REPLY :  

a. for your first question, please refer reply given in next query.

b. To avail advantage of tax deducted, the tax return must be accompanied by proof of tax deduction i.e. TDS certificate/ Form 16 furnished by the employer.

One can claim benefit of tax deduction without attaching Form 16 in a situation where employer does not furnish the certificate. Though no specific procedure has been prescribed as to how the employer has to fulfill his obligation of furnishing the certificate, yet it may be done either handing over the certificate personally to the employee or by dispatching it to employee’s postal address as per company’s records.

On the other hand if the employer has issued the certificate but you fail to attach the certificate, then tax benefit cannot be claimed.

REPLY :  

Having paid all taxes and still required to file tax return sound intriguing but that is the law. It is mandatory to file tax return by those who are having income exceeding Rs.50000 or who fall in “One-By-Six-Criteria”.

Filing of tax return has nothing to do with the fact that entire tax due has already been deducted from your income.

Non-filing of tax return may attract penalty of Rs.5000. It would not be out of place to mention that non-obtaining PAN number also entails a penalty of Rs.10, 000.

REPLY :  

Without rent receipts it is difficult to establish tenancy and satisfy the assessing officer. You should insist on the rent receipts from the landlord. There is no specific definition of size or adequacy of residential accommodation. All of you can separately claim exemption of HRA provided you occupy a definite accommodation earmarked for your use and rent (out of composite amount) is paid for such specific accommodation.

REPLY :  

Section 139 of the Income tax Act has prescribed certain criteria for filing of income tax return, which is that Income should be at least of the minimum amount of Rs.50,000 or the person should fall into one by six criterion. A penalty also has been prescribed if the people attracting these provisions do not file any income tax return. However if a person does not fall under both the above criteria he need not file the return. In such a case if he voluntarily files any return then no penalty shall be levied on him.

REPLY :  

Imported cars on the Indian roads would be a reality, courtesy Budget 2001-02. But it is not understandable why step brotherly treatment continues as far as depreciation is concerned. No depreciation is allowable in case of any motor car manufactured outside India, being used for business in India other than for the one used in the business of running it on hire for tourists. However there is no bar on claiming running and maintenance expenses. When such car, on which no depreciation is allowable, is sold it would result in long-term capital loss and such loss would not be allowed to be adjusted against business profits. It would be treated at par with other long- term capital losses to be adjusted only against any other capital gains.

REPLY :  

Investments in MEP 92 made upto 1.4.92 were eligible for deduction from gross income under section 80CCB. The deduction was limited to maximum of Rs.10, 000 p.a.

Amount invested is treated as income of the year in which the units are repurchased or the plan is terminated. Tax @ 20 % would be deducted at source on such amount.

Any amount received over and above the actual amount invested is treated as capital gain and is taxed accordingly.

REPLY :  

You are rightly advised that the interest earned by your wife in the mentioned circumstances is not to be clubbed with your income.

Clubbing provisions were enacted to counter the tendency on the part of the tax payers to divert their income to reduce the tax liability. One of the common method of reducing interest income was to contribute large amounts towards opening of FDRs in the name wife or minor children. Clubbing provisions put an end to such practices and provided that any income( including interest) arising to the spouse or minor child from the assets (like money in the shape of FDRs) transferred by the individual without adequate consideration shall be clubbed with the income of that individual.

It is point worthy to note that only those cases where transfer is without adequate consideration are subject to clubbing.

In your case the payments made by you for meeting household expenses can not be said to be without consideration. Such savings cannot normally be deemed to be the transfer of assets and hence any income earned by your wife by investing such savings into recurring or fixed deposits should not be clubbed with your income. Similarly, savings made by minor child out of the monthly pocket allowance should not be treated as transfer. The judgment in favor of this argument is by Delhi High Court in R.. Dalmia Vs. CIT,( 1982) 133 ITR 169.

However, in my opinion, the spirit behind this judgment should not be defeated by making it practice to systematically transferring larger than needed monthly household expenses. Such cases may be liable for clubbing.

It will not be out of place to mention here that only the income out of the assets transferred without consideration is liable to be clubbed with the income of transferor. The income earned on the application or investment of the income mentioned above is not liable to be clubbed.

