Tag: tax query

Tax Query: How to file ITR for the deceased

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I lost my brother to Covid-19 in May 2021. Do we need to file income tax returns on his behalf for the last financial year? Advance tax was deducted from his salary during April 2021 and May 2021 for bonus received in April 2021 and projected annual income. Is it possible to claim excess tax paid?

A. R. Chintha

As per the provisions of Section 139(1) of the Income-tax Act, 1961 (‘the Act’), every person (other than a company or a firm) whose total taxable income during the previous year exceeds the maximum amount which is not chargeable to income-tax ₹250,000 for FY 2020-21 and FY 2021-22) is required to file income tax return. As per the provisions of Section 159 of the Act, where a person dies, his / her legal representatives shall be liable to pay any tax liability due, on behalf of the deceased and are deemed to be assessed to tax on behalf of deceased. Accordingly, the legal representative shall also be eligible to file the income tax return on behalf of a deceased person. In order to do so, the legal heir would be required to register as the Representative assessee of the deceased through his/her e-filing profile.

Below are the steps to register as a legal representative:

· Legal heir will have to log in to his/her income tax e-filing account.

· Click on Authorised Partners on the home page

· Select Register as Representative Assessee

· Click on ‘Let’s get started’ and create New request

· Select the category as ‘Deceased (Legal Heir)’ in the ‘category of assessee who you want to represent’ and Continue

· Fill in the requisite details. Details like PAN of deceased, date of death, reason for registration (please select the same ‘Others’ and then mention the reason of registration), details of legal heir etc. would be required. Also, documents like copy of PAN card of the deceased, copy of death certificate, copy of legal heir proof and copy of letter of indemnity would be required to be uploaded.

Once the legal representative is registered, he/ she can file the income tax return on behalf of the deceased for the FY 2020-21. The extended due date to file the Income tax return for the FY 2020-21 is 31 December 2021 (for individuals who are not required to get their accounts audited).

For the FY 2021-22 also, the return of income would be required to be filed (even if tax has been deducted at source / advance tax has been paid) in the similar manner and any excess deducted/ paid, can be claimed as refund.

How to download the copy of Income Tax Return filed online for the financial year 2020-21 (Assessment Year 2021-22)? Please inform me the steps to be followed online to download the I.T. Return.

M.Ramanathan

I understand that you have already filed your return of income for FY 2020-21 (i.e. AY 2021-22), the extended due date for filing of which is 31 December 2021 for non-audit cases.

In order to download copy of Income, you will need to login to the income-tax e-Filing website with the following link: https://www.incometax.gov.in/iec/foportal. Please log-in with your credentials (user ID is your PAN) and follow the below steps to download the income tax return filed:

· Click on ‘e-file’ tab on the home page

· Select ‘Income Tax Forms’

· Select ‘View Filed Return’

· Select ‘Download Form’ option under the Assessment Year (AY) 2021-22

· The income tax form would be downloaded

The writer is a practising chartered accountant

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Tax Query: Is tax audit needed for claiming loss from F&O trading?

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Please let me know whether tax audit u/s. 44AB read with section 44AD is applicable for A.Y. 2021-22, for claiming loss from futures & options (derivatives) business of ₹1 lakh on turnover of ₹5 lakh and interest income of ₹7 lakh? Also, how to carry forward unabsorbed loss under ‘income from house property (self occupied)’ where interest on home loan exceeds ₹2 lakh as the system ignores excess interest while uploading ITR-3?

Tina B

For the purpose of analysing the applicability of tax audit requirement u/s 44AB of the Income-tax Act, 1961 (‘the Act’), the turnover is required to be determined. As per the guidance note on tax audit issued by the Institute of Chartered Accountant of India, turnover in case of dealing in futures and options shall include the following:

a) Total of favourable and unfavourable differences

b) Premium received on sale of options

c) In respect of any reverse trades entered, the difference thereon

As per the provisions of Section 44AB every person, carrying on business shall be required to get his accounts audited for such financial year by a Chartered Accountant before the specified date, if total sales, turnover or gross receipts (as applicable), in business exceed ₹1 crore in any previous year. The said limit of ₹1 crore is substituted with ₹10 crore in case the cash receipts do not exceed 5 per cent of the total sale/ turnover/ gross receipts and the cash expenditure does not exceed 5 per cent of the total payments.

