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Showing posts from July, 2008

Procedure for filing

Procedure for filing Income Tax Returns through CA P M Mittal
Step
1. Handing over documents for IT filing by the employee to us
2. Processing at our office
3. If more than one form 16 or additional income other than mentioned in form 16 then an SSI is emailed to the employee for confirmation of the calculation so emailed. If fall in this category and have not received any email from us do send an email to us.
4. Preparation of ITR in soft copy for filing to the deptt.
5. Creation of userID and password at income tax of India website, for which employee sometimes receives a confirmation email from the IT authorities.
6. Uploading of the data of ITR at income tax of India website, for which employee sometimes receives an Acknowledgement from the IT authorities.
7. An email of the ITR acknowledgement is sent to the employee in the 1st week of August by us as a confirmation that the ITR has been filed, before that no other confirmation is sent if everything is fine.
8. This acknowledgment needs t…

Who Should Not Worry About Filing Return By 31st July??

Who Should Not Worry About Filing Return By 31st July??
31st July is the due date for filing of return by individuals who are not subject to tax audit or who are not partners of a firm which is subject to tax audit. Therefore large numbers of taxpayers or assessee are those individuals for whom due date is 31st July. Every year there is great rush to file return by 31st July. So, income tax department makes special arrangement to receive those returns on last two three days.
It is common perception if the return is not filed within due date, the A.O will impose penalty or interest or do scrutiny. Therefore many people who can file even after 31st July i.e after due date, without any repercussion, rush to file return by 31st July.
So, when can you file return even after 31st July without any repercussion?
• You can file return after 31st July if all taxes have been paid by you as advance tax or deducted at source by 31st March.
• You do not have any loss to carry forward. In case of lat…

IT returns to be filed without TDS certificates

The Central Board of Direct Taxes have vide notification S.O.No.752(E) dated 28.3.2008, notified the return forms for the assessment year 2008-09. With a view to enabling tax-payers to file returns in the electronic mode, these returns (except ITR-7) have been made annexure-less. In the recent past media reports have raised doubts on whether TDS/ TCS certificates, counterfoil of challan for tax payment and other documents should be filed along with the return or not. On consideration by CBDT, it is clarified that –

(i) no annexures, TDS/ TCS certificates are required to be annexed to the returns of income. Wherever documents are attached with the return, the receiving official is required to detach and return to the tax-payers all such annexures;

(ii) ITR-V verification form is in the nature of an acknowledgement, and therefore, the same should be received by giving a Return Receipt Number, as if it were a return. These ITR-V verification forms are to be received in separate counters to…

Late filing of ITR for the FY 2006-07

Income Tax Returns for the FY 2006-07, if filed on or after 1-4-2008 attracts a penalty of Rs.5000/-.
If you have a valid reason for not filing the ITR in time then ITO may not levy the penalty. You can give your contentions when ITO sends a notice ‘why the penalty should not be levied’.
Information/documents and the procedure required to file the late ITR is same as of current year.
Details for filing Income Tax Returns are available at http://taxkiller.in .

Whether NRI OR Resident Indian

Explanation Through Flow Chart(click here)and Practical ExamplesQ. What should be the residential status of Mr. Viddu for P.Y 07-08 if he stays in India for following period
P.Y
- Stay(days)
2007-08 > 184
2006-07 > 100
2005-06 > 155
2004-05 > 65
2003-04 > 80

A.Resident in India.
Mr. Viddu is in India for 184 days during the P.Y 2007-2008 thus he satisfies the first basic condition of being ROI.
Q. If in above case Mr. Viddu stays in India only for 70 days then

A. Resident in India.
Mr. Viddu is in India for 70 days i.e for more than 60 days during the P.Y 2007-2008 and 400 days i.e. more than 365 days during 4 previous years immediately preceding the P.Y 2007-2008. Therefore, he satisfies the second basic condition of being ROI.
Q. If Mr. Lakshman was born in Pakistan in 1944. His son Ram a citizen of India was born in India in 65, if Mr. Ram leaves India on 1/6/07 for employment in U.S. his stay in India during

P.Y - Stay(days)
2006-07 > 70
2005-06 > 80
2004-05 > 90
2003-04 &g…

Comparitive chart exemption of LTCG

Exeption of Long Term Capital Gain u/s 54, 54B, 54D, 54E, 54EA, 54EB, 54EC, 54ED, 54F..54H

Comparitive chart showing exemption of LTCG under varios sections

54. Profit on sale of property used for residence
54B. Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases
54D. Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases
54E. Capital gain on transfer of capital assets not to be charged in certain cases2
54EA. Capital gain on transfer of long-term capital assets not to be charged in the case of investment in specified 2[securities]
54EB. Capital gain on transfer of long-term capital assets not to be charged in certain cases
54EC. Capital gain not to be charged on investment in certain bonds
54ED. Capital gain on transfer of certain listed securities or unit, not to be charged in certain cases
54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house

Can short term capital loss be adjusted first with long term gains instead of short term capital gains?

