Tag: tax

You don’t need to declare purchase of property

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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How work from home can impact your tax outgo

Personal Finance

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The Covid-19 pandemic has triggered radical changes for all, especially for the employee workforce.

The combination of the pandemic fallout and the advances made in technology has led to a sharp rise in work-from-home arrangements for employees, employees working from residences near their office locations or from their home town, making work-from-home now the new normal.

With the new working arrangements come new processes, challenges and situations. Unfortunately, existing tax reliefs/exemptions are not inclusive enough to cover the new normal unless there are specific amendments or clarifications. Further, the current salary structures are also aligned to existing tax provisions to optimise tax breaks for employees. Thus, with the new normal having not been envisaged, there is the possibility of increased tax outflow for employees.

As per current tax laws, salary and allowances from the employer are taxable unless specifically exempted.

Certain allowances/reimbursements such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA) are exempt from tax as per specified limits, subject to actual expenditure under the old tax regime.

With the new normal, employees are required to work from home, and it is difficult to go on vacations and there is also limited travel for commuting to work. Thus, it is not possible for them to expend money for the designated purposes, making it imperative to understand tax implications in such situations.

Impact on exemptions

In cases where employees pay rent and if specified conditions are met, HRA exemption can be claimed as per defined limits under the old tax regime. The HRA exemption is based on various limits — defined as a percentage of salary, HRA received, the actual rent paid and location of accommodation.

One of the defined limits is based on the place of the rented accommodation; for metro cities, the specified limit is 50 per cent of the basic salary and for other cities, it is 40 per cent.

Considering the new normal, to save on unnecessary expenses, employees have vacated their rented houses and moved to their home town or to another house with lower rent. Thus, if employees are no longer paying rent, HRA received will be fully taxable. Further, if employees are paying lower rent and/or there is a change in place of accommodation from metro to non-metro, the quantum of exemption available will substantially decrease.

Further, LTA shall be exempt to the extent of actual expenses incurred in respect of two journeys performed within India in a block of four calendar years under the old tax regime.

The current block runs from 2018-2021. If an employee does not use their exemption during any block, their exemption can be carried over to the next block and used in the calendar year immediately following that block.

However, as employees and their families are not able to travel due to the pandemic, any travel plans in the future looks limited.

Hence, some employees may need to claim LTA as a taxable allowance.

Some employers have extended additional support to make work-from-home arrangements conducive. Some of the common supports extended are furniture (table, ergonomic chairs), increased utility (electricity, internet), etc. However, in the absence of specific provisions, the tax implications of such extended support will also have to be evaluated basis the exact arrangement.

True-up

It is a normal practice for employers to deduct tax on salary every month based on estimates of rent and other investment details submitted by the employee at the start of the year (ie, in April 2020 for the current financial year).

Subsequently, towards the year end, the employer verifies the declarations made by the employee as supported by actual declarations and considers a true-up for excess/ short tax withholdings.

Therefore, it is important for employees to update the employer on any change in declaration given at the start of the year (such as changes in rent paid, city of accommodation, etc) so that necessary true-up adjustments in tax withholdings can be factored in the remaining months.

Else, there could be substantial cash flow challenges for employees.

The writer is Partner, Deloitte India. With inputs from Jimish Vakharia, Senior Manager, and Reena Poddar, Manager, Deloitte Haskins & Sells

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