tax returns – IFSCCodeof.in

Know the difference between exemption and deduction

August 28, 2021 root Personal Finance

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A coffee time conversation between two colleagues leads to an interesting explainer on tax jargon.

Tina: Problems with the new IT website seem to be never ending. Have you filed your tax returns?

Vina: No Tina. I seem to have missed the receipt for my insurance premium payment. That could help me with some exemption in income.

Tina: Er.. exemption? You mean deduction?

Vina: Yeah potato, po-tah-toh! Aren’t they the same thing said differently?

Tina: No. Even though both the terms do ultimately mean a lower tax outgo for you, they are different.

Vina: Why? What is the difference?

Tina: Exemptions deal with incomes or rather sources of incomes that are not required to be considered while calculating your taxable income. These excluded incomes may be exempt either entirely or partially depending upon the provisions in the Income Tax Act.

For instance, agricultural income and sums received under a life insurance policy (subject to some conditions) are examples of incomes that are completely exempt from income tax. On the other hand, exemption of long-term capital gains on listed equity shares for an amount of up to ₹1 lakh a year is an example of partially exempt income. Section 10 of the Income Tax Act specifies many other exempt incomes.

Vina: What are deductions then?

Tina: Deductions, as the name suggests, are amounts that are allowed to be deducted or reduced from your gross taxable income. Well-known examples of these are the deductions laid out in Chapter VI A of the Income Tax Act. These deductions generally aim to promote the habit of saving and investment in people. Take for instance, deductions under Section 80 C of up to ₹1.5 lakh a year. One can claim them on making investments in various instruments such as Equity Linked Savings Schemes (ELSS), Public Provident Fund and NPS, or through expenses such as repayment of home loan principal. Also, deduction is allowed for health insurance premium payment under Section 80D.

There are certain other deductions too. Take, for instance, the 30 per cent deduction on income from house property, or the standard deduction of ₹50,000 a year from your salary income. Donations to certain specified funds, interest on home and education loans etc. can also be claimed as deductions from your taxable income.

Vina: Okay, I get it now. So, the difference between exemptions and deductions is that the Income tax Act exempts certain incomes- either entirely or partially – from the calculation of total income to be considered for taxation. Hence, one need not include them in the gross taxable income. On the other hand, deductions must be claimed against (or deducted from) your total taxable income.

Tina: Yes. That’s simply put!

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Tax query: What’s the taxability of interest on FD credited by a co-operative bank?

January 10, 2021 root Personal Finance

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This is with reference to the reply given ( published on November 16, 2020) to a query raised by H S Murlidhar. The query was regarding taxability of interest on FD credited by a co-operative bank, which is not allowed to be withdrawn due to restrictions imposed by the RBI, following an alleged fraud at the bank. Under Income-Tax Act, an individual is allowed to follow cash or mercantile method to account for his income. Hence, I think, , he may account for the FD interest as and when he is permitted to withdraw the same, from his account. Accordingly, he can postpone accounting of FD interest credited to his account till he is allowed to withdraw, and pay tax during the year of withdrawal instead of in the year of credit to his account. Otherwise, he is compelled to pay tax without actual receipt of interest. Kindly advise if it is right to do so.

Uday Kajaria

As per Section 145(1) of the Act, income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

In mercantile system of accounting, revenue is recorded when it is accrued or due and in cash system of accounting, revenue is recorded when there is actual inflow of cash. Cash implies cash in hand and cash at bank.

In the earlier edition, the facts are that interest and principal amount are credited to the individual’s savings bank a/c. Accordingly, credit of FD interest in bank account implies that the account has earned the interest and there is an inflow of cash in the bank account and therefore taxable under the Act.

If the bank withholds the taxes at the time of crediting the interest income in your bank account, said income is required to be offered to tax and corresponding TDS is allowed to be claimed while filing the tax return in India.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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Tax query: How capital gains tax is shown in Form 26AS

December 12, 2020 root Personal Finance

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Some time back, I read the government would facilitate capturing capital gain tax details from mutual funds (both short and long term) in 26AS. However, I am not able to find this in my 26 AS. Can you clarify, please?

T. Mani

Effective 1 June 2020, as per Rule 114-I of the Income Tax Rules 1962, the new form 26AS (Annual Information Statement) shall provide detailed information related to assessee’s specified financial transactions entered in the financial year (FY).

Such Annual Information Statement shall contain comprehensive information relating to:

· Taxes deducted or collected at source (TDS/TCS),

· Specified financial transactions (purchase of shares, immoveable property, purchase/sale of goods, property and services, purchase of shares/bonds/debentures/units of mutual funds, etc. subject to specified threshold limits),

· Payment of taxes,

· Pending/completed proceedings etc.

