Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

PERSONAL EFFECTS TAX EXEMPT!

Wearing apparel, furniture, utensils, vehicles, etc. held for personal use not liable to capital gains tax!

Readers will recall that the Cost Inflation Index (CII) for purposes of computing the Indexed Cost of Acquisition for computation of Long Term Capital Gains for FY 2011-12 was 785. As against the same the Central Government has recently notified the CII for FY 2012-13 at 852. This reflects an 8.5% rise in inflation over the preceding year.

As per Section 2(14) of the Income-tax Act ‘personal effects,’ excluding jewellery, are not treated as capital assets and hence any gain arising on their transfer cannot be made liable to capital gains tax. ‘Personal effects’ would include movable property such as wearing apparel, furniture, household articles, utensils, vehicles, etc. held for personal use. Jewellery which has been excluded from ‘personal effects’ would include ornaments made of gold, silver, platinum or any other precious metal, precious or semi-precious stones and any articles set in any such stones.

A motor car or any other conveyance held for the personal use of a taxpayer is also a personal effect and any profit or gain arising from the same cannot be charged to tax as capital gains. In this regard, one can rely on the decision of the Bombay High Court in the case of ‘CIT vs. Sitadevi N. Poddar’ 148 ITR 506(Bom.). (more…)

TAX CONCESSIONS FOR RENTAL INCOME

Standard deduction & interest on borrowed capital help effectively scale down your tax rate on rent

Under the provisions of the Income-tax Act, the annual value (AV) of a house property let-out on rent is determined on the basis of the following:

  • The fair rental value of the property, not exceeding the standard rent determined or determinable under the relevant Rent Control Act.

  • Actual rent received or receivable, if such amount is higher than the fair rental value.

  • Where the property has remained vacant for whole or part of the year and owing to such vacancy, the rent received or receivable is less than the fair rental value, such lesser amount.

From the gross annual value as computed above, municipal taxes (including service taxes such as education cess, water taxes, etc.) levied by any local authority in respect of the house property are required to be deducted if these are borne by the owner. The amount left after deduction of municipal taxes is known as the net annual value. From the net annual value as determined above, the relevant deductions as available under Section 24 (discussed hereinafter) are to be deducted. (more…)

CHECK YOUR WEALTH TAX LIABILITY

With current prices of gold, silver & motor cars its worth taking a look if you are liable to wealth tax

There was a time when everything was taxable under Wealth-tax, excepting specific exemptions provided for the purpose. Under the current provisions, only six kinds of assets are treated as taxable, thereby exempting all other assets from the scope of Wealth-tax.

With effect from Assessment Year 1993-94, the basic exemption limit for Wealth-tax applicable for Individuals, Hindu Undivided Families and Companies was steeply raised from Rs.2,50,000 to Rs.15,00,000 and the rate of tax was fixed at a flat rate of 1% as compared to the earlier graded tax system.

It took the Finance Minister nearly 17 years to review the basic exemption limit. With effect from the valuation date 31st March 2010, relevant to Assessment Year 2010-11, the said exemption limit was revised from Rs.15,00,000 to Rs.30,00,000.

What is significant to note, is that prior to Assessment Year 1993-94, everything was taxable under Wealth-tax, excepting specific exemptions provided for the purpose.  However, under the current provisions, only six kinds of assets are treated as taxable, thereby exempting all other assets from the scope of Wealth-tax. (more…)

NAME GAME ON CAR DEPRECIATION!

Firm or company can claim depreciation on car purchased out of its funds, though in the name of its partner or director!

                    “What’s in a name? That which we call a rose by any other name would smell as sweet.”  This Shakespearean quote seems to have inspired as many five High Courts to hold that the Income-tax Department cannot refuse the claim for depreciation on a vehicle owned by a company or a firm, on the mere ground that it is not registered in its name, but stands in the name of its director or partner. Interestingly, there is no decision of any court or tribunal that has taken a contrary view on the subject.

             Section 32 of the Income-tax Act entitles a taxpayer to claim depreciation at prescribed rates for assets owned and used by the taxpayer for purposes of his business or profession. In case of a vehicle such as a motor car, it is common to come across cases where the car is registered under the Motor Vehicles Act in the name of a partner or a director (since it is a lot more economical to do so in terms of RTO taxes and registration charges), though the same has actually been purchased by a firm or company out of its own funds, or if acquired through borrowed funds the loan is repaid along with interest by the firm or company.

(more…)

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