As per the provisions of Section 44AD , in the case of an eligible assessee engaged in an eligible business (turnover not exceeding ₹2 crore and not into the business of plying, hiring or leasing goods carriages), a sum equal to 8 per cent (6 per cent in respect of amount received by way of A/c payee cheque/ A/c payee bank draft/ electronic clearing system) or a sum higher than the aforesaid sum shall be deemed to be the profits and gains of such business chargeable to tax under the head “profits and gains of business or profession”.

As per the guidance available on portal of income tax department, a person can declare income at lower rate (i.e. at less than 6 per cent or 8 per cent), however, if he does so and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited as per section 44AB. In the instant case, since the income (being loss) from Future & Options is less than 8 per cent / 6 per cent and the total income chargeable to tax is exceeding the maximum amount not chargeable to tax, you would be required to be audited u/s 44AB of the Act .

Carry forward of unabsorbed loss on account of interest on housing loan: As per the provisions of Section 24(b), deduction on account of interest on housing loan in case of a self-occupied property is restricted to ₹2 lakh and hence loss under house property for a self- occupied property cannot exceed ₹2 lakh. Accordingly, any interest paid in excess of ₹2 lakh is neither eligible to be set-off against other heads of income nor allowed to be carried forward for future assessment years. Hence in the instant case, interest paid in excess of ₹2 lakh, shall not be allowed to be carried forward to the future assessment years.

The writer is a practising chartered accountant

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Tax Query: How to save real estate capital gain?

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I have a house and a flat, and the same are declared in my IT returns every year. Last financial year, I have sold a plot (purchased during 2004-05) at a profit. I have opened a capital gains account and invested the entire proceeds in the capital gains account. Out of the sale proceeds, I have used about 85 per cent for booking a flat in Bangalore. The new flat is not yet registered. The balance amount in capital gains account is equal to my plot’s original cost. I need guidance on the following:

(A) Can I claim exemption from tax on capital gains, since I have used the proceeds from sale for purchase of property (booking advance)? Is capital gains tax applicable for my sale transaction since I have used the proceeds from sale for purchase of property (booking advance)? (B) I understand that I have to pay capital gains tax since I have two properties in my name, as per prevailing IT rules. But it is to be noted that the third property (new flat) is not yet registered. If capital gains tax is applicable, can I gift the property to my wife by making settlement deed before filing IT return for FY 2020-21, so that I remain a owner of only two properties (including new one)? (C) Also, please suggest whether I can remit back the amount withdrawn from the capital gain accounts and avoid capital gains tax?

Satyanarayana KS

A) Capital gain (CG) tax provisions shall apply on sale of plot under Income tax Act, 1961 (the Act). You are eligible to claim the tax deduction under section 54F of the Act from the capital gains earned, by investing the net sale consideration in buying the residential house property, provided you don’t own more than one residential house property (excluding the new property) on the date of transfer of the plot. As you own more than one residential house property (house and flat) on the date of sale of plot of land, you may not be eligible to claim this exemption. We would also like to add that you may still claim the deduction under section 54EC of the Act upon investing making investment in specified bonds (including National Highway Authority of India (NHAI) or Rural Electrification Corporation Limited bonds) up to ₹50 lakh. Such investment should be made within six months from the date of transfer of such capital asset and the lock-in period is five years. The option of depositing the capital gains in CGAS is not available for exemption in this category.

B) There are two transactions here. One is sale of plot and the other is gifting of property. Gifting of immovable property to your spouse is exempt under section 56 (1) (x) of the Act. Your spouse is not required to pay tax on such gifts. In order to claim exemption under Sec. 54F, as mentioned earlier, the crucial point is the date of sale. If on the date of transfer of the plot you own more than one house property then, you will not be eligible to claim exemption.

