Mukesh Patel.in
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international tax expert / columnist / author / speaker

HRA EXEMPTION FOR RENT PAID TO WIFE

Salaried husband entitled to HRA exemption for rent paid by him as tenant to owner wife” – ITAT Ahmedabad

 

Can a salaried employee legitimately claim the benefit of exemption for House Rent Allowance (HRA) received from his employer, under Section 10(13A) of the Income-tax Act, even in a case where the payment of house rent has been made by him to a member of his own family, say his wife or his father, who is owner of the house and who is also living with him in the same house? Readers will recall that your columnist has replied in the affirmative to this query, in this very column, also expressing the view that this provides a valuable opportunity of ‘tax saving by keeping it within the family.’

Very recently, the Ahmedabad Bench of the Income-tax Appellate Tribunal has, in the case of Bajrang Prasad Ramdharani vs. ACIT (37 taxmann.com 186), also granted its seal of approval to this view, by deciding this very issue in favour of the taxpayer. (more…)

THE LONG & SHORT OF CAPITAL GAINS!

Understanding long term & short term capital gains is important since the same determines its tax treatment !

            The profit or gain arising on the transfer of a capital asset is known as ‘capital gains.’ It is important to ascertain the type of capital gain, as the computation of taxable gains is dependent on the same. Long term capital gains are entitled to concessional tax treatment in comparison to short term capital gains.

            There are two types of capital assets, which give rise to the two respective types of capital gains. Capital assets are classified in the following two categories on the basis of the period for which they have been held by the taxpayer prior to transfer.

            A ‘short term capital asset’ means a capital asset held by a taxpayer for a period of less than 36 months, immediately preceding the date of its transfer. However, in the case of shares of a company, quoted securities and units of the Unit Trust of India or an approved Mutual Fund, the period of 36 months is to be substituted by 12 months.

            A ‘long term capital asset’ means a capital asset which is not a short-term capital asset. In other words, it is an asset held by a taxpayer for a period of more than 36 months. Shares of a company, quoted securities and units of the Unit Trust of India or an approved Mutual Fund are also treated as long term capital assets, if held for more than 12 months. (more…)

EXECUTING YOUR WILL IS SIMPLE!

Useful tax planning can also be achieved for the family through smart distribution of properties under a Will!

Last Monday, we discussed regarding the importance of executing a Will. The drafting and execution of a Will is indeed very simple and you can even do it yourself without any sophisticated legal advice, if you just bear in mind the following key points:

  • A Will can be executed on simple paper and it is not necessary to have any stamp paper or legal paper for the same.

  • No legal jargon is required to prepare a Will. In fact it is desirable that the clear intention of the testator can be understood in clear and simple language.

  • The most important thing in connection with the execution of a Will is attestation of the Will by two witnesses who are present at the time of signature of the testator and who sign as witnesses to the Will. It would be advisable if a person who is beneficiary under the Will does not sign as a witness.

  • The testator should preferably sign each page of the Will and if there are any corrections in the same he should initial them in the margin. If there are too many corrections, it would be better to prepare a new Will. (more…)

TAX FRIENDLY FAMILY ARRANGEMENT

Settlement of family disputes along with strategic tax saving can be usefully achieved via family arrangement!

‘Family Settlement’ or ‘Family Arrangement’ is one of the practical modes of distribution of assets amongst the members of a family, where there are disputes or conflicting claims amongst the family members with reference to family properties.

The Halsbury’s Laws of England’ has defined a family settlement or family arrangement as an agreement between the members of the same family intended to be generally or reasonably for the benefit of the family, either by compromising doubtful or disputed rights or by preserving the family property or peace and security of the family by avoiding litigation.

The advantage of resorting to a family settlement or family arrangement from the tax point of view is that distribution of assets under such a settlement or arrangement is not treated as ‘transfer’ for the purpose of Income-tax Act, as held by various judicial pronouncements and hence it does not attract liability to capital gains tax or gift-tax. Thus, a family settlement or arrangement is a useful mode of tax planning recognized by law. (more…)

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