REPLY :  

Taxability of deep discount bonds can be classified in three categories:

i. Income from deep discount bonds on redemption is equal to the difference between the issue price and the redemption price. This income is treated as interest income and is taxable as income from other sources at a normal rate of tax.

ii. In case of sale or transfer of the deep discount bonds before the maturity date, which are held as an investment, the difference between the sale consideration and the issue price is treated as Capital Gain. Such gain is eligible for concessional tax rate of 10 % ( 20 %, in case indexation benefit is availed).

iii. Thirdly, if the bonds are kept as stock in trade, then the income on account of sale/ purchase is taxable as business profit, again taxable at normal rate of tax.

Therefore, it is advisable to sell the bonds before maturity date so that concession available on account of capital gain tax rate may be enjoyed. However before choosing any of the alternative options compare the loss on account of discounted sale price and savings on account of income tax.

REPLY :  

Our partnership firm is operating from a premise, which is jointly owned by the partners in their individual capacities. Can we claim rent from the firm in our individual capacities? Will it form part of partner’s salary?

REPLY :  

My submission is as under:

a i. You have rightly indicated your concern about tax on sale of house before expiry of three years from the date of completion. The gain on sale of the house would be short-term and it shall be liable for tax at normal rates applicable to Individuals. If you could postpone the sale by couple of months and cross the 36 month barrier, you may enjoy tax concessions available for long-term capital gains. Alternatively, if the sale consideration for land and superstructure is separately identifiable, you may claim concession with respect to land, which has been held by you for more than 36 months. (CIT v. Vimal Chand Golecha,(1993) 201 ITR 442 Raj. )

a ii Another, tax blow would be denial of tax rebate under section 88 on account of repayment of loan, in the current year. Not only that, the tax rebates claimed by you in the earlier years would also be forfeited and such rebates would become payable in this year. This penalty is on account of provision, which stipulates that in the event of transfer of house before expiry of five years from the end of financial year in which possession of such property is obtained, the tax benefits enjoyed under section 88 shall stand withdrawn.

a. iii It would not be out of place to mention that deduction claimed on account of payment of interest under section 24 is not governed by ‘minimum holding period’ condition, and hence there is no worry on this front.

b. Minimum continuity of two years after the date of commencement of insurance policy is a must to enjoy the tax benefits. In case of Unit Linked Insurance Plans of UTI, the minimum holding period is five years in order to enjoy the tax rebates. In both the cases, not only you would loose tax benefit for the current years, even the benefits enjoyed earlier would also lapse and you would be liable to pay whole amount in the current year. Please check the status of your investments before you take any decision.

REPLY :  

Family pension received by the legal heirs of a person is taxable as ‘Income From Other Sources’. It is a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death. The person who is in receipt of family pension is entitled to claim standard deduction of an amount equal to thirty-three and one-third per cent of such income or fifteen thousand, whichever is less.

You have been declared as nominee by your father to receive the family pension and accordingly receiving the pension, you are entitled to the income as well as liable for taxation. On the other hand, your brother is entitled to 50 % share as per the ‘Will’ of your father. In my opinion the ‘Will’ of your father should be overriding the nomination and both you and your brother should be entitled to share it as per the ‘Will’. Family Pension Income after claiming the standard deduction should be bifurcated in two equal parts. One part each is to be treated as income of each of you to be shown as income from other sources while filing your individual returns.

REPLY :  

In my opinion section 80 GG does not apply in this case. This section is applicable in a case where the employee is living in a rented accommodation but he neither receives HRA, nor provided with ‘Rent Free Accommodation’.

The rented property is being used for two purposes i.e. firstly as an office from where the business activities are performed and secondly as ‘Rent Free Accommodation’ provided to you as per the terms of your appointment.

The payment of rent received by you as such is not taxable as your income. Rent pertaining to the office accommodation and routed through is nothing but reimbursement of legitimate expenses incurred by you on behalf of the Company. Such amount can not be your income.

However, perquisite value of Rent Free Accommodation occupied by you should be taxed in your hands as Salary Income.

Needless to say that while negotiating as salary package, it must be kept in mind that usually ‘House Rent Allowance’(HRA) is more beneficial than rent free accommodation from the point of view tax.

