctions".
Later in the 12th century, there came along another variation of the Hindu law called the Dayabhaga written by one Jimutavahana.
The Dayabhaga challenged and deviated from the Mitakshara law in some ways, particularly in relation to succession and inheritance.
Under the Dayabhaga system,the father is the sole owner and the exclusive possessor of the joint family property. No member can enforce the partition of the HUF so long as the father lives.
But the Mitakshara law stipulates that the property vests in the HUF itself and not in any individual member of the family and therefore can be partitioned within the lifetime of the father.
The Dayabhaga law is prevalent in West Bengal and Assam.
Hindus in the rest of the country are governed by the Mitakshara law.
Manusmriti completely forbade women to have a share in the family property.
The modern Indian government embarrassed by these antediluvian,anachronistic laws has sought to bring them inline from time to time with the egalitarian values of 21st century.On 9th September 2005, the Hindu Succession Act, 1956 was amended to provide that
a daughter too could be a coparcener i.e. joint heir,like her brother to the joint family's assets and
she too could enforce the partition of the family property to claim her individual share.
She continues to be the coparcener in her father's HUF evenafter she gets married and forms another HUF with her husband.So gender bias has largely been taken outof the HUF laws.
A coparcener is one who has a right to demand that the family property be divided and they be handed over their share in the property (or whatever assets the HUF has) in case he or she decides to part ways with the HUF.
Not all members of the HUF are its coparceners. The coparcenery extends to four degrees down the family hierarchy in the following manner:
1st degree :Holder of ancestral property for the first time.
2nd degree : Sons and daughters(09.09.2005).
3rd degree: Grandsons.
4th degree : Great grandsons.
The most frequently asked question about HUF is: How does it come into being? To form an HUF, all you have to do is Get Married. The HUF gets created as soon as you complete the seven (or four,whatever) circles round the holy fire and become Man and Wife.
There have to be a minimum of two people to constitute a family. The husband and wife together make up a family. They don't have to wait till they have a baby to constitute their HUF.
Someone asked "Can an unmarried man create an HUF?" No, he cannot,if you mean an HUF of which he seeks to be the Karta himself. He can very well be the member of the HUF of his father or grandfather, but to create his own HUF he has to wait till he ties the nuptials.Come to think of it, "Creation of an HUF" is an oxymoron—-acontradiction in terms. Only orphan-and-unmarried Hindus don'tbelong to an HUF. Every Hindu becomes a member of an HUF the moment she ejects out of her mother's womb, mode of delivery--C-section or Normal--notwithstanding.
Till the time the HUF has an empty kitty,it is like a balloon that no one has yet blown air into. A balloon can rightfully be called a "ball"oon only when it swells up with air inside it. Without the air the balloon is inert,dormant. An HUF too is inert and dormant without funds.
The Karta, which in Hindi means the Doer, is usually the Father, the pater familias of the family. He has immense powers over the affairs of the family, more than any other coparcener can wield.
Can a female be the Karta? The answer can't be No in the light of the amendment in the HS Act in 2005.An unmarried daughter, in the unfortunate event of her father passing away, will become the Karta of the HUF if she has no brother.
Can there be an all-female HUF? Yes, there can be. Where a couple has only one issue—-a daughter—-and the husband passes away,the mother-daughter duo can continue the HUF (although a problem mayarise after she gets married and becomes a member of her husband'sHUF). It has been held by the Allahabad High Court in CIT v. Sarwan Kumar 13 ITR 361 (All) that there can be an HUF consisting of female members only
The Karta can enter into partnership with a firm on behalf of the HUF. But the HUF itself, being not a legal person, can never be a partner in a firm. The fact that Income Tax law grants a PAN to itand treats it as an assessable entity does not bestow upon it the status of a person under the general laws. This has been held to be so in numerous cases. In Ram Laxman Sugar Mills v. CIT 66 ITR 613(SC), the Supreme Court said that "an HUF is undoubtedly a person within the meaning of the Indian Income Tax Act, It is however,not a juristic person for all purposes and cannot enter into an agreement of partnership either with another undivided family or individual".
So while conducting bank audit, in case you come across a loan filewhere the HUF is shown to be the partner, raise an objection.
There have been cases where the courts have held that businesses started by individual members after borrowing funds from the HUF were assessable in the HUF's hands, especially where the HUF is already engaged in the same business. So think twice before letting the HUF lend any money to its members and viceversa.
In CIT v. Gopal Bansilal Inani (2000) 245 ITR 2 (SC),theSupreme Court disallowed the interest paid to coparceners on the loan the HUF had taken from them as a business expenditure u/s 37(1).
Can an HUF pay remuneration to its Karta? Yes, in Jugal KishoreBaldev Sahai v. CIT 63 ITR 238 (SC), the Supreme Court held that "ifa remuneration is paid to a Karta of the family under a valid agreement which is bona fide in the interest of and expedient forthe business of the family and the payment is genuine and not excessive, such a remuneration must be held to be an expenditure laid out wholly and exclusively, for the purpose of the business and must be allowed as an expenditure under section 10(2)(xv)[corresponding to the present-day Section 37(1)] of theAct".
There is also the issue of Partition of the HUF. Al though the Mitakshara and other Hindu laws do not forbid partial partition ofthe HUF, the Income Tax law frowns upon it. Under the Hindu law,you may have eliminated the HUF by partioning the property (or what ever assets) of the HUF, but the taxation authorities have invested themselves with powers u/s 171 of the I T Act to continue to treat the defunct HUF as an assessee liable to pay tax unless the partition is effected in strict keeping with the manner laid downinthat section. The law wants to dissuade assessees to smash up their bigger HUFs into smaller ones just to create more files to bring down their tax liabilities.Total partition in the context of theI T Act means partition by metes and bounds. "Metes and Bounds", anAnglo-French term, means the boundaries or limits of a tract of land.If the HUF property is physical, it isn't difficult to divide it up,delineating the shareof each member. But a non-physical property will have to be divvied up amongst the members in such a manner as to comply with Explanation (b) below Section 171(9). Care must be taken that erst while coparceners don't simply end up becoming co-owners in the property. For example an FD held by the HUF being partitioned can't be converted into a joint FD of members after partition; if itis,interest on it will continue to be assessed in the HUF's hands.The FD can continue only in one member's name; he can cough up some cash to the other members to compensate them for loss of FD.What ametes and bounds partition does is deflate the balloon of theHUF. TheIncome Tax law will recognize its demise (for want of a better word,since a divided Hindu family can be reunited again),only when the HUF is stripped naked of each and every layer of the clothing of property—-tangible or intangible, movable or immovable--it had. It has to get back into its birthday suit again to be truly partitioned.
There is a book titled "Formation & Management of HUF along with Tax Planning" by authors S R Kharbanda and Prem Nath published by Commercial Law publishers