Q. Can ST Loss arising from transactions, which do not include Security Transaction Tax be adjusted against Long Term gains, which attract 20% tax rate, assuming there are some Short term gains as well? Can I adjust my ST loss against LT Gains first and then from short term gains (no STT), so as to minimise the tax on me? Will this comply with Income Tax Act/Rules?

Ans.The setting off of short term losses first out of long term capital gains and then with short term capital gain is bad in law and considered to be evasion of tax.
As per Sec 70 of I.T Act short term capital loss is first to be adjusted with any gain from other short term capital asset "arrived at under a similar computation". In case of any further unadjusted short term losses the same can be adjusted from the long term gains.

What should I do to reduce tax on sale of agriculture land?

Q. I have sold an agriculture land which was bought by me in 1989 .I have sold it in June 2007.Is it compulsory that further investment can only be made in agriculture land or I can opt for house ,any commercial shop or can this capital gain can be used for any other business , some friends have advised me for RBI relief bonds NHAI bonds for tax saving.

Ans. First check whether you have agricultural land which is not covered as a capital asset. Capital gains arise only on sale or transfer of capital asset. The definition of capital asset is given in section 2(14) of the I.T Act. It excludes "Agriculture land " provided the land is question fulfills certain conditions. A capital asset shall not include
Agricultural land in India, being land situated

1. In a municipality or cantonment area having population below 10 thousand or

2. Situated beyond 8 Kms from municipality or cantonment area not declared to be
Urban area.
So, if you find that your agricultural land is satisfyin…

Can You Claim STT As Cost of Share Purchase?

Q. We are a company doing investments in shares i.e. we buy shares, take delivery and sell after few/many months. Our Assessing Officer says that we should add the Securities Transaction Tax paid on these transaction to the cost price (just like service tax and education cess). Is he right? In our view, STT is a tax amount not to be used in any computation.

Ans. The computation of capital gains is done under section 48 of the I T Act. The Securities Transaction Tax was brought in from Assessment Yr 2004-05. A mechanism of deduction u/s 88E was also provided. Simultaneously, a provision under section 48 was inserted which clearly excluded STT from computation of capital gains. The said proviso is as under
48. The income chargeable under the head Capital gains shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :

(i) Expenditure incurred wholly and exclusively in connec…

What will be the cost of acquisition in case of inheritance?

Q. My father purchased a property in 1978. He expired in 1992, my mother also expired in 1996, the property was transferred by inheritance to my name. I sold it in 2007. I would like to know what will the cost inflation index period be for me, whether it will be as on 1/4/1981 or the day it was transferred to me.

Ans. As per Sec 49 of I.T Act cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be”
Transfer of property by succession, inheritance or devolution shall be considered to be acquisition U/s 49.

Therefore the cost to your father is the cost to you.

Cost Inflation Index From Which Date

Since the property was purchased in 1978, i.e. before 1981, you have the option of taking market value of the property as on 1/4/1981 as cost and then indexing from the year 1981(base yr) (index :100).…

Will You Get Exemption U/s 54 On Sale Of House, If You Own More Than One House?

Q. If an assessee owns three residential properties. Out of which he sells one residential property and invests the profit on sale of property in another residential property within two months of date of sale. Is the assessee liable to pay the long term capital gain? Will he get exemption u/s 54?

Ans. Yes, you will get the exemption u/s 54 to the extent the capital gains is utilised.
The provision does not bar that if somebody has more than one residential property, exemption u/s 54 shall be applicable. In my opinion, the conditions envisaged in the provision are

(a) The property sold should be residential house property or land appurtenant to;
(b) Income out of such residential property should be assessable under "Income from
house property";
(c) Property sold should be held for more than 36 months before it is sold;
(d) The property purchased should be residential property;
(e) The residential property should be purchased within one year before or within
two yea…

Is Painting Gifted By Father-in- Law Taxable On Its Sale ?