C) LTCG could be deposited in Capital Gain Account Scheme (CGAS) for the purpose of utilising the money in making the requisite investments. However, such deposits should be made on or before the due date of filing the tax return. There are specific conditions for transferring / withdrawing the amount from CGAS account or closure of such account whereby you are required to complete certain formalities with your banker. Further, if the amount remains unutilised after expiry of prescribed period of time, then the amount not so utilised shall be charged as capital gains of the year in which the prescribed period expires.

The writer is Partner, Deloitte India

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Tax Query: Are brokerage, GST, STT taken into account when calculating capital gains?

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Kindly let me know with suitable examples whether brokerage, GST, STT and other charges are to be included/excluded in/from purchase/sale price of equity shares for computing capital gain (for shares both purchased before and after 31/01/2018). What is the purchase price for bonus shares for computation of capital gain? Note all these are non-speculative income.

Arun Bhowmik

As per the provision of section 48 of the Income-tax Act, 1961 (Act), following are eligible to be deducted from the full value of the consideration received to compute capital gains: a) expenditure incurred wholly and exclusively in connection with such transfer; b) cost of acquisition of the asset and the cost of any improvement thereto. Based on the above, cost of acquisition may include amount of brokerage, GST, and other charges incurred specifically in relation to such purchase of such capital assets. Similarly, any expenditure incurred wholly and exclusively in connection with the transfer of asset is also deductible from the full value of sale consideration to arrive at net sales consideration. However, as per proviso to section 48 of the Act, deduction in respect of any Securities Transaction Tax (STT) is not allowed while computing capital gains. Accordingly, brokerage, GST, and other charges paid while acquiring the capital asset can be included in the cost of asset and also deductible from the sale consideration if incurred at the time of sale of such asset. Any STT paid at time of acquisition or at time of sale is not included in cost/ deductible from the same consideration.

Sale price = (100*250) = ₹25,000; Less: Purchase Price = (100*200) + (100*200) * 0.01% + 40 = ₹20,042; Less: Expenses exclusively in relation to transfer = (₹25000*0.01%) + ₹40 = ₹42.5. Hence, net capital gains = ₹4915.5

Bonus shares: As per the provisions of section 55 of the Act, where an individual is allotted any additional financial asset without any payment (i.e. bonus shares), cost of acquisition shall be computed: a) If such shares were allotted before April 1, 2001: cost to the assessee or the Fair Market Value (FMV), as prescribed, of the asset on the April 1, 2001, at the option of the assessee; b) In any other case: nil

Accordingly, for the purpose of calculating capital gains, the cost of acquisition for the bonus shares would be considered as FMV (as prescribed) if allotted prior to April 1, 2001 and nil if allotted post April 1, 2001.

The writer is a practising chartered accountant

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Tax Query: Do you pay tax on proceeds from surrendered insurance policy?

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I took a single premium insurance policy, paying a premium of one lakh rupees on April 4, 2012. The policy, which matures next year in April 2022, gives an insurance coverage (sum assured) of ₹109,450. Due to medical exigencies, I intend to surrender this policy prematurely, and I will get an amount of around ₹235,000. Am I required to pay tax on the excess amount of ₹135,000? The rule regarding insurance coverage being at least 10 times the premium paid, came into vogue only in September 2012, and hence in my view, is not applicable to this policy. What’s your view on this? The insurance company is likely to deduct 5 per cent as TDS. Will the situation regarding tax, change if I allow the policy to run its course till next year?

A.R. Ramanarayanan

Maturity proceeds arising from insurance policies that are issued on or after April 1, 2012 are exempt from taxation provided premium paid does not exceed 10 per cent of the sum assured. In your case considering the fact that premium paid is more than 10 per cent of the sum assured, the maturity amount received shall be taxable in your hands. The insurance company would deduct 5 per cent taxes on the net proceeds i.e. on ₹135,000 as per section 194DA of the Act. Even if you allow the policy to run till next year, the maturity proceeds would be taxable in your hands as the same do not satisfy the conditions laid out under section 10(10D) of the Act as clarified above.

