MSN CO - Miscllaneous

SITE MAP

Miscllaneous Page 1 Page 2

QUERY : My wife and I are partners in a partnership firm. The partnership firm owns a piece of land, which we want to transfer in our joint name. Would it be sufficient if we transfer the land by showing it as a drawing in the books of accounts of the firm to avoid payment of stamp duty, as we are the only partners in the firm.

NAVNEET PURI, NEW DELHI

REPLY :

Although the partners have a right on the assets of the partnership firm but Indian Registration Act, 1908, provides that transfer of immovable property with more than the specified value shall be registered and stamp duty be paid on it. Where a firm owns certain property, a registered document will be necessary to transfer firm’s interest in such properties in favour of the partners. Mere book entries would not be sufficient to effect such transfer.

QUERY : My brother is working on project with a University of Portugal since September 2001. The university would pay a remuneration of US $ 5,000 on completion of project. Please clarify whether there is any tax concession available in India and what is the procedure for claiming the concession?

MUKESH K. RATHOR, DELHI

REPLY :

The repatriation of sale proceeds of any immovable property was not allowed except with prior permission of RBI till July 2, 2002. But from this date onwards NRIs/PIOs (Persons of Indian origin) can repatriate the sale proceeds lying in their Non-Resident Ordinary Rupee Account (NRO) up to USD 1,00,000 per year outside India without any permission of RBI provided the property has been held by them at least for 10 years and all applicable taxes have been paid.~

QUERY : On the occasion of my niece’s marriage I want to gift Rs. 50,000. Please clarify the procedures to be adopted by me so that no tax liability arises in future.

Ritu Raj Gupta, New Delhi

REPLY :

You may proceed to give gift of the desired amount without getting bogged down by the tax implication, as there is no gift tax. However in order to keep the transaction transparent and explainable in future, it is advisable to reduce the transaction into writing by way of a gift deed

QUERY : In the recent budget the Finance Minister had talked about giving sops to NRIs. I am a NRI having some inherited property in India, which I want to sell. Kindly guide me whether any post budget guidelines have come regarding the repatriation facility of the sale proceeds outside India.

QUERY : I am a non-resident Indian staying in U.K., I want to purchase residential house in India. Do I need to obtain the approval of Reserve Bank of India? Is there any provision through which I can take a loan from any authority for purchasing the house property?

REPLY :

NRI who is a citizen of India can acquire any immovable property other than agricultural/ plantation/ farmhouse without any prior approval of Reserve Bank of India.

A NRI can take a housing loan from an authorised dealer or housing finance institute for acquisition of a residential accommodation provided the quantum of loan and the period of re-payment is at par with those applicable to housing finance provided to a person in India. Also the loan shall not be credited to NRE, FCNR, and NRNR account of the borrower. The loan has to be fully secured with mortgage of property proposed to be acquired. The instalment an interest shall be paid by remittances from outside India through normal banking channels or out of funds in NRE, FCNR, NRNR, and NRO, NRSR account in India or out of any rental income received from the property acquired by utilisation of loan.

QUERY : I am a public sector employee and would be retiring by the end of this month. Can I invest only a part of my retirement benefits in Deposit Scheme for retiring employees of public sector companies? What is the duration of deposit?

K.S. LAMBA, PATIALA

REPLY :

There is no bar on depositing part of the retirement benefits in the Deposit Scheme specially designed for the retiring employees. But make it sure that whatever amount you are planning to deposit, must be deposited within three months of the retirement for a lock-in-period of three years. In case of premature withdrawal the rate of return drastically falls to 4% p.a. from 8.5%p.a.

QUERY : I am a retired Doctor. For past six months I am associated with a private Hospital as Visiting Doctor. I receive honorarium for my services, which are of casual and non-permanent in nature. Towards close of this financial year, the accounts department of the hospital asked me to furnish details of investments made by me for claiming tax rebate under section 88. Failing which I was told that TDS would be deducted as is applicable to other employees. Are they correct in treating me an employee as far as the tax maters are concerned?

A.B.C, New Delhi.

REPLY :

Existence of employer-employee nexus is must for treating any one as an employee. Ahmedabad High Court has also held that honorarium payable to a Doctor is not governed by conditions of service of the doctor. Therefore it cannot be treated as salary and question of tax deduction as an employee doesn’t arise. Payments to you can at the most be treated as a professional fee and TDS @ 5% plus surcharge, as applicable in the case of professionals may be deducted.