Q. Sir, my father in law gifted me some painting around 7 years back.. though no paper work for the same was done for the same at that time... though he is still alive and can give me the same in writing. This year in Jan one of the painting was sold in a auction. I want to invest the same in a house by investing the same in capital gain account ....please guide me am I allowed for the exemption and how to go about it ?

Ans. If the auction of the painting had taken place before 1/4/2007, there would not have had any tax because the paintings were not defined as "capital asset " as such was out of capital gains tax. But from FY 2007-08, an amendment was brought in definition of "capital asset" given u/s 2(14) of the I.T Act to include paintings and drawings. Therefore, the gift of painting made by your father-in-law to you will now be liable to tax on capital gains on its sale. Since the paintings are more than 3 years old, the gain on sale of it is long term capita…

What is the time period to deposit LTCG in Capital Gains Accounts Scheme?

Q. I sold a flat in Sep'07 and intend to re-invest (jointly with mother) in another (self-occupied).1) Can the LTCG made on sale of flat be re-invested any time before due date for filing return (31-7-08) or do we have to deposit the LTCG in the capital gains account scheme before 31-03-08?

Ans. The provision under subsection 4 of section 54 of the I T Act states as under

“54(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any…

Can you claim exemption for two separate years for Investment in same House?

Q. I have been allotted shares of a US company under ESOP scheme in 1998. These shares are not listed abroad. I have sold some of these shares in FY 06-07 and invested the consideration in a residential property. I availed the exemption u/s 54F to the extent of amount paid to the builders in that FY. In the FY 07-08, I sold further shares. Can I avail the exemption u/s 54F for the FY 07-08 for the same property towards the balance amount payable to the builder. Please advice. The option was provided to me in the July 1998. The shares were vested within 6 months from the date of option Please advice.

Ans. Before I express my opinion, let us see what the exemption provision says u/s 54 F of the I.T Act. The conditions for claim of exemption u/s 54F are
a) The gain should be long term.

b) The asset sold should be other than a residential house.

c) The investment should be for buying or constructing a residential house.

d) The investment should be within one year before
or two years afte…

Can you get exemption U/s 54 or 54F if house is taken on Lease?

Q. I am about to purchase a part of house in rural Himahcal Pradesh out of my long term capital proceeds. But as per the local by laws outsiders of Himachal cannot purchase such property in rural area... Only via media is that I get the same on perpetual lease (or 99 year lease). My question is weather the investment in the said house and expenses on construction the same to make it livable on the said leased property is allowable under 54F of the income tax act.

Ans. Section 54F states that if sales consideration of any long term capital asset other than residential house is utilised for purchase or construction of a residential house, the exemption from tax is to the extent the sale consideration is used for such purchase. The issue is whether the taking lease of 99 years constitute "purchase" for the purpose of section 54F.
Section 54F is for the benefit of the assessee.
The issue whether the house purchased on ‘lease’ constitute "purchase" for the purpose of sec…

Can you get exemption U/s 54 or 54F if house is taken on Lease?

Q. I am about to purchase a part of house in rural Himahcal Pradesh out of my long term capital proceeds. But as per the local by laws outsiders of Himachal cannot purchase such property in rural area... Only via media is that I get the same on perpetual lease (or 99 year lease). My question is weather the investment in the said house and expenses on construction the same to make it livable on the said leased property is allowable under 54F of the income tax act.

Ans. Section 54F states that if sales consideration of any long term capital asset other than residential house is utilised for purchase or construction of a residential house, the exemption from tax is to the extent the sale consideration is used for such purchase. The issue is whether the taking lease of 99 years constitute "purchase" for the purpose of section 54F?
Section 54F is for the benefit of the assessee.
The issue" whether the house purchased on ‘lease’ constitute "purchase" for the purpose …

Exemption U/s 54F if builder does not complete within 3 years?

Q. We sold an old land long term asset and invested proceeds for the purchase and construction of a flat in Bangaluru, within an year of sale of asset and claimed exemption u/s 54 F of Income Tax Act, but the builder has not completed the construction within 3 years. As per the income tax law the period of 3 years has lapsed. The period of 3 years lapsed without any fault on our side. What is your suggestion on this matter?