The writer is Partner, Deloitte India

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Tax Query: Do early retirees have to pay advance tax?

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I retired early at the age of 50. The only sources of my income are capital gains from mutual funds and stocks, and interest income. Do I have to pay advance tax?

Vijaya Kumar

As per the provisions of Section 208 of the Income-tax Act, 1961 (‘the Act’), every person whose tax liability (after considering the Tax paid viz. Tax deducted at Source / Tax Collected at Source, if any, for your case) on the estimated total taxable income, for the Financial Year (FY) exceeds ₹10,000, is required to pay taxes in advance in 4 prescribed quarterly instalments —June 15, Sep 15, Dec 15 and March 15 during the said FY.

As per Section 207 of the Act, Resident individuals who is of the age of 60 years or more and not having income under the head Profits and Gains of business and profession’ are not required to pay advance taxes.

Advance tax is required to be paid on capital gains. However, as one cannot estimate the exact capital gain in advance (unless it actually materialises), hence if taxpayer has made any capital gain after the due dates of advance tax instalment, then such tax liability is required to be paid in remaining instalments. Interest for shortfall in payment of advance tax on account of capital gains would not be applicable for the previous instalments.

In case you estimate the total tax liability on your estimated taxable income (Capital Gains and Interest) to exceed ₹ 10,000 (after considering the tax deductible/collectible at source), you would be required to pay taxes by way of advance tax in the four prescribed instalments.

The writer is a practising chartered accountant

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Tax Query: How to file return of income for deceased father

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My father died on 1st April,2020 without making will. The surviving heirs in the family are my mother, three married sisters and myself. It will not be possible for me to obtain succession certificate or arrive at distribution of wealth of my deceased father by mutual understanding. amongst surviving heirs in short time. In the name of my deceased father I have following taxable income . (i) Rental income from house property for flats and shops given on rental basis. Here the related properties are held by my deceased father jointly with my surviving mother. Investments in these properties were made by my deceased father out of his taxable income, and nothing was contributed by mother towards investment. (ii) Rental income out of banquet hall given to public for marriage and other social functions. Banquet hall is in the sole name of my deceased father and it is on rentalpagadi basis. (iii)Profit out of business of retail shop selling Spectacles, Watches and Clocks. This business was run by my father on a proprietorship basis in his name, and my father was showing income out of it in his return of income. How do I file return of income in case of my deceased father in respect of above income for the financial year 2020-21? Please also let me know whether rental income from shops and residential flats as detailed at point No. (i) above can now be reported by me in my mother’s return of income, since she is the second name holder to properties jointly with my deceased father, and I am collecting cheques for rental in my mother’s name and depositing the same in her bank account.

Vijay Ved

When a Hindu male dies intestate (without leaving a will), the Hindu Succession Act could be applied for dividing the wealth among the Class 1 legal heirs. In the current circumstance, your mother, you and your sisters will qualify as Class 1 heirs. Class 1 heirs will have equal rights on the assets of the deceased. It is advisable to get a legal view on the above.Accordingly, rental income from banquet hall and business income from shop is equally taxable in your hands. With respect to property income where your mother is a joint owner, in the absence of any information on proportion of holding, your father’s share of 50 per cent in the property will equally vest with all the five of you being class 1 legal heirs. You all will have to pay tax on income from this portion of property. While your mother will in addition will also be taxable on her balance ownership of 50 per cent.

The writer is Partner, Deloitte India

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How does grandfathering of capital gains apply in case of corporate actions

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My question pertains to the applicability of grandfathering of capital gains in the case of corporate actions such as demergers and amalgamations. Let me illustrate with an example: I bought 100 shares of Company A in September 2016. In February of 2019, a scheme of demerger was approved by shareholders that entitled them to an equal number of shares in Company B (100 in this instant case; shares listed on the exchange in November 2019). I sell shares of both companies in October 2020. What should I reckon to be grandfathered price as on Jan 31, 2018, for both Company A and B to crystallise my capital gains liability? Please also confirm that the holding duration for both companies will be reckoned from the date of the original purchase, which is September 2016, and hence tax rate applicable in the case of Company B will also be LTCG.