Tuesday, May 27, 2008

17 Tax-free incomes for you

The following are 17 important items of income, which are fully exempt from income tax and which a resident individual Indian assessee can use with profit for the purpose of tax planning.

1. Agricultural income

Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.

However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.

Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:

Illustration

For FY 2008-09 (assessment year 2009-10), a male individual has a total income from trading in textiles amounting to Rs 1,52,000; besides, he has earned Rs 40,000 as income from agriculture.

The income tax payable by him will be computed as under:

On the first Rs 150,000 of the taxable non-agricultural income: Nil
On the next Rs 40,000 of agricultural income (falling under 10% slab): Nil
On the next Rs 2,000 of taxable non-agricultural income @ 10 per cent: Rs 200
Income tax on aggregated income of Rs 152,000 + Rs 40,000 = Rs 192,000: Rs 200

2. Receipts from Hindu Undivided Family (HUF)

Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).

3. Share from a partnership firm

Under the provisions of Section 10(2A), in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm is completely exempt from income tax since AY 1993-94.

For this purpose, the share of a partner in the total income of a firm separately assessed as such would be an amount which bears to the total income of the firm the same share as the amount of the share in the profits of the firm in accordance with the partnership deed bears to such profits.

4. Allowance for foreign service

Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7). This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.

5. Gratuities

Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax. However, in respect of private sector employees gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs. 3,50,000;. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).

6. Commutation of pension

The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC [Get Quote] pension fund is exempt from income tax under Section 10(10A) of IT Act.

However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely: (a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and (b) In any other case, the commuted value of half of such pension.

It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.

7. Leave salary of central government employees

Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs. 3,00,000.

8. Voluntary retirement or separation payment

Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax. The maximum amount of money received at such VR which is so exempt is Rs. 500,000.

9. Life insurance receipts

Under Section 10(10D), any sum received under a Life Insurance Policy (LIP), including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20 per cent of the actual capital sum assured, is fully exempt from tax.

However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.

10. Payment received from provident funds

Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.

11. Certain types of interest payment

There are certain types of interest payments which are fully exempt from income tax u/s 10 (15). These are described below:

(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7 Capital Investment Bonds);
(iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9 per cent or 8.5 per cent or 8 per cent or 7 per cent Relief Bonds); (iid) Interest on NRI bonds;
(iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India [Get Quote] or with any scheduled bank;
(iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(v) Interest on Gold Deposit Bonds;
(vi) Interest on certain deposits are: Bhopal Gas victims;
(vii) Interest on bonds of local authorities as notified,
(viii) Interest on 6.5 per cent Savings Bonds [Exempt] issued by the RBI, and
(ix) Stipulated new tax free bonds to be notified from time to time.

