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

TAX PLANNING FOR MINORS!

Clubbing provisions can be lawfully avoided if income of minor is strategically deferred beyond his minority!

Section 64(1A) of the Income-tax Act provides that “in computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child.”

Two exceptions have been provided in regard to the above provisions in relation to the clubbing of income of a minor child with that of the parent, whose total income is greater. Accordingly, the following income earned by a minor shall be assessed in his own hands and not included with that of his parent:

  •  Income derived from manual work done by him.
  •  Income derived from any activity involving application of his skill, talent or specialized knowledge and experience (e.g. income of child artistes).

Moreover, in the above regard, Section 10(32) provides that where the income of an individual includes the income of his minor child under the provisions of Section 64, the individual shall be entitled to exemption of Rs.1,500 in respect of each minor child or the income of such minor includible under Section 64, whichever is lower. (more…)

SACHIN SCORED TAX BREAKS TOO!

When ITAT held Tendulkar’s income from modeling & TV commercials, as that of an artist, exempt from Income-tax!

“VISA Power… Go get it!”… Millions who have seen Sachin on TV commercials will never forget these lines of the master blaster, which rolled on screen for almost six long years. But perhaps very few know the interesting tax tale behind it.

During Assessment Years 2001-02 to 2004-05 Tendulkar received an amount of Rs.20 crores as gross receipts from sports sponsorship and advertisements, which included an amount of Rs.6 crores received in convertible foreign exchange from VISA, ESPN Star Sports and Pepsico. Sachin claimed deduction under Section 80RR of the Income-tax Act in respect of the amount received in foreign exchange, on the ground that the said income had been received by him from the exercise of his profession as an ‘actor.’

The Assessing Officer rejected the claim of deduction under section 80RR on the ground that the taxpayer was a professional cricketer and the income from modeling and advertising was not derived by him from the exercise of his profession. According to the Assessing Officer, by endorsing any products in advertisements, the taxpayer did not become a person whose profession was acting. On appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer on the ground that by profession the taxpayer was neither an ‘actor nor an artist.’ The activity of appearing in advertisement or commercial, etc. could not be equated with that of an actor or artist and this activity was subsidiary activity of the taxpayer and was also not directly related to his profession of playing cricket. Therefore, any subsidiary activity, which was not directly related to the specific profession, could not be considered for deduction under Section 80RR. (more…)

THE MAGIC WAND OF INDEXATION!

Gujarat High Court holds capital gains on gifted or inherited assets also enjoy indexation from date of original holding!

Section 49(1) of the Income-tax Act provides that where the capital asset has been acquired by the taxpayer in any of the modes such as on partition of a Hindu Undivided Family or under gift or Will or by succession or inheritance, etc., the cost to the previous owner shall be deemed to be cost of acquisition of the taxpayer.

Similarly, Section 2(42A) provides that where a capital asset is acquired by way of gift or inheritance as mentioned in Section 49(1), period of holding of the previous owner shall also be included in the period of holding of the taxpayer.

In the above context, an interesting question that would arise for consideration is whether while computing the taxable capital gains arising on transfer of a capital asset acquired by a taxpayer under gift or inheritance, the ‘indexed cost of acquisition,’ as per the provisions of Section 48, has to be computed with reference to the year in which the previous owner first held the asset or the year in which the taxpayer became the owner of the asset.

Consider a case where your grandfather had acquired a plot of land for Rs.20 lakhs in late 1981, which you received by way of inheritance on his death in 2013 and you were planning to sell the same in early 2014 for a consideration of Rs.1.80 crore. Guess, what would be the income-tax you would be required to pay on your capital gains? Difficult to believe, but ‘zero tax’ is the correct answer. (more…)

GOLDEN SECRETS OF TAX PLANNING!

Just light up bright lamps of tax saving for your family this Diwali, by understanding these simple basics!

In the words of the celebrated legal luminary and former Judge of the Supreme Court of India, Mr. Justice V.R. Krishna Iyer, “The citizen must pay his taxes but is entitled to plan his affairs to keep as much of his earnings as the policy of the law permits. This is neither avoidance nor evasion but prudence. Informed intelligence and honest fore-thought are virtues of a taxpayer.”

SIGNIFICANCE OF TAX PLANNING

In a tax system that taxes income and wealth at a flat rate, without providing for any exemptions, deductions or reliefs, ‘tax planning’ would be an alien term. The study of tax planning assumes significance in a tax system like ours which has graded rates of tax and which provides the taxpayer opportunity to avail of incentives in the nature of exemptions, deductions and reliefs.

The Indian taxpayer is indeed fortunate to be in an enviable tax system around the turn of the millennium. It is difficult to believe that some 35 years ago, he was required to live with a system of direct taxes, where the maximum rate of Income-tax was 97.5%, Wealth-tax 5%, Estate Duty 85% and Gift-tax 75%. That was the time, when the eminent Jurist Shri Nani Palkhiwala used to describe India as the ‘highest taxed nation in the world.’ (more…)

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