I bought a Residential Plot from HUDA in Ambala in the yr 1998 and got the Conveyance Deed done in 2004. Now i am planning to sell it off as soon as I find a buyer. I am also planning to reinvest the sale proceeds into another Residential Property at the earliest. Please advise me on the following:-
a. My Capital Gains will be calculated from which year - 1998 or 2004.
b. Is there any Tax Liability till I reinvest in a Property.
c. How can I legally avoid the tax liability.
d. Is there a requirement to reflect the same in my IT Return if the deal closes within this financial yr.
e. Any tax liability on Capital Gains Account Scheme.

Rajiv Mehta , New Delhi

 Answer a: If the money was paid in for plot in 1998 and you were given the letter of allotment, the year in which you were allotted the land by HUDA , shall be year of acquisition. Compute capital gains from that year of allotment.

Answer b, C , D & E :

There is legal way of avoiding the tax. That is,  by way of claim of exemption u/s 54F or 54EC .

Under section 54F , if you purchase another  residential house within two years of sale of land  or construct within three years from the date of sale of land , then amount equivalent to use of sale consideration shall not be taxable .Read How To Minimise Tax On Huge Gains on Property Sale? and don’t forget that Exemption u/s 54F is Lost if Another House Purchased Within Two Years.

If you can not purchase the house within the financial year or before filing return of income, you can deposit the amounts of sales consideration in Capital Gains Account Scheme .Read How To Use Capital Gains Account Scheme To Save Tax?

Under section 54EC , you can get exemption equivalent to investment  in bonds issued by Rural Electrification Corporation (REC ) and NHAI .Read How To Make Tax Planning For Long Term Capital Gains? Remember to read interest on REC Bond Is Taxable Yearwise!

Remember that Capital Gains Account Scheme can't be used for purchasing Bonds.

Filing of return

If you get the full amount or even majority of payment and possession of land is given to the buyer, the deal as far as I T Act is concerned has happened. In that case you will have to show in the return  for the financial year in which such deal has materialised.

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When I joined my present company in June 2009, I was paid a shifting charge of Rs. 30,000 and temporary accommodation (hotel) charge of Rs. 21,000. However the company has added those to expenses to my income and already deducted taxes. If I want to reduce these charges from my income (as these were expenses required to perform my duty) in my return and claim back the taxes, what documents I need to produce? I have the original bills for expenditure on hotel and transport bill for shifting. What documents/certificates I would require from my employer to claim back that tax in the return? My employer is a MNC bank. Alankar Chandra , Banglore

I do not think that shifting charges and the temporary accommodation in hotel can be taken as expense required to perform the duty.

Of course Rule 3(1) provides that if the employer provides hotel accommodation in a hotel for 15 days in case of transfer of an employee from one place to another, same may not be considered perquisites .

In your case , the transfer is not involved.

However, you can consider the reimbursement of hotel expense of Rs 21,000 as HRA and claim exemption for house rent. Shifting charge is certainly taxable in your hand without any relief.

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I invested in ULIP single premium of Bajaj Allienz (1.04.2005) on 1 Lac and got the sum assured Rs 5 Lac. Subsequently invested in Top up Rs 5 lac on that. All sum was invested in Equity oriented fund . After three years now the fund value is Rs Rs 8 lac ( on 15.12.2009). What will be capital gain if i redeem full amount .Sachin Purwar , Kanpur

What i understand from your query is that you bought 5 lac assured sum under ULIP  and later invested Rs 5 lakh more , by whatever name called.

Under ULIP , units are bought from the money invested  in the policy. The units are capital asset under I T Act and its sale before one year gives rise to short term capital gains which is taxable.

However, in your case , since the units are 3 years old , the sale will raise long term capital gains . Mutual Fund will certainly deduct STT on the redemption of the units, and that makes the gains tax free u/s 10(38) of the I T Act.

Only thing to remember is that you must check the holding period of units . It may be that some of the units allotted to you in the year before the sale may not complete one year , therefore gain on sale of those units shall be taxable as short term capital gains.

 

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I want to know the tax calculation of mutual fund. How the tax calculated and what is capital gain. Sunil Prajapati

The mutual fund transaction by any one can bring two kinds of income

1. 1. Capital Gains or loss if you are showing bought units as investment
2. 2. Trading gains if you are actually doing regular buy or sell at much faster frequency.

1. Capital Gains

When you buy , the mutual fund allots you units and when you sell the mutual fund company call it redemption, which mean buyback from you on the NAV (Net Asset Value  ). So there may be gains or loss when you actually do the redemption. The capital Gains can be two types having two rates under I T Act. These are Long term Gains or Short Term Gains

Long Term Gains

If you held the units for more than a year, gains on such units redemption is tax free u/s 10(38) of the I T Act.

