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

FREEDOM FROM TDS

Filing of Forms 15G or 15H, subject to relevant conditions, can help you enjoy the benefit of no TDS!
  Although the net of tax deduction at source (TDS) has been considerably widened in the past few years, there are provisions to enable you to avail of no deduction of TDS from your income.

    Section 194A of the Income-tax Act provides for tax deduction at source (TDS) at 10% out of interest payments exceeding Rs.10,000 in a financial year.  However, with a view to grant relief to persons who are not under liability to pay any income-tax, special provisions have been made under Section 197A, which permit the benefit of no tax deduction even on interest payments exceeding Rs.10,000.   (more…)

PARK YOUR GAINS IN A HOUSE!

Courts have liberally interpreted exemption provisions via investment of capital gains in a residential house!

 Under Section 54 of the Income-tax Act, an exemption is available to a taxpayer who is an individual or a Hindu Undivided Family, in respect of the transfer of a residential house (whether self-occupied or let out) held for more than 36 months, where the capital gains arising from the transfer are invested either for the purchase of another residential house (whether old or new) within a period of one year before or two years after the date of transfer or the construction of another residential house within a period of three years after the date of transfer.

If the whole of capital gains are invested in the cost of the house so purchased or constructed, the entire capital gains will be exempt from tax. If, however, the amount of capital gains is greater than the cost of the house so purchased or constructed, the difference between the two will be chargeable to tax. Exemption under Section 54 can be availed even if the taxpayer owns more than one house on the date of transfer.

It is important to note that as per the provisions of Section 54, if the new house property is transferred within a period of three years of its purchase or construction, the amount of capital gains arising therefrom, together with the amount of capital gains exempted earlier will be chargeable to tax in the year of transfer as Short Term Capital Gains. (more…)

FLYING HIGH ON EXEMPTIONS!

Can a taxpayer avail capital gains tax exemption by investing in more than one residential house?

    Section 54 and 54F of the Income-tax Act provide for an exemption in respect of long term capital gains (LTCG), where subject to fulfillment of prescribed conditions, a taxpayer makes investment either in the purchase or construction of a residential house.

In this context, let us take the case of a taxpayer who has derived LTCG of Rs.80,00,000 on the sale of his old residential house. If he prefers to purchase two apartments costing Rs.40,00,000 each for the use of his two sons, can he claim the benefit of exemption u/s. 54?

There had been a divergence of judicial opinion on this issue for quite some time, with Income-tax Appellate Tribunals (ITATs) holding both for and against the taxpayer in the matter. A Special Bench of the ITAT at Mumbai was, therefore, constituted to resolve the conflict and its decision has come to be recently rendered in the case of ‘ITO v/s. Sushila M. Jhaveri’ 107 ITD 327. The question posed for consideration of the bench was “whether, the phrase ‘a residential house’ used in sub-section (1) of Sections 54 and 54F means one residential house or more than one residential house independently located in the same building/compound/city?” (more…)

PLANNING FOR HRA EXEMPTION!

If you are staying in a house belonging to your father, you can plan a win-win tax situation for both of you!

    AM Tax Clues today deals with some interesting readers’ queries on House Rent Allowance (HRA) exemption and 80C deduction for stamp duty on house property.

HRA EXEMPTION FOR RENT PAID

Query:  My family is living jointly with my parents in a residential bungalow owned by my father at Ahmedabad.  My company pays me, annually a basic salary and DA of Rs.8,00,000 and HRA of Rs.4,00,000, apart from other taxable perks and allowances worth Rs.3,00,000.  If I pay a fair rent of Rs.40,000 per month to my father, can I claim any benefit of HRA exemption? What would be the tax liability for my father, who is a Super Senior Citizen, aged 81 years, earning taxable income of around Rs.1,50,000?

Reply:  You would be eligible to claim exemption in respect of HRA under Section 10(13A) on the basis of the least of the following three amounts:

  • Annual rent paid (Rs.4,80,000) in excess of 10% of your basic salary and DA (Rs.8,00,000), that is Rs.4,00,000 (4,80,000 – 80,000). 

  • HRA received from your employer, that is Rs.4,00,000.  

  • 40% of your Basic Salary & DA (Rs.8,00,000), that is Rs.3,20,000.

    Thus, out of the HRA of Rs.4,00,000 received by you, Rs.3,20,000 can be claimed exempt, on which you can save Income-tax of Rs.98,880 at the rate of 30.9%, since you fall in the top tax bracket of 30.9% (more…)

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