Ans. The exemption u/s 54F is for those individuals or HUF who gets long term gains on transfer of any asset other than residential house and who uses all the sales consideration within a specified period for purchase or constructing a residential house. The specified period in case of house purchase is one year before or two years after the date of transfer of asset on which gains were made. In case of construction, section 54 F provides time limit of three years. Thus problem arises if the builder has not completed the house within three years. Will you get exempt…

Criteria-for-Scrutiny-Cases in DETAIL

In Detail –
The Board has laid down the following procedure for selection of returns / cases of *Non-Corporate Assessees* for scrutiny during the current financial year i.e. 2007-08.

The following categories of cases shall be compulsorily scrutinized; -

i) All assessment pertaining to search and seizure cases.


ii) All assessment pertaining to surveys conducted u/s 133A of the Income tax Act.

iii) All returns where deduction claimed under Chapter VIA of the Income tax Act is Rs. 25 lakhs or above in stations other than the cities on computer network.

iv) All returns, including those of non-residents, where refund claimed is Rs. 5 lakhs or above in stations other than the cities on computer network.

v) (a) All cases in which the CIT (Appeals) or ITAT has confirmed an addition / disallowance of Rs.5 lakhs or above or if the assessee has conceded on addition in any proceeding Assessment year and Identical issue is arising in the current year. But if the issue involves a substantial question of …

Criteria for Scrutiny Cases SUMMARY

Criteria for Scrutiny Cases

The CBDT has given norms for current fiscal for selection of cases meant for scrutiny

Scrutiny is the process of selecting some income-tax returns and examining them closely by calling for extra information and seeing if the details furnished are correct.

Scrutiny on these counts would be generated though Computer Assisted Scrutiny System (CASS) and not through manual intervention.

This is only a selected reproduction of the norms as applicable to most assessees.

• HAVE you bought or sold a house or a plot for more than Rs 30 lakh? Then expect a knock from tax Authorities.

• Realty deals whose value is more than eight times the gross income of the buyer.
• So, if your gross income is Rs 5 lakh per annum and you have bought a house for more than Rs 40 lakh, you could get a call from the department. Gross income, for this purpose, shall be total income plus exempted income minus the total tax paid. This norm is being adopted to ensure that there is no evasion a…

NRI Transfer of Residence

Transfer of Residence

Transfer of residence provides exemption/concession of custom duty to those who satisfy the following conditions:

· Stay abroad for more than two years (in special cases shortfall of 2 months can be condoned)

· Total stay in India in 2 years preceding the previous year does not exceed 6 months (in special cases shortfall of 2 months can be condoned)

· Non-availment of this i.e. TR concession in 3 preceding years.

The following items have been excluded from customs duty (one unit for each family)

o VCR/VCD player

o Washing Machine

o Laptop Computers

o Desktop Computers

o Cooking Range

o Refrigerator up to a capacity of 300 litres.

Duty on other 17 items have been reduced from 30% to 15%.Allowance of INR 25,000 is available over and above the benefit enumerated above. Also male and female passengers are allowed to bring jewellery duty free up to INR 10,000 and 20,000 respectively.

Non Resident- Returning NRIs

Returning NRIs

Returning NRIs are assessed as Resident but Not Ordinarily Resident. A person is treated as Resident but Not Ordinary Resident if he satisfies one of the basic conditions (mentioned above) and either one or none of the additional conditions. The additional conditions are as follows:

1. Individual resident in India for at least 2 out 10 years immediately preceding the relevant previous year,

2. Individual is in India for 730 days or more during 7 years immediately preceding the relevant previous year.

Overseas Assets

In case any foreign currency, foreign security, or immoveable property is held by the non-resident while he was in abroad or has acquired the same from a non resident in India, then he can continue to hold such property even if he decides to settle in India permanently.

There is no specific provision regarding movable assets. Such assets can be held in the same form or disposed off when in India. RBI is not required to be informed. However, in order t…

Joint Holdings of Non Resident Indians

Joint Holdings of Non Resident Indians

Non Residents of Indian Nationality/Origin may invest in shares singly or jointly, with their close relatives in India. Repatriation benefits are allowed only if the following conditions are complied with:

1. The investment is made by sending remittances from abroad or out of funds held in Overseas Investor’s Non Resident (External) account or FCNR account;

2. The first holder of shares is a Non Resident Indian who made investments out of his funds;

3. The resident holder is closely related to the Non Resident.

However, it is important to note that repatriation benefits are available to the Non Resident and not the resident holding such shares. Special tax provisions are available to them and not to the Indian resident

Non-Resident and Real Estate in India

Non-Resident and Real Estate in India

As per the provisions of FEMA NRIs can invest freely in real estate in India as follows:

· Up to 100% in an Indian company in Real Estate Development business and can repatriate the benefits, both the business profits and sale proceeds of original investment. Real estate development means construction of residential/commercial properties, offices, etc. Trading in properties or construction of farm houses does not come under the ambit of real estate.