In view of the above, in case any taxes are deducted at source from the capital gains transactions, or purchase of mutual funds are more than the specified limit (aggregate of INR 10 lakhs in a FY) it shall reflect in the new Form 26 AS once it is updated in the tax portal.

I purchased a plot in the year 1984 for a sum of ₹2,100. Now, I want to sell the same which may fetch a sum of ₹30 lakh . Please advise on capital gains tax liability.

Kandasamy Paramasivan

As per Income-Tax Act,1961 (the Act), gain arising from the sale of a capital asset is taxable under the head “capital gains”. Further, the gains will have to be sub-classified into long term or short term depending on the period of holding of the asset. This, in turn, would also determine the rate of taxation of the gain, deductions that can be claimed and associated conditions.

As the plot purchased by you was held for more than two years, it qualifies to be a long- term capital asset (LTCA). The resultant gains on sale of LTCA will qualify as long-term capital gains (LTCG) and taxable at the rate of 20 per cent as per section 112 of the Act, with applicable surcharge and cess.

Section 48 of the Act provides for mode of computation of capital gains. Any expenditure incurred wholly and exclusively in connection with the transfer of an asset or acquiring the asset and for making any improvement to the asset shall be deducted to arrive at the taxable capital gains. The cost of acquisition of the plot of land shall be higher of the actual cost of such asset to you (i.e., ₹2,100) or fair market value as on April 1, 2001 and such cost of acquisition can be increased with reference to the cost indexation index (CII) corresponding to the year of sale and as on April 1, 2001. Further, with effect from April 1, 2020, such fair market value should not exceed the stamp duty value of the immovable property as on April 1, 2001.

Under specified sections viz. section 54EC, section 54, etc., deduction/exemption under the Act could be claimed by way of either investing LTCG in the prescribed bonds or investing LTCG/net consideration in buying a residential property in India, subject to conditions and as per the specified timeline prescribed under the Act.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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You don’t need to declare purchase of property

November 22, 2020 root Personal Finance

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I bought a flat (first-time home-buyer) in August 2019 for ₹58 lakh. I have taken a home loan of ₹40 lakh, with my wife as co-applicant. I paid the remaining ₹18 lakh, registration, TDS and other charges by liquidating some FDs and using the amount that I got from family members. Neither I occupy the flat nor have I rented it out. My wife and I have already utilised the ₹1.5 lakh (deduction) under Section 80C. I have claimed HRA, with my rent as ₹ 17,500 per month for financial year 2019-2020.

1. Under which section can I claim rebate? Is it Section 80EEA?

2. Do I need to declare that I bought a flat along with my wife? If yes, under what section? Do both of us need to disclose it individually?

3. Do I need to declare the money I got from my /my wife’s FD and from family members? If yes, under what section?

4. My wife has already filed ITR-1, without any of the above declarations on the online portal. How do I rectify it ? Which items do I consider for rectifying her filing of returns?

-Shashi

I understand that you purchased the property in August 2019 along with your wife as co-owner of the propertyThe property was not rented out during the year, ie, FY 2019-20 and you do not own any other property in your name or in joint name. In light of the above, please find my responses to your queries:

1. We have provided below a list of few illustrative deduction / exemptions (limited to the facts in your queries) that may be claimed by you and your wife:

U/s 80C of the Income Tax Act: The repayment of principal component and stamp duty paid on registration can be claimed as deduction up to a maximum of ₹1.5 lakh

U/s 80EEA of the I-T Act: Interest payment on the housing loan can be claimed as deduction up to a maximum of ₹1.5 lakh upon fulfilling the following conditions:

i. The loan has been sanctioned during the period April 1, 2019, to March 31, 2020

ii. The stamp duty value of the property does not exceed ₹ 45 lakh

iii. The taxpayer does not own any residential house property on the date of sanction of the loan

iv. The taxpayer doesn’t claim any other exemption/ deduction in respect of such interest payment in any other section (including Section 24(b) as mentioned below)

U/s 24(b) of the I-T Act: Deduction of interest payment on housing loan can be claimed as deduction from house property income. In case the property is not rented out and is self-occupied, such deduction can be still claimed. In such cases, the deduction would result in loss and such loss can be set off against income of the taxpayer from any other sources, except capital gains (Loss under house property to be restricted to a maximum of ₹ 2 lakh). In such a case, deduction u/s 80EEA shall not be available).

2. Purchase of property is not required to be declared at the time of filing of tax return. However, in case you claim deduction u/s 24(b) of the I-T Act, reporting would be required in Schedule ‘HP’ of the ITR form. However, if your total income exceeds ₹50 lakh, the property would be required to be reported as an asset in Schedule ‘AL’ of ITR form.

