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Interest-free loans to family members from your own funds can go a long way to lawfully reduce your tax burden!

            “A Rupee saved is a Rupee earned,” says the well-known dictum. In the context of the current Indian Income-tax Law, one could modify this saying to read as “a Rupee saved from tax, equals one and a half Rupees earned.” Every Monday since August, 2010, ‘AM Tax Clues’ has endeavored to show its readers how to save their Rupee from tax, lawfully of course. And after 173 write-ups during the 40 months until date, as your columnist signs off and concludes this column today with a great sense of joy and fulfillment, a big thank you to dear readers, who have not only read, admired and appreciated this column, but also shared their critical feedback and meaningful response from time to time!

             In a fitting tribute to the inborn Amdavadi instinct of lawfully saving tax, discussed hereunder are replies to two very interesting reader’s queries: (more…)


Managing your money requires more skill than making it! Four investment jingles you must learn for happy investing!

   Investment planning is both an art and a science. It is a science, since it is based on sound information, tested principles and logical statistics. However, it is also an art, since it involves intelligent analysis, judicious decision-making and a sixth sense of visualization. The key to successful investment planning lies in making the right choice of investments which best suit your requirements.

   What are the important considerations which you as an investor must keep in mind while planning your investment portfolio? Security, yield and liquidity are the three guiding stars which should influence any investor in making his decision. (more…)


Else, it will drive them cynical in believing that paying taxes honestly is not worthwhile, says Allahabad High Court!

“Speedy and affordable justice is the requirement of the day. But it cannot be achieved until the executive, including taxman, discharge their duties faithfully and honestly within the four corners of law.” – Allahabad HC in Vijay Agrawal vs. CIT (2013)

            In a recent landmark judgment, the Allahabad High Court has championed a worthy cause for the taxpayers by holding that, “An honest taxpayer should not be subjected to unnecessary harassment and an action not warranted in law, which can be of very serious consequence to the taxpayer. If this is allowed to remain without correction, such harassment and browbeating of an honest taxpayer will otherwise drive even such honest tax-payers to become cynical and lead to a situation where taxpayers will get a feeling that paying taxes honestly is not a worthwhile exercise and that tax authorities are a menace to the society, rather than being representatives of the State for enforcing the tax provisions.”

             In the facts of the case of Vijay Agrawal vs. Commissioner of Income-tax which recently came up before the Allahabad High Court, a search had been conducted at the premises of a taxpayer during which cash of Rs. 25 lakhs was seized. The taxpayer succeeded in the block assessments and the said amount of Rs. 25 lakhs thus became refundable to him. However, the said amount was not refunded to him on the ground that there were demands outstanding against a third party who was also named in the search warrant. The taxpayer claimed that he had no relation with the said third party and the fact that there were demands outstanding in that case did not mean that his refund could be blocked. No order was passed on the taxpayer’s application for refund inspite of repeated reminders, which finally provoked the taxpayer to approach the High Court for remedy through a writ petition. (more…)


Liberal deductions provided under the I.T. Act in respect of expenditure for medical treatment & maintenance!

 The Income-tax Act provides for special deductions in computing the taxable income of a taxpayer who is disabled or who is required to incur expenditure for the medical treatment, training or rehabilitation of a disabled dependent or any amount deposited for the maintenance of such disabled dependent.

Similarly deduction is also allowed to a taxpayer who is required to incur any expenditure for the medical treatment of specified diseases or ailments, either for himself or a dependent relative.


            Under the provisions of Section 80U of the Income-tax Act a resident individual suffering from a permanent physical disability (including blindness) or mental retardation, is allowed a deduction of Rs.50,000 in the computation of his taxable income. (more…)


Special concessions are offered in case of one house property occupied by the taxpayer for his own residence!

Under the Income-tax Act, ‘income from house property’ is a separate head of income, under which the ‘annual value’ of a property, consisting of any building or land appurtenant thereto, of which the taxpayer is ‘the owner’ is chargeable to tax. If, however, a house property is occupied by the taxpayer for the purposes of his business or profession carried on by him value of such property is not chargeable to income tax.

The income from house property for purposes of income tax is based on the ‘annual value’ of the property. The concept of annual value is in effect not a real but a notional concept, since it is defined as ‘the sum for which the property might reasonably be expected to let from year to year.’ For purposes of computation of income under this head, house properties have been classified into the following two categories:

  •  Self-occupied Property (SOP);
  •  Let-out Property (LOP). (more…)


Clubbing provisions can be lawfully avoided if income of minor is strategically deferred beyond his minority!

Section 64(1A) of the Income-tax Act provides that “in computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child.”

Two exceptions have been provided in regard to the above provisions in relation to the clubbing of income of a minor child with that of the parent, whose total income is greater. Accordingly, the following income earned by a minor shall be assessed in his own hands and not included with that of his parent:

  •  Income derived from manual work done by him.
  •  Income derived from any activity involving application of his skill, talent or specialized knowledge and experience (e.g. income of child artistes).

Moreover, in the above regard, Section 10(32) provides that where the income of an individual includes the income of his minor child under the provisions of Section 64, the individual shall be entitled to exemption of Rs.1,500 in respect of each minor child or the income of such minor includible under Section 64, whichever is lower. (more…)


When ITAT held Tendulkar’s income from modeling & TV commercials, as that of an artist, exempt from Income-tax!