· Acquire residential/ commercial properties in India by way of purchase/ gift/Inheritance from a resident Indian or a NRI. Agricultural land, plantation and farm houses cannot be acquired by NRI except by way of inheritance. No restrictions are imposed on letting out the property and repatriating the rental income after taxes due has been paid. However, certain restrictions are imposed for repatriating the sale proceeds from properties. They are as follows:

o In case of sales proceed…

Benefits associated with the NRI status

Benefits associated with the NRI status:

· NRI can freely acquire immoveable property abroad out of earnings abroad. He can invest anywhere in the world. He can invest in any business abroad. He can retain all his assets even if he comes to India and he need not intimate RBI about his foreign assets.

· Foreign income is not liable to tax in India.

· NRI can set up trusts abroad for the education of the children or maintenance of the family.

· NRI enjoy tax concessions in India for the assets in India.

· NRI can bring 10 kgs of gold (on the payment of duty of Rs. 250 per 10 grams) and 100 kgs of silver (on the payment of Rs. 500 per kg) once in six months on his visit to India.

· NRI can seek advance ruling from Advance Ruling Authority on taxability of transactions.

· NRI can avail the benefits of Double Taxation Avoidance Agreements entered into by India with other countries which aim to minimize double taxation on the same income.

· …

Confessional Tax Treatment NRI

Confessional Tax Treatment of certain incomes of Non Resident

The income other than Long Term Capital Gain arising from any Foreign Exchange Assets and dividend income are chargeable to tax at a flat rate of 20%. Long Term Capital Gains are charged to tax at a flat rate of 10%.The term Foreign Exchange Assets means any of the following have been purchased, acquired or subscribed in convertible foreign exchange in accordance with Foreign Exchange Regulation Act:

1. Shares in Indian company

2. Debentures issued by a public limited company

3. Deposits in a Public Ltd. Co.

4. Securities of the Central Government

5. Any other notified asset.

While computing the total income of such individuals no deduction shall be allowed in respect of any expenditure incurred by them. Moreover in case he has income only from Foreign Exchange Assets or Long Term Capital Gain & on such assets and the tax has already been deducted at source then he is not required to file any retu…

NRI -Business in India

Business in India

NRI can operate or invest in Indian Business in the following ways:

· Branch/Liaison office with prior permission from RBI (profits of the Branch can be fully repatriated).

· Indian company which is 100% wholly owned subsidiary/ Joint Venture on repatriation and non-repatriation basis without permission of RBI in most of the sectors. For investments on repatriation basis, the prohibited sectors include retail trading, domestic wholesale trading and print media besides a few others.

· Partnership/ Proprietary business on non-repatriation basis (income is on repatriation basis) in any activity except in agriculture, plantation and real estate (except real estate development) without permission from RBI.

It is very important to note that now even the sale proceeds of investments held on non-repatriation basis can be repatriated up to USD 1 million per calendar year.

Exemptions Investment Income NRI

Special Exemptions In Respect Of Investment Income of Non Resident Indians

Following Investment Income of a Non Resident are fully exempt:

· The entire income generated from investing in units of UTI is exempt provided the investment is made out of amount remitted from abroad or from their Non Residents (External) Account.

· Income arising from investment in notified saving certificates is fully exempt provided the certificates are subscribed to in convertible foreign exchange remitted from a foreign country in accordance with Foreign Exchange Regulation Act. For this purpose NSC VI and VII are notified.

· Income from NRI Bonds 1988 and NRI Bonds (second series) is exempt from tax. This is available to a Non Resident if he becomes a resident in India. Even if such bonds are gifted to a resident he also enjoys such privilege.

Investment in India by non resident

Q-Investment in India by non resident?

Shares of Listed Companies in India
Existing NRIs - In case NRI already holds shares, debentures or other securities of a company then such companies must be informed about the change in residential status and thus the changed overseas address. Income on such investments can be easily repatriated outside India after the payment of taxes.

New NRIs - NRIs can invest in shares (equity and preference) and convertible debentures in any listed company in India on both repatriation and non- repatriation basis subject to the following conditions:

· All the transactions should be routed through a single bank branch designated by the individual.