3. There is no specific requirement to report liquidation of fixed deposits (though interest incomes are to be taxed). Loan obtained from relatives are to be reported as Liabilities Corresponding to Asset in case you have a reporting requirement in Schedule ‘AL’ of the ITR form.

4. Your wife may file a revised return u/s 139(5) of the I-T Act for AY 2020-21, the due date for which is March 31, 2021. Aforesaid items can be considered in the revised return of income.

The writer is a practising chartered accountant

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Your Taxes – The Hindu BusinessLine

November 8, 2020 root Personal Finance

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I am a regular reader of BusinessLine. I would like to know: I) If a son-in-law gives a two-bedroom flat to his mother-in-law as gift, is there any tax liability on the part of the recipient; if so, how much? II) Can the gift be given to a brother-in-law, if he is an Indian with a US citizenship?

Raja

As per the provisions of Section 56 of the Income Tax Act, if any person receives any immovable property without consideration (having stamp duty value of more than ₹50,000), the stamp duty value of such property is taxable in the hands of recipient. However, if such property is received from a relative (as defined under Section 56 of the I-T Act), the same shall not be taxable in the hands of the recipient.

Mother-in-law qualifies to be ‘relative’, as defined under Section 56. Accordingly, a gift to the mother-in-law will not be taxable in her hands.

Further, as per the provisions of the Foreign Exchange Management Act, 1999 (FEMA), a Person of Indian Origin (PIO) may acquire any immovable property (other than agricultural land/plantation property/farm house) in India by way of gift from a person resident in India or a NRI or a PIO (as defined under FEMA). Brother-in-law also falls under definition of relative under the I-T Act and such receipt of immovable property shall not be taxable in his hands.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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Your Taxes – The Hindu BusinessLine

November 1, 2020 root Personal Finance

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I am a housewife with income of ₹3.5 lakh from FD interest and long-term capital gains of ₹70,000 from debt mutual fund. Please help me calculate tax liability for the above income.

P Sujata

As per Section 112 of the Income Tax Act, income arising from the transfer of a long-term capital asset shall be chargeable to tax at the rate of 20 per cent (with indexation).

As per Section 87A, if the total income of a resident individual does not exceed ₹5 lakh, a rebate shall be allowed from the total taxes payable of an amount equal to the total tax payable, or ₹12,500, whichever is less. We assumed that you are a senior citizen (age between 60 to 79 years). The following table depicts the tax rate and total tax liability for FY 2019-20:

I purchased UTI ULIP (1971) in 2012 (for 10 years). Now I want to surrender the plan. What would be the income tax liability?

Dilip Kumar Bagaria

ULIPs are products that provide you a combination of a life insurance policy and an investment opportunity though a mutual fund (both debt and equity) in a single plan.

Any sum received under an insurance policy (policy issued on or after April 1, 2012) in respect of which the premium payable for any of the years during the term of the policy does not exceed 10 per cent of the actual capital sum assured could be claimed exempt u/s 10(10D) the I-T Act.

Thus, if the premium paid on the ULIP policy is less than 10 per cent of the sum assured, the amount received on maturity/surrender of ULIP could be exempt u/s 10(10D) of the I-T Act.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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Your Taxes – The Hindu BusinessLine

October 23, 2020 root Personal Finance

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I am a senior citizen. I borrowed ₹5 lakh in January 2005 from my brother. Subsequently, in June 2005, I conveyed my residential property to my brother through a sale deed, accepting the borrowed money as consideration. I have been occupying the property as a tenant ever since. Now, my son, who is an NRI, proposes to get the property back in September 2020 from my brother through a sale deed, paying ₹19 lakh as consideration. The government-approved fair value is ₹17.6 lakh. My brother is also a senior citizen now and has no income other than interest income of ₹87,000 and rental income of ₹5,000 per month. Your earnest advice is requested on the tax liability for my brother from the transaction. Please also advise how I-T for AY21-22 will have to be computed, taking interest income, and also which ITR form has to be used.

G Joseph

I understand that for FY2020-21 (AY2021-22) your brother (who is a senior citizen) will have the following income in his hand: (1) Interest income of ₹87,000, (2) Rental income of ₹30,000 (₹5,000 per month from April 2020 to September 2020), (3) Long-term capital gains (/loss) on sale of immovable property as per below calculation.

As the property was acquired by your brother in FY2005-06, the same qualifies to be a long-term capital asset. I also understand that your brother is expected to qualify to be a Resident and Ordinarily Resident in India for FY2020-21.

*After considering the benefit of progressive slabs (your brother being a senior citizen) and the maximum amount not chargeable to tax being ₹300,000, LTCG (after adjusting the available slab rate benefit) is taxed at the special rate of 20 per cent.