QUERY : My father died without leaving any will. The assets left by my father include four shops, a three-storied house, some shares and bank balances. My mother wants to distribute these assets amongst us i.e. three brothers and two sisters (both married). On the suggestion of my mother and with the concurrence of all of us, it has been mutually agreed to transfer two shops to my elder brother, one shop each to my younger brother and me. One floor each in the house is to be transferred to my brothers and me. Married sisters are to be given cash and a share of ancestral jewelry. Can we enter into family settlement to distribute the assets of the family in unequal parts without attracting capital gains?

P. K. Aggarwal, New Delhi

REPLY :

Most important aspect of attracting capital gains is transfer of assets. There can be no capital gain without transfer. It has been held by courts that the family settlements do not result in transfer.

A family arrangement is realignment of interest, arrived at in order to avoid continuous friction and to maintain peace among the family members. It is an arrangement between the members of the same family intended to be generally and reasonably for the benefit of the family, either by the comprising the doubtful or disputed rights. It preserves the family property, peace, honour and security of the family by avoiding litigation. So family arrangements are governed by the principal, which are not applicable to the dealings between strangers. Family arrangements are for the interest of the family and for the harmonious way of living. Such realignment of interest by way of effecting a family arrangement among the family members would not amount to transfer.

Intention is paramount to agreement. Supreme Court held that essentials of a genuine family settlements would be:

That the family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family.
The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence.

If, the intention is not to circumvent the law or to deceive any body, the family settlements would be out of the purview of taxation, even if the shares of the beneficiaries are unequal.

QUERY : I am engaged in the manufacturing process. Last year one of the machinery was partly damaged due to fire. About Rs. 35000 were incurred by me to get the machine repaired. I lodged a claim with the insurance company and this year I received Rs. 41,000 from the insurance company. Do I have to treat Rs. 6000, received in excess of actual expenditure, as income in the current year?

Kaushik Tripathi, Haryana

REPLY :

In CIT Vs. Sirpur Paper Mills Ltd., the Supreme Court has held that in the case of damaged machinery, excess of insurance claim received over the expenditure incurred on repair shall be treated as capital receipt. This receipt would be out of tax net. Thus excess i.e. Rs. 6,000 shall be regarded as capital receipt and it shall not liable to income tax. Please note that in case the machinery is damaged beyond repairs, the compensation received from the insurance company shall be liable to capital gain tax.

QUERY : My father wants to gift a house to my wife and me. Is it necessary to formalise the gift by way of documents and registration? Please clarify.

REPLY :

According to Transfer of Property Act, gift of immovable property must be registered. Gift is transfer of existing movable or immovable property made voluntarily and without consideration, by one person to another. Though there is no bar on oral transfers but in case of immovable properties transfer has to be effected by way of registered instrument signed by or on behalf of the donor, and attested by at least two witnesses. (Supreme Court of India in CIT v Sirehmal Nawalakha)

QUERY : I am running a business in proprietorship. If, I introduce my wife as partner in the same business, her income would be clubbed with my income, as she does not have any professional or technical qualification. Similarly, if I pay her salary as an employee again her income would be clubbed with my income for the same reasons. But in the second situation where she is acting as my employee, she can claim standard deduction, medical reimbursement and other tax-free perquisites thereby reducing over all tax liability. Do you agree with my scheme?

Neeraj K. Goel, New Delhi

REPLY :

The scheme is valid and you may choose the second option to reduce your tax liability.

QUERY : I sold a house in the last year and made some capital gains. I am a senior citizen without taxable income and do not file my returns. Now I have to file my return for the purpose of declaring capital gains earned on sale of house. I have not deposited any tax till date. Do I have to pay interest on non payment of advance tax or the capital gains are exempt from payment of advance tax?

D.K. VERMA , NEW DELHI

REPLY :

Advance tax is payable on all types of income, including capital gains. Advance tax is based on the estimated income for the year and it has to be paid in installments prescribed in the Act. Interest is charged in case of non-payment or late payment.

However in the case of capital gains, it is not possible to estimate the gains for the year in advance. The liability of payment of advance tax on account of capital gains arises only after the gain has crystallised. The total taxable income is re-estimated including thereby the capital gains and remaining installments due are recomputed. Interest if any has to be charged accordingly.