· Transactions should be carried out through a registered broker on a recognized stock exchange.

· Transactions should take place physically i.e. speculative transactions are not allowed.

· One NRI or all NRIs taken together cannot invest more than 5% and 10% respectively in a company.

· …

Who is a Non-Resident?

Who is a Non-Resident?

A person is resident in India if he fulfills any of the basic conditions:

Basic Condition: The individual is in India for

1. 182 days or more at any time during the relevant previous year; or

2. 60 days or more during the relevant previous year and 365 days or more during 4 years immediately proceeding the relevant previous year.

However, in (2) above 60 days have been replaced by 182 days for:

1. Indian citizens who leave India for employment abroad or as a member of crew of an Indian ship;

or Persons of Indian Origin who visits India during the previous year.

Persons of Indian origin:

An individual is deemed to be person of Indian origin:

1. If She/he has at any time held an Indian passport; or

2. She/he or any one of his parents or any one of his grand parents were a citizen of India; or

3. She/he is not of Indian origin but spouse is an Indian citizen or is a person of Indian origin. (Bank accounts and investments should …

FAQ Capital Gain

Q-What Can Be Done to Reduce TDS on NRI's Property Sale?
I am a NRI and I bought a apartment in Mumbai in Feb 2006 for Rs27 lakhs. Now I am planning to sell it for 49.25lakhs. What will be my capital gains tax be? The buyer told me that the capital gains tax will be deducted at source(TDS). How is TDS calculated in this scenario?Is there a way to avoid/minimize capital gains tax?
Had you been Resident in India , there would not have any question of tax at source. But for Non Residents, there is a provision u/s 195 of the I T Act which compels payers to deduct the tax on the total amount paid by him to the Non Resident. It means that under law, the purchaser of your property shall have to deduct the tax on Rs 49.25 lakhs and Not the amount of capital gains you make.
property's purchaser who is responsible for paying Rs 49.25 lacs to you can apply before A.O stating that whole of Rs 49.25 shall not become taxable under income and therefore he be allowed to deduct the tax on the g…

FAQ Capital Gain

Q-Can A Person Get Exemption u/s 54F If He Purchases More Than One House?
Is there a limit to the number of residential properties that a person can invest in for claiming exemption u/s 54F? For eg: If a person is selling jewellery(long term), and buying two residential houses. At the time of transfer, the person already owned one residential house. Can he claim exemption u/s 54F for both the houses?
No, the language used in Section 54F makes it clear that a person cannot purchase more than one residential house within one year from the date of sale of the asset.
Further there is proviso to section 54F which states the condition in which section 54F is NOT applicable.
The said proviso is given under
Provided that nothing contained in this sub-section shall apply where
(a) the assessee,
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, withi…

FAQ Capital Gain

Q-Seven Steps To Understand ESOP and Its Taxation!
ESOP is short form of Employees Stock Option Plan. Under this plan, companies provides employees a plan by which the employees get an option to acquire shares of their employer company over a period of time at a reduced price or nil price. Therefore ESOP is primarily a kind of incentive to hold the employees to the company's fold .Therefore, question of taxing this perquisite and capital gains at the time of sale of shares received by the employees arise.

2.What are the new taxation scheme of ESOP?
The new scheme of taxation of Employees Stock Option Plan initiated by Finance Bill passed on 11th May 2007 and effective from 1/4/2007 is as follows
1. No taxation of perquisite in hands of employees.
2. Employer to pay Fringe Benefit Tax at the time vesting of shares in Employees.
3. Employee to pay capital gains tax at the time of sale of shares received under ESOP.
3.Fringe Benefit Tax To Be Paid By Employer
Section 115WB1(d) has been ins…

FAQ Capital Gain

Q-Is Rental Income of Property At Dubai taxable in India?
I am a Indian Citizen. I am going to buy a apartment in DUBAI.I can remit $100000 per year outside India. What will be the tax implications on the rental income that I will receive and on the capital gains tax. As per double taxation treaty India has with Dubai, I am liable to pay tax in India on the rentals income and capital gains tax.

The taxation on income under I T Act depends on residential status of the person and the Double Taxation Avoidance Agreement(DTAA) signed between India and another country. It is settled law that DTAA supersede I T Act if same is more beneficial to the tax payer. To know more about it , read this posting.