REPLY :  

You have been wrongly advised with regard to taxability of the voluntary retirement benefits received by you. Undoubtedly, Rs. 5 lacs would be exempt from tax under section 10 (10C). But the balance amount is taxable under the head “Salaries” in the year of receipt.

Even though calculation of the ‘Ex-gratia’ received at the time of voluntary retirement does takes into account the remaining service, it would be erroneous to treat the part of the amount received as advance for future years.

Lastly, the income under the head salary is charged on due or receipts basis which ever is earlier. Even if you treat the amount as advance salary, it would be taxed in the year of receipt.

REPLY :  

Standard deduction can be claimed only for income taxable under the head “Salaries”. For income to be taxable under the head salary there must exist an employer-employer relationship.

Since the income received by you is on the pension plan taken by you from L.I.C. and not by your employer, the standard deduction would not be available.

REPLY :  

Making a foreign trip is one of the criteria listed out in One-By-Six-Scheme introduced in 1998 as a measure to widen the tax base. Persons fulfilling all or any of the six economic criteria are required to file the Income Tax return in Form 2C, even though they are not liable to file the return otherwise. 

However, in case of foreign travel, unless the person concerned meets the expenditure, the One-By-Six-Scheme does not apply. To be hit by the provisions of the law, the expenditure on foreign travel has to be incurred for self or for any other person. Since, your spouse has not incurred any expenditure on foreign trip, she is not liable to file her Income-tax return.

REPLY :   

The premium paid by the employer would be taxable in the hands of employee only if it is in the nature of perquisite. ~

‘Perquisite’ signifies benefits in addition to the amount that may be legally due as an employee. The employee should have a right to it and it should not merely be voluntary or contingent payment. It cannot apply to a contingent payment to which the employee has no right till the contingency occurs.

Where a personal accident insurance policy is not voluntarily taken by the employee himself but the same is taken by the employer-company in order to meet the contingency of paying compensation for injuries or death the premium paid by the employer-company towards such policy is cannot be taxed in the hands of the employee as perquisite.

REPLY :  

Legal representatives are liable for tax due on the death of the deceased in the like manner and to the same extent as the deceased. He can not increase or decrease it by its own actions. Further no investments can be made in the name of the deceased after the death and hence there is no question of claiming rebate under section 88 by making posthumous investments by the legal representatives.

REPLY :  

In respect to income of the minor grandson you are liable to file tax return, in your own name, as representative assessee. This return will be in addition to the return that you are required to file in respect of your own income. The income of the minor would be computed in the same manner as it would have been computed in the hands of minor grandson. You can claim deductions, exemption and all other relief that the minor grandson may be entitled to claim. ~

Hence, under section 80U deduction of Rs. 40,000 may be claimed towards permanent physical disability. The deduction can be claimed if a certificate from a Doctor working in Government Hospital specifying the permanent physical disability is produced.

In addition to above, you are eligible to claim deduction from your own personal return, a deduction up to RS. 40,000 under section 80DD, towards expenditure incurred on medical treatment including nursing, training or rehabilitation of handicapped dependent grandson by you.

REPLY :  

You can claim credit of tax deducted at source in the same proportion in which the rental income is offered for taxation for different years on the basis of one consolidated certificate.

Rental income is taxed on annual letting value but tax is to be deducted at the time of payment or credit whichever is earlier. Therefore the tenant had no choice but to deduct tax at the time of making the payment of advance rent, even though the advance pertained to two periods falling in separate financial years.

As per section 199, the credit of tax deduction through TDS certificate can be claimed only for the year to which the income belongs. You have only one consolidated certificate to support the income for two separate years. Though same certificate cannot be filed twice but a copy of the same may be used for next year to satisfy the assessing officer.

In case of premature termination of rent agreement, you may claim refund of excess tax deducted by filing your tax return for the financial year in which the rent agreement is terminated and the excess rent is refunded.

REPLY :  

Gift refers to voluntary payment made. If payment of gift becomes obligatory it is no longer in the nature of gift. Hence gift cannot form part of salary package and if any gift is given as a part of salary it is taxable.