Since you have not paid any tax before 31st March you are liable to pay interest on the tax on two account. Firstly on account of non-payment of advance tax and secondly on account of deferment of advance tax.

MOHINDER RUSTAGI, MUZAFFARNAGER

REPLY :

Free gifts, prizes and cash awards won under game shows, entertainment programmes on television or on electronic mode; winnings from lotteries by draw of lots or by chance; incomes from crossword puzzles, races or card games and any other income from any other games of any sort or from gambling or betting of any form or nature whatsoever are taxable incomes.

The Organiser of the show or the game is supposed to deduct tax at source @30% , before handing over the prize.

There is no distinction between prizes won in cash or prize in kind. Both are subject to tax as ‘Income From Other Sources’. Since, casual incomes are exempt up to first Rs.5000 ( Rs. 2500 in case of horse races), the Organiser has to deduct the tax after providing this deduction.

In case of prize-in-kind, the Organiser responsible for handing over the prize may ask the winner to deposit the tax before releasing the prize.

QUERY : Our family members are carrying on business through a partnership firm where all the members of the family are partners. The business is being carried out in a premises owned by family HUF. No rent is being paid to the HUF from the firm for use of the premises. The assessing officer has made additions in the hands of HUF on account of notional rent. Is it correct?

Ganesh Prasad, Rohtak

REPLY :

‘Income from house property’ is the only head of income in Income-Tax where notional income may be charged to tax even if no rent is received. An exception is made in a case where the premises is used for carrying on business of the owner of the property, and the profits of such business are otherwise taxable.

HUF is the owner of the property but the business is carried by the firm. Under the Indian income tax the HUF and the partnership firm are legally separate entities and are separately taxable. Therefore the HUF is liable to tax on the basis of fair market value of the property owned without any advantage to firm for unpaid rent. In fact profits of the firm stand higher in absence any payment on account of rent.

Thus it is advisable to pay rent from the firm to HUF to reduce overall tax liability.

QUERY : I have been contributing Rs. 6000 per year under LIC’s 10year Dhanaraksha Scheme since 1989. The scheme has matured and I have received the redemption amount consisting of principal investment, dividend units and bonus. Clarify the taxability of the amount received.

Sunil Kumar Massieh, New Delhi

REPLY :

Redemption amount on maturity of Dhanaraksha is subject to capital gains tax. Dhanaraksha ’89 was launched as open ended insurance linked tax saving scheme by L.I.C. Mutual Funds for providing attractive returns on investments made in the shape of units. In addition it offered life insurance cover and free accident insurance cover.

A portion of annual investment is appropriated towards life and accident insurance premium and the balance amount is allotted as units to the investor.

Annual dividend ,declared on the units and is reinvested and investor is credited with equivalent units at the rate prevailing for issue of new units.

On maturity the investor is entitled to:

Units originally invested
Units purchased from the accrued dividend
Bonus.

All units are redeemed at the market price prevailing at maturity.
Taxability during the scheme:

Annual investments made in 10 year / 15 year plan are eligible for rebate under Section 88 on year to year basis.
Annual dividend declared (and reinvested in units): Up to financial year ended March 1999, the dividends received from units were eligible for deduction under Section 80L. With effect from 1.4.1999 the dividend income from units in the hands of investors is exempt under section 10 (33)( iii).

Tax treatment on maturity:

Growth in the NAV of units on redemption is liable to capital gain tax. You are entitled to apply indexation factor to yearly contributions to arrive at indexed cost of acquisition. Redemption amount minus indexed cost of investment will be long term capital gain or loss.
Bonus is taxable as income from other sources

QUERY : Every investment advisor is talking about Jeewan Bima Nivesh as best investment option. How would you rate this option as compared to PPF and NSC, the most common investment vehicles for elderly and retirees?

Ritesh Suri, New Delhi

REPLY :

Jeewan Bima Nivesh has survived rate cut till date. It is an investment opportunity under the garb of insurance cover. Sum assured will be paid either on maturity or on death whichever is earlier. Guaranteed addition are paid @ Rs.85 per thousand during first five years and thereafter @ Rs. 90 per thousand . In addition loyalty addition is paid on survival or on date of maturity at rates to be prescribed from time to time.