Regarding Rental Income Taxation
There is DTAA between India and UAE and Article 6 of the said agreement deals with rental income of an immovable property.
if you are Resident of India (contracting state) and having immovable in Dubai (Other state), house property is taxable only in UAE (other stat…

FAQ Capital Gain

Q-Will I Get Exemption u/s 54 For Buying Commercial property?
I have an apartment in Mumbai. I bought it in Sept. 2001 but got the possession in Jul, 2002. I purchased it around 21L but the current market price is almost double. I plan to sell it and invest the same amount in a commercial property. Going by the Cost Index, I might have to pay 3.2L tax after I sell my property. Since I am investing almost all the amount in another commercial property, will this help to save my tax when I sell the apartment?
Unfortunately, the exemption provided under section 54 of the I T Act is not for investment in commercial property. This exemption is exclusively for the reinvesting the sale proceeds out of a residential property in another residential

FAQ Capital Gain

Q- How to Compute Capital Gains On Inherited Property?
Computation of Capital Gains on inherited property. My husband purchased a site from the development authority in the year 1970 and constructed a house thereon. We have been living in the house since then. My husband expired in Jan 2008 and the property devolved on me(his wife) in terms of his will. I have disposed off the property in May 2006. I request you to please advice me about the computation of capital gains. I) Would I get the benefit of indexation from 01/04/1981 or from Jan 2008.
You will be happy to note that in case like yours, where the capital asset becomes somebody else property on account of death, the treatment under I T Act is same as would have been applicable in case original owner, had he lived at the time of sale. Section 49(1) of the I T Act makes it amply clear. You become the owner of the property by mode specified in section 49(1), hence as per section 55(2)(b)(ii) ,cost to your husband shall be cost of…

Tips n Tax Planning House Property

9. Any house bought with money received as cash gift from husband shall be property of wife, but any income from it will be income of husband as per Sec 64(1)(iv). Any house property transferred by a person to his/her spouse without adequate consideration shall be deemed to be property of the transferor as per Sec 27 (i).

Tips n Tax Planning House Property

8. Interest payable outside India is deductible only if TDS has been deducted on it, the assessee should ensure himself that he has collected the tax on source.

Tips n Tax Planning House Property

7. Where more than one house are occupied, only one house is treated as self-occupied & other are deemed to be let out as per Sec 23(4), deduction of Sec 24(b) is applicable to self-occupied house subject to condition of Rs.1,50,000 and for other houses actual interest will be allowed.
An assessee must consider which house is to be shown as self-occupied for claiming maximum benefit.
For e.g.: Mr. A has 2 houses which are occupied by him. For taxation purpose only one will be considered to be self-occupied and other to be let-out. For tax planning purpose he must consider that house as self-occupied that provides him maximum tax benefit i.e. if
House 1 = Rs.4,00,000 Interest on House 1 Loan = Rs.165000
House 2 = Rs.5,40,000 Interest on House 2 Loan = Rs.175000

Case 1 – House 1 self occupied
Income from house 1 = -150000

Income from house 2
NAV house 2 = 540000
Less Deduction u/s 24 (a) = 162000
Less Interest on capital 24 (b) = 175000
Income from house 2 = 203000

Income from hous…

Tips n Tax Planning House Property

6. No deduction of interest can be claimed if no house is constructed on land purchased by borrowing money. Land in itself is not house property

Tips n Tax Planning House Property

5. A loan can be taken from anybody (from a friend or a bank etc.) and the deduction of Sec 24(b) will be applicable in every case provided a letter of confirmation is obtained from such lender. However repayment of principal is allowed as deduction from Total Income only in case where loan is taken from specified institutions u/s 80C.

Tips n Tax Planning House Property

4. Any house property constructed in name of spouse and such house is constructed by the money of husband/wife of spouse and loan being repaid by such husband/wife, the income from such property should be assessed in name of husband/wife of spouse.
For e.g.: A person constructs a house in name of wife, cost of construction being borne by him and he also pays EMI of any loan which is taken in his name. Then any income from house shall be clubbed in the income of the person who actually incurs the expenditure i.e. the husband in the given case.
Deduction u/s 24(b) may be allowed to the husband keeping in view the fact that now he only is the actual owner of the property not the wife.

Tips n Tax Planning House Property

3. Lessee of house property, leased for period not less than 12 years, shall be regarded as Owner of the property for the purpose of charging tax on rental income of that property.