12. Scholarship and awards, etc

Any kind of scholarship granted to meet the cost of education is exempt from tax under Section 10(16). Similarly, certain awards and rewards, etc. are completely exempt from tax under Section 10(17A), for example, Lakhotia Puraskar of Rs 100,000 awarded to the best Rajasthani author, every year under Notification No. 199/28/95-IT (A-I) dated 22-4-1996.

Any daily allowance received by a Member of Parliament or by an MLA or any member of any Committee of Parliament or State legislature is also exempt from tax under Section 10(17).

13. Gallantry awards, etc. -- Section 10(18)

The Finance Act, 1999 has, with effect from AY 2000-2001, provided for complete exemption for the pension and family pension of Gallantry Award Winners like Paramvir Chakra, Mahavir Chakra, and Vir Chakra and also other Gallantry Award winners notified by the Central Government.

14. Dividends on shares and units -- Section 10(34) & (35)

With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.

15. Long-term capital gains of transfer of securities -- Section 10(38)

With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax (STT).

Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains. This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.

16. Amount received by way of gift, etc -- Section 10(39)

As per the Finance (No. 2) Act, 2004, gift, etc. received after 1-9-2004 by an individual or an HUF whether in cash or by way of credit, etc. is being subjected to tax if the same is not received from a stipulated relative. Section 10(39) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of tax payment.

Similarly, amount received on the occasion of marriage from non-relatives, etc. would also be exempted. It may be noted that the gift from relatives, as specified in the section can be received without any upper limit.

17. Tax exemption regarding reverse mortgage scheme -- sections 2(47) and 47(x)

Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax. These amendments by the Finance Bill, 2008 apply from FY 2007-08 onwards.

Employers must quote PAN in TDS returns

Employers will have to quote the Permanent Account Number of their employees while submitting TDS (tax deducted at source) returns to the government as tax refund has become difficult without PAN after annexure-less forms were introduced.
Income Tax department would not accept these returns if employers fail to quote PAN in at least 95 per cent cases of salaried employees and 85 per cent cases of non-salaried staff.
Employers who do not comply with the rules would be treated as non-filers and could face penal consequences, an official release said on Tuesday.
Quoting PAN is important because the IT department has prescribed new return forms without attachments from assessment year 2007-08.
Tax refunds can only be given to the employees on the basis of information made available by employers through TDS returns, the statement said.

Sunday, May 18, 2008

TDS ON RENT 194-I NOT INCLUDING SERVICE TAX

CIRCULAR NO. 4/2008, DATED 28-4-2008

Representations/letters have been received in the Board seeking clarification as to whether TDS provisions under section 194-I of the Income-tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).

2. The matter has been examined by the Board. As per the provisions of 194-I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 194-I as

rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,-

(a) land; or

(b) building (including factory building); or

(c) land appurtenant to a building (including factory building); or

(d) machinery; or

(e) plant; or

(f) equipment; or

(g) furniture; or

(h) fittings,

whether or not any or all of the above are owned by the payee;

3. Service tax paid by the tenant doesn't partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that TAX deductions at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.

4. These instructions may be brought to the notice of all officers working in your region for strict compliance.

5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.

[F.No.275/73/2007-IT(B)]

A long awaited clarification regarding tds on payment of service tax on rent u/s 194-I has been Issued by the CBDT.Details about the issue is given hereunder

Brief about section 194-I

Rent is to be deducted by all person on payment of rent except huf and individual who's sales is less than limit specified in section 44AB(tax audit)(40 lacs for business 10lac for professionals)
Rent means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of

(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings,

section is applicable even in case of payee is owner or not.
Rate of tds is

For use of any machinery or plant or equipment:10%
For other assets :in case of

Payee is Individual or Huf:15%
other case:20%

Tax is deductible only if amount of rent paid is more than 12oooo

what was the issue

whether the service tax paid on rent of immovable property to landlord is to included while deducting tax at source.

what is clarified

and now clarification by CBDT has been issued that service tax should not be included while deducting tax at source on rent paid to landlord.

what are implications of clarification

Clarification has been issued in such a manner like that this issue were never a issue at all.what is wording please look

"Service tax paid by the tenant doesn't partake the nature of income of the landlord."