Girish Balakrishnan

The following comments are based on assumption that the shares of company A are equity shares & listed in a recognised stock exchange in India.

As per the provisions of Section 112A of the Act, Long term capital gain (LTCG) on sale of STT paid equity shares exceeding ₹1 lakh shall be taxable at the rate of 10 per cent. Further, surcharge (if any) and health & education cess at 4 per cent shall apply. For the purpose of computing LTCG/LTCL, in cases where the asset is acquired before the 1st day of February, 2018, the cost of acquisition, shall be the higher of the following, as defined in Section 55(2)(ac) of the Act:

· actual cost of acquisition; or

· lower of (i) fair market value (FMV) of such share on 31 January 2018 (highest quoted price) or (ii) full value of consideration as a result of transfer.

The term FMV, in the context of equity shares, has been defined in section 55(2)(ac) of the Act, as follows:

· In case the equity share is listed on any recognized stock exchange, the highest price quoted on such stock exchange as on January 31, 2018;

· Where the equity share, is not listed as on January 31, 2018 but is subsequently listed on the date of the transfer, an amount which bears to the cost of acquisition the same proportion as the CII for the financial year 2017-18 bears to the CII in which the asset was held by the tax payer or for the financial year 2001-02, whichever is later.

On a literal interpretation of the wordings in section 55(2)(ac) of the Act, one may find it difficult to contend that the equity shares in B Ltd have been acquired prior to February 1, 2018. Hence, technically, the grandfathering benefits may not be available in case of the equity shares in B Ltd.

Given the above, one could argue that the FMV of the equity shares in A Ltd as on January 31, 2018 should be adopted for determining the proportionate FMV of the shares in A Ltd and B Ltd. However, adopting the grandfathering benefits for shares in B Ltd is not free from litigation.

The writer is Partner, Deloitte India

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Tax Query: TDS on capital gains for NRI investing in MFs with power of attorney

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My son Prabaharan is an NRI. I am investing in mutual funds for him basis a power of attorney. The payment is made from the joint savings account of Prabaharan and myself (Indian resident account). In the circumstances stated above, is it necessary to deduct TDS from the capital gains?

K. Ramachandran

As per the provisions of section 196A of the Income-tax Act, 1961 (‘Act’), every person responsible for paying to Non-Resident any income in respect of prescribed mutual funds, shall deduct taxes at source (‘TDS’) at 20 per cent on such income, at the time of credit or payment whichever is earlier. I understand that your son is the legal owner of the mutual funds and qualifies to be a non-resident in India and is receiving income in the nature of Capital Gains on transfer of mutual funds. As per the above-mentioned provisions, TDS would be deducted by the payer at 20 per cent of such Capital Gains at the time of credit or payment, whichever is earlier. Please note that for your query, I have not analysed and commented on any exchange control regulations / legal aspect.

My father (aged 61 years) retired in March 2020 and invested ₹15 lakh in senior citizen savings scheme in post office in May 2020. Is the amount invested eligible for 80C for all the five years, or it is only for the first year? Is the amount enough to fulfil the entire ₹1.5 lakh limit under 80C for all the 5 years?

Gokulanathan K

As per the provisions of Section 80C of the Income-tax Act, 1961 (‘Act’), the deduction is available in respect of any sum paid or deposited (as specified in the said section) during the concerned Financial Year (‘FY’), subject to a maximum eligible deduction of ₹150,000. Accordingly, for the amount contributed in May 2020, the deduction available to be claimed in your father’s hands would be for FY 2020-21, which shall be restricted to ₹150,000 (i.e. only for the year in which the amount is deposited in an account under Senior Citizen Saving Scheme). The amount invested during FY 2020-21 would not be eligible for deductions in future years.

The writer is a practising chartered accountant

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