Tips n Tax Planning House Property

2. The aggregate of interest (Pre-EMI Interest) paid/payable till the year preceding the year of completion can be claimed in five equal installments from the financial year in which construction was completed.

For e.g.: Mr. A has taken a loan of Rs.7,00,000 @ 14% p.a. on 1 July 2005 for constructing house and construction was completed on 1 Feb 2008. In this case the amount of interest paid/payable for pre-construction period (1 July 2005 to 31 March 2007) 21 months will be allowed in five equal annual installments starting from year in which construction is completed i.e.
700000*(14%)*(21/12) = 171500
Annual installment = 171500/5 years
= Rs.34300

Tips n Tax Planning House Property

1. Overall limit of allowable interest u/s 24(b) of Rs.1,50,000 is applicable in case where property is self occupied, there is no such limit in other cases where house is let-out.

FAQ House Property

Q. I have rented a house property for Rs.30000 p.m. and have incurred Rs.150000 on its repairs and premium for insurance of house during the year, will such an expense be allowed while computing income from house property?

Ans. Income Tax Act provides for standard deduction u/s 24(a) for the various expenses incurred by the assessee in connection with the house property. Standard deduction is allowed equal to 30% of NAV even if actual expense is greater than that or less than that. In your case no municipal taxes are paid so

NAV [30000*12] = 360000
Less Standard deduction = 108000
[360000*30%]
Income from house = 252000
property

FAQ House Property

Q. I own a house property, which is let out. The municipal taxes for the year 2007-08 are Rs.40000 and during the year I paid only Rs.25000. While computing my house property income, will whole of the municipal taxes be allowed to be deducted.

Ans. Sir as per proviso to Sec 23(1) municipal taxes are allowed only on actual payment basis thus in your case only Rs.25000 will be considered while computing the income from house property.
It is to be noted that any of such tax if paid by the tenant will not be allowed to be deducted.
Municipal taxes mean taxes paid for municipal purposes and not other purpose it includes house tax, fire tax, water tax, sewage tax etc. Any such tax if paid to any other department is not covered under municipal tax.

FAQ - House Property

Q. How will I calculate my income from house property where increase in the rent has been effected retrospectively.
House was let out @ Rs.50000p.m. and rent was increased from 1/7/07 to Rs.60000 and it is effective from 1/1/07. I paid municipal taxes of Rs.5000 and interest on my capital borrowed for construction of house is Rs.35000
Arrears of rent have been received during financial yr. 2007-08.

Ans. Sir, as per Sec 25B increase in the rent can be effected from back date any arrears received during current year are taxable in the year of receipt, however 30% of amount shall be deducted out of it.

Gross Annual Value : 720000
Less Municipal Taxes : -5000
Net Annual Value : 715000
Less Standard deduction : 214500
Interest on capital : 35000

Income : 465500
Add Arrears : 21000
[10000*3 = 30000
(-) 30% = 9000]

Income under head : 486500
house property

Interest on Capital Borrowed Sec 24(b)

Interest on Capital Borrowed Sec 24(b)


If any person has taken any loan for purchase or construction of a house including any renovation, alteration, substitution, addition or repairs etc interest on capital so borrowed is allowed to be deducted and will be allowed on due basis. It is to be noted that such interest is to be simple interest i.e. interest on unpaid interest is not allowed.

In case of self occupied house interest shall be allowed for a maximum of Rs.150000 for a previous year provided loan was taken for purchase or construction of house property and not for any other purpose.

Note : Act is silent regarding the maximum limit of the interest on capital borrowed where house is let out and not self occupied. Therefore, in such case, entire amount of interest on capital paid or payable during the year is deductible.

An assessee can thus do a tax planning in case his annual interest is greater than Rs.150000 and where he self-occupies the house. He can show that the house propert…

Income-House Property- Summary

Income from House Property
The term house property includes any building and lands appurtenant thereto i.e. if there is any land which is essential part of the building will be considered to be house property and will not include any plot of land. Income from such house property is taxable in the hands of the owner or the deemed owner.
In case where house property is owned by two or more persons (co-owners) and their respective shares are determinate, the share of each co-owner will be included in his respective total income.

Income from house property shall include income from letting out of house property. Any income from sale – purchase of house property or subletting will not be income from house property.

House property shall not include the following:

a) Vacant Land – Vacant piece of land not forming part of building shall not be house
property.
b) Sub-letting - Income from subletting of house property shall be taxable under head
Other sources.