It has clearly beaten PPF and NSC on many fronts including return and liquidity. Maturity proceeds shall be exempted from tax under section 10(10D). This is the only vehicle which offers benefits under section 88 with minimum lock-in period of 2 years. Rate of interest with income tax benefits on five-year instrument may go up to 14.93 %. Table shows comparative analyses of the three options.

Table

Particulars	PPF	NSC	Bima Nivesh
Insurance Cover	Nil	Nil	Available
Return	9.5% p.a.	9.72 % p.a.	10.09% p.a.
Taxability of Return	Tax free	Taxable	Tax free
Rebate under 80 L	N.A.	Yes	N.A.
Rebate under Sec.88	Eligible	Eligible	Eligible
Wealth Tax	Exempt	Exempt	Exempt
Term	15 years	6 years	5 years/10 years
Premature Encashment/ withdrawl	7^thyear onwards	Not permissible	After one year
Minimum	100 p.a.	100 p.a.	25000
Maximum	60000 p.a.	No limit	10,00,000

However, there is a caveat that the guaranteed return on Bima Nivesh may also be lowered by LIC in line with other government-sponsored small saving schemes.

QUERY : My son has joined a software company at USA. He wants to remit part of his earnings to me for meeting my personal expenses. What are the quantum of money that can be received and what procedure has to be followed? Also suggest me, whether such remittance would be treated as income in my hand or not?

Ranveer Singh, Malvia Nagar

REPLY :

Last question first. The remittance sent by your son is not your income, hence question of its taxability in your hands, on it receipt in India does not arise. The remittance can be made by your son by way of draft or cheque in your favor or by telegraphic transfer. There is no bar on the quantum of money he can remit provided such remittance is not in the nature of loan or deposit. If foreign currency is received otherwise than through authorised dealer it should be offered for sale to an authorised dealer or a moneychanger within 7 days of receipt thereof. However he would have to follow law prevailing in USA for such remittances. ~

QUERY : I am running a small automobile repair and service station for scooters and cars. I have recently come to know that servicing & repair of cars has been made liable to Service Tax. Please clarify whether services provided by small service stations are also covered or only large one would be asked to pay the tax?

Ritesh Rastogi, New Delhi

REPLY :

Service and repair of automobiles would be costlier by 5% if these services are sought from Authorised Service Stations. It applies to all automobiles including scooters and cars. However, small roadside repair shops or service stations who have not been authorised by any of the automobile manufacturer for providing such services are not covered by the recent amendments made in the Service Tax Act. For the purpose of this act, Authorised Service Station means any service station or centre, authorised by any automobile manufacturer, to carry out any service or repair of any automobile manufactured by such manufacturer. It is interesting to note that services provided by an authorised service centre of a particular automobile manufacturer to any automobile manufactured by any other manufacturer would not be liable to service tax.

QUERY : People generally make deposits shortly before the close of financial year i.e. in the month of March to claim income tax rebate under section 88. However, I have deposited a sum of Rs. 60,000 in PPF Account on the very first day of April 2001 out of my past savings lying in savings account. Will I get rebate under section 88 in the current year against income of the current year, which I would earn over the year?

Rajesh Ghai, New Delhi

REPLY :

Your initiative would surly earn higher tax free income @ 9.5% in PPF Account as against 4 % taxable interest income in the Savings Account. Rebate under section 88 is allowed if deposit is made out of the income chargeable to tax. It is immaterial whether such taxable income pertains to the current year or preceding years. Basic intention of the lawmakers is to promote savings by offering tax breaks. However, if deposit is made out of the exempt income then no rebate is admissible. Also, no rebate is allowable against long term capital gains.

QUERY : My daughter, a minor has to go to USA for higher studies. Does she require ITCC (Income Tax Clearance Certificate) from Income-tax department before travelling?

Ramesh Ahuja, New Delhi

REPLY :

Under section 230, persons travelling abroad, as an emigrant or on a work permit or in respect of whom the Income-tax authorities consider it necessary, are required to obtain Income Tax Clearance Certificate (ITC) from the Income tax department. However as per board Notification No. SRO 961 dated 25.5.1953, as amended from time to time; the applicability of this provision has been suspended in case of all person below the age of eighteen years. Therefor in my opinion, you may not require any ITCC in case of your minor daughter.

Miscllaneous Page 1 Page 2


Copyright © Msn Consortium. Privacy policy						Website designed by Instep Consultancy Services