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Multiple indexation under Fixed Maturity Plans (FMPs) offer tax free return on investment plus future tax cuts! 

Saraswat had invested Rs.40,00,000 in March, 2012 in a 13 months Fixed Maturity Plan (FMP) offered by a leading Mutual Fund. The return on investment upon maturity of this FMP in April, 2013 works out to 11% per annum and accordingly Saraswat is fortunate to earn Rs.4,40,000. The real icing on the cake is that this 11% annualized return is reaped by him totally tax free. How does this work?

Saraswat’s return on FMP investment over the holding period of more than 12 months qualifies as Long term Capital Gains (LTCG) and is entitled to enjoy the double indexation benefit. The Cost Inflation Index (CII) for FY 2011-12 was 785 and for FY 2013-14 is 939. On the basis of the same, against his cost of Rs.40,00,000 in 2011-12, the indexed cost would work out to Rs.47,84,713. Keeping in view the maturity consideration of Rs.44,40,000 received by Saraswat, he is in a position to show a notional loss of Rs.3,44,713. Thus on his actual return of Rs.4,40,000, not only will his income tax liability effectively work out to zero, but he will also enjoy the benefit of setting off the notional long term capital loss of Rs.3,44,713 against any taxable LTCG earned by him in FY 2013-14 or thereafter and thus avail a further tax saving of Rs.71,011 (computed @ 20.6% on 3,44,713). (more…)


With only nine gifts in kind covered in the specified list, you can still enjoy receiving many more tax-free gifts!

Two interesting readers’ queries relating to taxability of gifts as income have been discussed in the write-up today.


Query:  I am expecting to receive a BMW car worth Rs.50 lakhs from a dear friend of mine. Would this attract any income-tax liability in my hands?

Reply:  Section 56(2)(vi) of the Income-tax Act as introduced in with effect from 1st April, 2006 had cast income-tax liability in respect of a ‘gift of any sum of money exceeding Rs.50,000’. In view of this clear language, any gift received in kind (not being any sum of money) clearly fell outside the liability for income-tax, irrespective of the value of such gift.

However, as per the provisions of Section 56(2)(vii), introduced with effect  from 1st October, 2009, the market value of nine specified properties as mentioned hereunder, received as a gift by an Individual or HUF, if exceeding Rs.50,000, is liable to be taxed as income from other sources.

  1. Land and building;

  2. Shares and securities;

  3. Jewellery;

  4. Archaeological collections;

  5. Drawings;

  6. Paintings;

  7. Sculptures;

  8. Any work of art;

  9. Bullion.

 Since motor car is not covered in the list of nine specified properties above, you can safely receive the gift of BMW from your friend, notwithstanding the fact that its value is Rs.50 lakhs. Interestingly, a host of other valuables such as cell phones, computers, electronics, furniture, air tickets, hotel vouchers, etc. have also been kept out of the tax purview and taxpayers can thus enjoy the luxury of receiving such gifts without attracting any liability to income-tax. (more…)


U.K. Govt. pension & U.S. social security tax exempt, family pension of widows earns standard deduction!

        Some interesting issues relating to taxability of receipt of commuted pension by specified employees, leave salary and family pension etc. received by legal heirs of a deceased employee and Public Pensions/Social Security payments received from abroad by Indian Residents, covered in the write up today, will be of readers’ interest and useful reference.   

     Under the provisions of Section 10(10A), any commuted pension received by any employee of the Government, local authority or statutory corporation is wholly exempt from tax. In respect of a non-Government employee, payment arising in commutation of pension received is exempt to the extent of the commuted value of one-third of the pension, in case he is entitled to receive gratuity and one-half of such pension in any other case. (more…)


How to avail tax benefit for housing loan interest on your second house, while also enjoying it for your first? 

            The tax benefits that can be availed of in respect of a housing loan can be broadly categorized under two heads. 

  • Firstly, interest paid on the housing loan, borrowed from any agency including a private source, is deductible under Sec.24(b) while  computing  the  income under  the  head  ‘House  Property’.
  • Secondly, repayment of the principal amounts of a housing loan borrowed from specified sources is eligible for income-tax deduction under Section 80C of the Income-tax Act. 

            In the case of a let-out house property, where the interest paid is eligible for set off against the rental income, there is no monetary ceiling for the maximum amount of interest that can be claimed as a deduction.

           However,  in the case of one self-occupied residential  house whose  annual  value is treated as ‘Nil’, the  maximum  amount  of interest that can be claimed as a deduction is Rs.1,50,000/- per annum. (more…)

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