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

REAPING GAINS FROM LOSSES!

Even in the gloom and doom of the capital market, you can make a boom by planning some tax saving strategies!

      As a logical corollary to Section 10(38) of the Income-tax Act exempting long term capital gains (LTCG) arising from transfer of securities upon implementation of STT, long term capital losses (LTCL) arising from such security transactions are required to be ignored.  Short term capital losses (STCL) are however, eligible for set-off against STCG and the net STCG amount is taxed at the flat rate of 15.45%.

SET OFF & CARRY FORWARD OF LOSSES

      Let us take a quick overview of the provisions relating to set off and carry forward of capital losses under the provisions of Sections 70, 71 and 74 of the Income-tax Act:

  • LTCL can be set off only against LTCG of the year and not against any other income.

  • STCL can be set off against STCG or even LTCG of the year, but not against any other income.

  • LTCL or STCL, which cannot be fully set off during the year, can be carried forward for set off against gain of any subsequent year in the aforesaid manner, for a maximum of upto 8 years.

      Taxpayers are aware of the fact that LTCL arising from any ‘off-market transaction’ is not eligible for exemption u/s. 10(38), since no STT is payable in respect of the same.  On the same analogy, if the LTCL arises to the taxpayer from any ‘off-market transaction’ (where no STT has been paid), such loss cannot be ignored and the same would be entitled to be set off against any other taxable LTCL of the year.

      Keeping in view the above provisions, let us consider some smart strategies that can be designed by a taxpayer for maximizing his tax savings: (more…)

HNI PROPERTIES UNDER I.T. SCAN

  • Income earners beyond Rs.25 lakhs required to declare their assets & liabilities in income-tax returns from 2013

    The Income-tax Department seems to have set its eyes on the properties of high net worth individuals (HNIs). And the start has been made by seeking information in regard to their assets and liabilities, which will be required to be declared in their Income-tax returns (ITRs) due to be filed by end July or September, 2013. 

This move comes in close sequel of the requirement to declare all foreign assets, which was made mandatory in the ITRs since last year 2012. This obligation has been cast on all individual and HUF taxpayers, either proprietors or partners, earning income from business and profession and declaring total income exceeding Rs.25 lakhs.

SALARIED & INVESTORS SPARED

Salaried and investment income earners (not earning any income from business or profession) are the lucky taxpayers, who have been spared from this exercise for now. However, it can be reasonably expected that they too may be covered in a year or two and the current Rs.25 lakhs income-limit for this mandatory declaration may also be brought down so as to rope in more number of taxpayers under the I.T. scanner. (more…)

PLANNING FOR RENTAL INCOME!

30% standard deduction & unlimited deduction for interest on loan are attractive tax incentives for earning rent!

    The income from house property for purposes of income tax is based on the ‘annual value’ of the property. The Annual Value (AV) of a let-out property 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…)

TAX INCENTIVES FOR HOUSING

Liberal deductions for interest on housing loan & repayment of loan installments are provided under the Income-tax Act!

If a taxpayer has taken a housing loan either for purchase, construction, repair, renewal or reconstruction of his house property, interest on the borrowed capital is allowable as deduction. Whereas there is no limit as regards the amount of interest allowable for deduction in respect of a property which is let out on rent, in case of a self occupied house property, the amount of interest allowed as a deduction is Rs.30,000.

With a view to give a boost to the house building activity, it was provided that where a property is acquired or constructed with capital borrowed on or after 1st April, 1999, the limit for deduction of interest of Rs.30,000 shall stand enhanced to Rs.1,50,000.

Following important points need to be borne in mind in this connection:

  • As the deduction is available on ‘accrual basis’ it can be claimed annually, even if the interest is not actually paid during the year.

  • As per the CBDT’s Instruction No.28 dated 20th August, 1969, interest paid on a fresh loan, taken to repay the original housing loan, is also allowable as deduction.

  • As per the CBDT’s Instruction No.363 dated 24th June, 1983, it has been clarified that in the case of Central Government employees, interest on house building advance taken under the Housing Building Advance Rules would be deductible on the basis of accrual of interest which would start running from the date of withdrawal of advance, although the actual liability of payment of the same would be in the future years. 

  • Interest payable by a taxpayer in respect of funds borrowed for the acquisition or construction of a house property and pertaining to the period prior to the financial year in which the said property has been acquired or constructed, is also eligible for deduction in five equal annual installments, commencing from the financial year in which the house is acquired or constructed. (more…)

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