Notes:

a) It has been assumed that the interest income is bank/post office interest.

b) It has been assumed that no other exemption under Section 54/54EC of the Income Tax Act has been claimed.

As per the forms applicable for AY2020-21, for the aforesaid incomes, you are required to file ITR-2.

However, the same shall be subject to AY2021-22 forms (which are released by tax authorities on a year-on-year basis).

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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Your Taxes – The Hindu BusinessLine

October 18, 2020 root Personal Finance

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Could you please clarify whether intra-day share trade turnover could be computed using presumptive taxation under Section 44 AD? Instructions in ITR- 4 give an interpretation that speculative business income cannot be computed under Section 44AD.

Barathidason R

Intra-day share trade can be computed under Section 44AD (presumptive taxation). The instructions for ITR-4 has not yet been released by the CBDT(Central Board of Direct Taxation) for FY2019-20. Therefore, you may use ITR-3 in relation to speculative income under Section 44AD.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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Your Taxes – The Hindu BusinessLine

October 11, 2020 root Personal Finance

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I am a regular subscriber of The Hindu BusinessLine . I have query regarding ITR-2 Excel form provided by the government for AY2020-21. Although I am not a owner or a co-owner of any property, ITR-2 pops up with the message, ‘House Property Details Mandatory in Schedule HP’. And when we mention the property details owned completely by spouse or others, the form displays the field value for ‘your percentage of share in the property’ as 100 per cent. Why has it been made mandatory to mention property details in Shedule HP of ITR-2 even though the property is not co-owned or not in any of my relatives’ name ? How to deal with this? Is this a bug in ITR-2 of AY 2020-21.

Jeevan Patil

I understand that you are trying to file your tax return for Assessment Year 2020-21, ie, Financial Year (FY) 2019-20 and you do not own any house property during the subject financial year. We would like to mention that house property details have not been made mandatory for the purpose of filing of tax returns. Please use the link: tinyurl.com/itrutilities

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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Your Taxes – The Hindu BusinessLine

October 4, 2020 root Personal Finance

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I am a senior citizen and retired in 2013. In FY2019-20, for which my I-T return is yet to be submitted, I had purchased shares from my company under ESOP. I paid ₹47 as granted price per share when the market price was around ₹90. As per norms, the company recovered a TDS of around ₹1,40,000 on a perquisite value of ₹5,10,000( capital gains), i.e., around 30 per cent of the capital gains was recovered from me.

1. Since I have not received any income in my books by way of this transaction, can I claim refund of this TDS amount in my I-T return for FY2019-20? I have not sold these shares since the market price came down drastically. Since there is no likelihood of the market price improving in the near future and I have to retain these shares or sell at a loss, what is the logic in payment of I-T on the virtual perquisite value?

2. In the event of my selling the shares in FY2020-21 at a loss, can I set off this loss against my pension income or any other income? Since I will be having no capital gain in that FY, I have no other option to set off my loss. As a pensioner, I find no logic in retaining the TDS without receipt of actual income in my account.

3. Since my total income is less than ₹50 lakh, can I use ITR-1? Please advise me.

KS Harikumar

1. The Income Tax Act specifically provides for payment of salary tax at the time of allotment of stock options. The difference between the Fair Market Value (FMV) as on exercise date and the amount recovered from the employee is considered as perquisite (under the head ‘Salaries’) and taxable in the hands of the employee. As per Section 192 of the I-T Act, the employer is obliged to withhold tax on such perquisite amount at applicable tax rates.

Since stock options are taxable in the year of allotment (even though the employee has not received actual cash), you will not be able to claim the taxes withheld as a refund in your tax return.

2. Capital gains/loss will arise only when the allotted shares are ultimately sold in the market. While selling the shares allotted under ESOPs (employee stock ownership plans), the difference between the sale price and purchase cost, which is FMV as on the exercise date, shall be taxed as capital gain/loss.

As per Section 70 of the I-T Act, long-term capital loss (LTCL) can be set off only against long-term capital gains (LTCG). Any LTCL not set off in the current FY shall be eligible to be carried forward to future eight financial years and be set off against any LTCG arising in future eight FYs.

3. ITR-1 can be used only by resident individuals (other than not an ordinarily resident) having income of up to ₹50 lakh from salary/pension (or) one house property (or) other sources only.

ITR-1 cannot be used in the following circumstances (exclusions):

· If an individual is a director in any company or holds unlisted equity shares at any time during a particular FY

· If an individual has income from more than one house property

· If an individual has capital gain income

· If an individual has brought forward losses or losses to be carried forward under any head of income

· If an individual has foreign sourced income or foreign assets at any time during a particular FY

· If an individual has agricultural income more than ₹5,000.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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