Short term gains

When the units are sold (redemption ) within one year of being held by the investor , it becomes short term gains or loss . The Short term gains are taxed @ 15 % u/s 111A of the I T Act.

The gains or loss is very easily computed as under

   Redemption price  paid by Mutual Fund Company xxxxxx

Less

     Cost of acquisition of those units                   XXXXX

                

2. Trading Income

Like shares, many people also trades in mutual funds and shows the buy sale as stock-in-trade . In that case  gains or losses are taxed as Business Income and taxed at normal rate .

 

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I want to know about TDS, since I won a contest in which I got 1 Lakh cash prize and TDS of 33.6% is deducted from that amount, since I am a student with no income, so whether that amount will be refunded to me and if yes how. Atul Vohra , Shimla

No, the amount of tax deducted will not be refunded to you because the tax on lottery or prize has to be paid by a person even if the taxable income of the person  is below exemption limit.

The reason is that the tax on the prize or lottery is payable under  section  115BB oof the I T Act , which provides a a special rate of tax has been prescribed under section 115BB of the the I T Act.

 

115BB. Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of

(i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of  thirty per cent; and

(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).

No exemption of even basic amount is provided . It means that if a person has no taxable income , and he wins lottery or other kind of prize of even Rs 20,000 , he will have to pay tax. He can not claim that since Rs 20,000 is below exemption limit, no tax is payable.No loss or expense is adjustable with the income from winnings of prizes or lottery.

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The income from share transaction can occur in following forms

1. Share trading

2. Speculative trade

3. F & O transactions

4. Capital Gains

Allowance of STT for First three types (1, 2 & 3)

From Assessment Year Asst Year 2009-10 (FY 2008-09 ) , Securities Transaction Tax (STT) is defined as an expense u/s 36(xv) of the I T Act

(xv) an amount equal to the securities transaction tax paid by the assessee in respect of the taxable securities transactions entered into in the course of his business during the previous year, if the income arising from such taxable securities transactions is included in the income computed under the head Profits and gains of business or profession.

Therefore , for share trading income, or speculative income, or Futures & Options trades , STT is an expense and deductible.

Can You Deduct STT from Capital Gains?

However , if you are selling the shares as investments , the STT can not be deducted as cost of acquisition . This is provided under the proviso to section 48 which is regarding cost of acquisition

Proviso to section 48

Provided also that no deduction shall be allowed in computing the income chargeable under the head Capital gains in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004

Thumb rule is that STT is cost for all kinds of transactions except capital gains.

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My client having FDRs in Banks, Investment in NSCs, & 5 year tax saving deposits etc., Nominations for the said deposits made in the name of family members like wife, Son, daughter and grad son etc., Each year he is reporting the Income from said deposits on accrual basis.He expired on 17-8-2008. My doubts are as under. 1) In whose a/c the interest earned on said deposits for the period after his death (18-8-2008 to 31-3-2009 )reported ? Whether interest for the period from 18-8-2008 to 31-3-2009 reported in Nominees a/c ? 2) Can we continue the I.T. File of the deceased person till the maturity of the said deposits? These deposits will mature after 3 to 4 years.

Vijay Kumar Sharda ,Zahirabad

Yes, return can be continued to be filed in deceased name . However it should be signed by legal heir  , which can be wife  or son of the deceased. You should do this

1. Get all son , daughters wife sign a declaration that for the purpose of Income Tax Act, they authorise mother or son as legal heir.

2. In name place of return write Mrs XYZ legal heir of Sri……….. .

3. The return should be signed by widow or son who is legal heir.

The interest should be shown as it was being shown earlier on.

Other Option

If the assets of deceased has passed on legally with the period concerned, it can also be shown in the hands the heir /nominee who gets the FD . However, the interest accrued till 18/8/2008 still to be declared by filing return of income in name of deceased.

Interest after than day is taxable in hand of heir who gets the FD.

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I would like to know about TDS deductible on provision for expenses. Suppose at the end of the year, many provisions are made, say as on 31/03/09 for various payments like payments to contractors, auditors, where in normal course, TDS is applicable. In this provision case, I am simply making a provision & not crediting to a specific party. I am passing a simple entry like audit fees, labour charges etc DR to Provision for Expenses.
All the provisions made as on 31/03/09 would be reversed as on 01/04/09 & all actual expenses as per actual bills are booked on the bill date. I will deduct the TDS applicable on these payments on the basis of booking.

Vijayanand , Mumbai

As per the law regarding tax at source, a payer is liable to deduct the tax , moment of either actual payment or crediting the sum to payee.

When you make provision, it is actually neither credit to any one’s account nor it is actual payment. Therefore, law of tax at source is not applicable.

The only point one must check is whether the provisioning is not bypassing the accounting norm ne must follow.

 

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