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

DON’T LOSE YOUR TAX REFUND!

Tax refund must be claimed within the specified time limit, but there is a remedy for belated & additional claims! 

There may be situations where considering the amount of tax deducted at source from the income of the taxpayer or the advance-tax paid by the taxpayer on his estimated income, the taxpayer becomes entitled to claim refund of income-tax, if such tax deducted or paid exceeds the actual income tax liability for the relevant assessment year. A taxpayer may also become entitled to refund of income-tax as a result of any order passed in appeal, rectification or revision, when the assessed taxable income has been reduced and he had paid excess tax earlier.

             Section 237 of the Income-tax Act provides for granting of Refund of excess tax paid or deducted in the case of a taxpayer, where such tax exceeds the actual tax payable by him.

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NIGHTMARE FOR PROPERTY BUYERS!

FM thrusts onerous obligation of deducting TDS on all purchasers of immovable property over Rs.50 lakhs 

The taxing proposal, which came to be announced by Pranab Mukherjee in his Budget proposals in February, 2012, but soon came to be rolled back, when he realized its harsh implications, has quite astonishingly been sneaked in once again by P. Chidambaram in the Finance Bill, 2013.

 ILLOGICAL JUSTIFICATION

Attempting to justify the reintroduction, the FM tried to explain in his Budget speech, “Transactions in immovable properties are usually undervalued and underreported.  One-half of the transactions do not carry the PAN of the parties concerned.  With a view to improve the reporting of such transactions and the taxation of capital gains, I propose to apply TDS at the rate of one percent on the value of the transfer of immovable property where the consideration exceeds Rs.50 lakhs.  However, agricultural land will be exempt.”

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NO SWEET TAX TUNES FROM FM!

Tricky & Illusive Tax Reliefs Coupled With Mischievous Tax Provisions Disappoint Tax Payers!

           The FM announced the setting up of 839 new FM radio stations in 294 Indian cities in his Budget speech 2013. However, quite ironically, the FM’s Budget did not play any sweet music for taxpayers of India.

           P Chidambaram, the FM who in 1997, endeared himself to India’s taxpayers with his dream budget has only  flattered to deceive in 2013! Opening his budget speech, he quipped that, “I intend to keep my speech simple, straight forward and reasonably short.” However, only when one goes through the details of the 50 clauses, as contained in the Finance Bill, 2013, does one discover the number of tax googlies astutely thrown in by PC, almost in the style of his name sake, the great magician P C Sarkar!

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KEEP PACE WITH THE TIMES MR. FM!

Revise age-old exemptions linking them with cost inflation index & rationalize TDS threshold & rates!

Lord Vishnu, in his ‘Vaman Avtar,’ sought just three steps of land from Raja Bali and in the process covered ‘Triloka.’ On the eve of Budget 2013, if God were to ask me to make it even shorter and seek just one wish to be fulfilled by the FM for the Indian taxpayer today, I would promptly plead ‘grant real time reliefs!’

       Waiting for the Lord to say ‘Tathastu,’ I would immediately sit down to work out the bounty I would have reaped for the Indian taxpayer and rejoice in joy! Let me explain how. As clear from the accompanying chart, if a taxpayer in the maximum tax bracket of 30.9% were to enjoy even five limits of exemption/deduction under the Income-tax Act in respect of housing loan interest, savings u/s. 80C, medical reimbursement, transport allowance and children’s education allowance (the latter three in the case of a salaried), on the basis of the adjusted amounts in tune with the index of inflation as announced for computation of capital gains, he would right away reap a healthy tax saving of over Rs.1,45,539. (more…)

HEALTH, HOUSING & EDUCATION!

Budget 2013 needs to focus on these three key sectors and grant meaningful tax reliefs!

Oliver Wendell said, “Taxes are the price we pay for Civilization.” While revenues must be collected from taxpayers to be utilized for allocation towards decent housing, quality health and basic education for the poor and deserving, those who pay taxes must also enjoy adequate tax incentives for serving their own needs and amenities on this account.

TAX BREAKS FOR EDUCATION

No wonder if you hear an honest Indian taxpayer quipping, “Why the hell am I paying education cess on my income-tax, when I am hardly getting any tax incentives for educating my own children?”

Just consider the provisions for deduction in regard to children’s education under Section 80-C, which suffer from severe limitations. Such deduction is available only in respect of ‘tuition fees’ paid to any university, college, school or other educational institution within India. The FM should earnestly consider covering several other legitimate heads of expenditure for education such as books, stationery, school transportation, extra coaching, etc. within the scope of tax breaks for children’s education. Moreover, expenditure for overseas education of children should also find place for deduction. (more…)

TOP SAVINGS CHOICE FOR SENIORS!

SCSS gets thumbs up on counts of security, return, tax saving & liquidity! 

            The Senior Citizens Savings Scheme (SCSS) has opened up a good investment opportunity for Senior Citizens desirous of making a secured investment of upto Rs.15,00,000 earning a reasonable return of 9.30% per annum (9% per annum till 31st March, 2012). With effect from F.Y. 2007-08, SCSS also having been notified as an eligible deduction for purposes of Section 80C, investment under this scheme has become even more attractive. 

INVESTMENT HIGHLIGHTS

            The Senior Citizens Savings Scheme permits investment for all individuals who have attained the age of 60 years or above.  Moreover, as a special case, individuals in the age group 55 to 60 years, who have retired under a Voluntary Retirement Scheme (VRS), have also been permitted to invest in the Scheme, subject to the condition that the Deposit Account is opened by them within three months of the date of their retirement and a Certificate from their employer is attached in this regard.

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STIPENDS ARE TAX EXEMPT!

Stipends, awards, fellowships & grants for education have been held as scholarships exempt from tax!

Under Section 10(16) of the Income-tax Act, any scholarship granted to a person to meet the cost of education is exempt from tax. The term ‘scholarship’ has been interpreted liberally to also include within its scope and ambit, amounts of fellowships, stipends, grants for travel and incidental expenses, etc. awarded for acquiring education.

STIPEND IS NOT SALARY

In the case of ‘A. Ratnakar Rao vs. Addl. CIT’ 128 ITR 527, the Karnataka High Court had occasion to consider whether the trainee’s stipend granted to a physician to further his education and training was exempt under Section 10(16). The Income-tax Department took the view that the amount received by the taxpayer was not in the nature of scholarship, but it was salary for the services rendered.

The High Court held that the amount paid to the taxpayer was for the benefit of securing training and pursuing study and research in medicine and the entire amount received from the hospital was in the nature of scholarship and not for services rendered and services, if any, rendered by the taxpayer were only incidental to the course of practical training. (more…)

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…)

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