By this the CBDT has indirectly fixed a relation between Income and TDS whether it has been fixed intentionally or unintentionally,but this clue/wording can be used for other tds provisions by the assessee in his defense while not deducting tds on reimbursement of taxes so we can draw a conclusion that if person is getting mere reimbursement of taxes than tds should not be deducted.
For calculating the amount of 120000 now service tax amount should be excluded ,suppose if a person pay rent of rs 108000 to payee and 12.5% service tax on rent i.e 13500.in this case though total amount paid is 121500 but tds is not deductible after clarification as rent amount is only 108000 and less than 120000 prescribed in the section 194-I

Can we apply this clarification on section 194-J also

Though the clarification has been issued for the section 194 -I only but ratio of the clarification can be applied in the case of 194-J also as in the case of section 194 -J also"Service tax paid by the client doesn't partake the nature of income of the professional"and "The professional only acts as a collecting agency for Government for collection of service tax."hence the tax should be deducted only on the amount of fees u/s 194 -J without including the service tax in it.

Saturday, May 10, 2008

HRA EXEMPTION HOW TO CALCULATE

In most of the cases ,House Rent Allowance(HRA) is part of salary package .so exemption of Hra how to calculated is most of us is want to know infact most of person already know about HRA exemption,I am giving this to shares my understanding on the above issue which may be useful for many of this site visitors.if you have any different views or any point left in this post ,please record in the comment section.

calculation of HRA exemption.

least of following three will be exempted

Hra received
50% of salary in case of residential accommodation taken on rent is situated in Bombay ,Calcutta ,Delhi, or Madras (Chennai) and 40 % of salary in in any other case.
rent paid in excess of 10 % of salary

other points to be noted

Salary for this purpose mean

Basic salary
Dearness Allowance if terms of employment so provides.
commission based on a fixed percentage of trunover.
all other allowances and perquisites is to be excluded.

Salary related to period of rent should only be considered on due basic .
Salary received in period as advance or arrear not related to calculation period should not be included.
For calculating 40/50 % as per point 2 above place of residential accommodation is important ,not where the person is working.suppose Rajiv taken a house in Delhi on rent but has working in Rohtak than he is eligible as per point 2 upto 50 % as house is situated in Delhi.
The calculation should be done on separately(monthly) if salary or HRA has varies during the year.
No,Hra exemtion if Hra paid is less than 10 % of salary.
Again exemption is denied where an employee lives in his own house, or in a house for which he does not pay rent.

QUS:Is it necessary to submit House rent paid receipts to the employer,if yes,should the rent receipt include pan of the Land lord.

Ans:Employer are liable to deduct tds on salary and in present senario of annexure less income tax return ,there is more responsibility on DDO to check and verify each and every exception and deduction that employees claim .DDOs is empowered under income tax act to get and verify proof to saving and hra receipt from employees.However CBDT has exempted the employees who are receiving hra upto 3000 per month from submitting the proof to DDO(Employer) though Income tax assessing officer can demand Rent receipt from employee getting HRA upto 3000 pm.

Ques:Am I eligible for HRA exception if I have Paid rent to my father.

Ans:If you have actually paid the rent to your father then you can claim the benefit .

Ques:Am I eligible for HRA exception if I have Paid rent to my wife/husband.

Ans:If you have actually paid the rent to your spouse you can claim the hra exemption benefit but the house should not be purchased by your spouse from funds transfered by you without adequate consideration ,in that case you will be the deemed owner of the house and clubbing provisions will attract

Saturday, May 3, 2008

TDS on rental incomes after excluding service tax, says CBDT

New Delhi, May 3 Taxpayers can now deduct tax at source on rents after reducing the service tax component on the rentals for commercial space, the Finance Ministry has said.
This could particularly benefit corporates functioning in multiple locations with large rental payouts as their cash outgo towards tax deduction at source (TDS) would stand reduced on account of the latest stance of the Revenue Department. It would help in better working capital management.
Doubts were earlier raised on whether the TDS provisions on rent will apply on the gross rental amount payable (inclusive of service tax) or net rental amount payable (excluding service tax).
“Service tax paid by the tenant does not partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore, it has been decided that tax deduction at source (TDS) under Sections 194-I of Income-Tax Act would be required to be made on the amount of rent paid/payable without including the service tax,” the Central Board of Direct Taxes (CBDT) has now clarified.
Renting of commercial space was brought under the service tax net in Finance Bill 2007. With real estate boom, commercial property rents have reached dizzying heights.
Currently, under the TDS provisions for rent, companies have to deduct tax at the rate of 20 per cent. For individual taxpayers, the TDS rate is 10 per cent. TDS is applicable where rentals exceed Rs 12,000 per month.

Vijai TRP