“VISA Power… Go get it!”… Millions who have seen Sachin on TV commercials will never forget these lines of the master blaster, which rolled on screen for almost six long years. But perhaps very few know the interesting tax tale behind it.

During Assessment Years 2001-02 to 2004-05 Tendulkar received an amount of Rs.20 crores as gross receipts from sports sponsorship and advertisements, which included an amount of Rs.6 crores received in convertible foreign exchange from VISA, ESPN Star Sports and Pepsico. Sachin claimed deduction under Section 80RR of the Income-tax Act in respect of the amount received in foreign exchange, on the ground that the said income had been received by him from the exercise of his profession as an ‘actor.’

The Assessing Officer rejected the claim of deduction under section 80RR on the ground that the taxpayer was a professional cricketer and the income from modeling and advertising was not derived by him from the exercise of his profession. According to the Assessing Officer, by endorsing any products in advertisements, the taxpayer did not become a person whose profession was acting. On appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer on the ground that by profession the taxpayer was neither an ‘actor nor an artist.’ The activity of appearing in advertisement or commercial, etc. could not be equated with that of an actor or artist and this activity was subsidiary activity of the taxpayer and was also not directly related to his profession of playing cricket. Therefore, any subsidiary activity, which was not directly related to the specific profession, could not be considered for deduction under Section 80RR. (more…)


Gujarat High Court holds capital gains on gifted or inherited assets also enjoy indexation from date of original holding!

Section 49(1) of the Income-tax Act provides that where the capital asset has been acquired by the taxpayer in any of the modes such as on partition of a Hindu Undivided Family or under gift or Will or by succession or inheritance, etc., the cost to the previous owner shall be deemed to be cost of acquisition of the taxpayer.

Similarly, Section 2(42A) provides that where a capital asset is acquired by way of gift or inheritance as mentioned in Section 49(1), period of holding of the previous owner shall also be included in the period of holding of the taxpayer.

In the above context, an interesting question that would arise for consideration is whether while computing the taxable capital gains arising on transfer of a capital asset acquired by a taxpayer under gift or inheritance, the ‘indexed cost of acquisition,’ as per the provisions of Section 48, has to be computed with reference to the year in which the previous owner first held the asset or the year in which the taxpayer became the owner of the asset.

Consider a case where your grandfather had acquired a plot of land for Rs.20 lakhs in late 1981, which you received by way of inheritance on his death in 2013 and you were planning to sell the same in early 2014 for a consideration of Rs.1.80 crore. Guess, what would be the income-tax you would be required to pay on your capital gains? Difficult to believe, but ‘zero tax’ is the correct answer. (more…)


Just light up bright lamps of tax saving for your family this Diwali, by understanding these simple basics!

In the words of the celebrated legal luminary and former Judge of the Supreme Court of India, Mr. Justice V.R. Krishna Iyer, “The citizen must pay his taxes but is entitled to plan his affairs to keep as much of his earnings as the policy of the law permits. This is neither avoidance nor evasion but prudence. Informed intelligence and honest fore-thought are virtues of a taxpayer.”


In a tax system that taxes income and wealth at a flat rate, without providing for any exemptions, deductions or reliefs, ‘tax planning’ would be an alien term. The study of tax planning assumes significance in a tax system like ours which has graded rates of tax and which provides the taxpayer opportunity to avail of incentives in the nature of exemptions, deductions and reliefs.

The Indian taxpayer is indeed fortunate to be in an enviable tax system around the turn of the millennium. It is difficult to believe that some 35 years ago, he was required to live with a system of direct taxes, where the maximum rate of Income-tax was 97.5%, Wealth-tax 5%, Estate Duty 85% and Gift-tax 75%. That was the time, when the eminent Jurist Shri Nani Palkhiwala used to describe India as the ‘highest taxed nation in the world.’ (more…)


With a net annual investment of just Rs.69,100 for 18 years, build tax free capital of Rs.43.59 lakhs for your child!

Every parent would naturally be concerned about building capital for his or her children, which would go to ensure meeting their financial requirements for higher education, marriage, settlement in life, etc. One of the major stumbling blocks in doing so are the clubbing provisions under Section 64(1A) of the Income-tax Act, which provide that any income arising to a minor child is required to be clubbed with the income of either the father or the mother, whosever’s total income is greater. Imaginative planning through investment in PPF can be resorted to achieve the objective of building up ‘tax free capital’ for children and in particular minors, successfully overcoming the hurdles of the clubbing provisions.


Investment in PPF can be usefully resorted to achieve the twin objectives of building up tax free capital as also securing valuable tax saving through deduction under Section 80C. Section 10(11) of the Income-tax Act provides that the interest @ 8.70% per annum earned on the balance in the PPF Account is totally exempt from Income-tax. Moreover, section 80C of the Income-tax Act provides that any contribution made by an individual even in the account of his children (either minor or major) also qualifies for deduction out of gross total income. As per the current provisions of the PPF Scheme, the maximum contribution that can be made in the PPF account during the financial year is Rs.1,00,000.   (more…)

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