Tax Planning- Save tax through your family

Saving Tax through Family! Surprised! Yes, we can save tax through our family members i.e. Parents, Major Children’s and Wife. To Save Tax through Family members we needs to invest in way that our tax burden shifts to our family members and we can take the benefit of Income Tax Slabs. Saving tax Through means not only saving in tax but also means Post Tax higher returns on your Investment.

Here is how we can save tax through our family members.

Through Parents

You can save tax through our own parents as well as through our Parent in-laws. To achieve this goal you needs to give away a portion of your funds, either as a gift or a loan, to your parents as well as your parents in law so that in years to follow your income tax burden becomes lighter as the income on funds transferred by you to them which would bring in income would be taxed in their hands.

Assuming that both the parents are senior citizens. Here’s how you go about it. Income tax deductions allow senior citizens a tax-free income of Rs 3 lakh. To exhaust this limit, say you gift Rs 28 lakh to each parent in cash. Of this, both can individually put Rs 15 lakh in a senior citizens savings scheme that earns a return of nine per cent and pays interest every quarter. Each will get yearly interest of nearly Rs 1.4 lakh. If they invest the remaining Rs 13 lakh each in the long term fixed deposit (FD) of eight-years (assuming interest rate of 7.5 per cent) that pays interest each quarter, it will fetch them an income of nearly Rs 1 lakh annually. That means both parents have earned Rs 2.8 lakh from the senior citizen saving scheme and another Rs 2 lakh from FD each year. A total savings of Rs 4.8 lakh – the tax-free limit (Rs 2.40 lakh) that each parent enjoys. So, they don’t even need to deposit any tax.

Same planning can be done for parents in laws.

Through Major Children

All your adult children are as solid as a rock to help you save your income tax. After October 1, 1998, the provisions relating to gift-tax have ceased to exist. Now you are free to gift away your money to your children without attracting gift tax. Investment made by Major Children out of the gift received by you will be taxed in the hands of your children. If for any reason you are inclined to make gifts to your major children, then you may give interest-free loans to your adult children so as to legally reduce your taxable income.

It is lawful to grant interest-free loans to adult children from your own funds.

Through Your Wife

Married taxpayers can make a substantial saving of income tax by setting up two separate independent income tax files, one each for the husband and the wife. If your wife is already filing Income Tax Return then she may continue filing the return with her new surname and address or with her old surname and address.

Thus, as a result of marriage one should plan a separate income-tax file of the wife. However, care should be taken to ensure that no direct gift or transfer from husband is made to the wife as clubbing provision may get attracted.

Article by CA Sandeep Kanoi

Converting a Partnership firm into a Private Limited Company

Corporatisation is the need of the hour. The entire world is gradually drifting towards one global market without any trade barriers between the countries. A small unincorporated organization led by few partners cannot think of growth on large scale without corporatizing itself. Corporatisation has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc. Advantages of converting

All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.

No Stamp Duty - All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.

No Capital Gain Tax - No Capital Gains tax shall be charged on transfer of property from Proprietorship firm to Company.

Continuation of Brand Value - The goodwill of the Proprietorship firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.

Carry Forward and Set off Losses and Unabsorbed Depreciation - The accumulated loss and unabsorbed depreciation of Partnership firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.

Mandatory Conditions

All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.

* The partners receive consideration only by way of allotment of shares in company and the partners share holding in the company in aggregate is 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion.

Requirements

* Registered Partnership firm with minimum 7 Partners

* Minimum Share Capital shall be Rs. 100,000 (INR One Lac) for conversion into a Private Limited Company

* Minimum Share Capital shall be Rs. 500,000 (INR five Lac) for conversion into a Public Limited Co.

* If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered

* Minimum 7 Shareholders

* Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.)

* The directors and shareholders can be same person

* DIN (Director Identification Number) for all the Directors

* DSC (Digital Signature Certificate) for two of the Directors

Process

* Filing of requisite form for Conversion

* Preparation of Foundation documents of the Company

* Filing for name approval

* Filing of Incorporation documents

* Receiving certificate of incorporation

Source: Online Article

Author Ankita Chopra

Received Gift? Check taxability before enjoying!

We receive gifts in cash, ornaments, land, car, gadgets, vouchers and many more on various occasions like on birthday, marriage, achievements and even sometimes out of gratitude too. Feel special and happy on its receipt, right? But have you ever bothered to check its taxability under Indian Income Tax Law? If not, then here are the provisions of income tax law related to gift. Some of the gifting transactions are to be taxed under the Income Tax Act, 1961 and the onus to offer such gift for tax and then to pay tax on it; is on the recipient of such gift. Remember in this article, we will be testing only those transactions for “taxability” which are having gift value exceeding Rs.50,000/- and that too received without consideration i.e. nothing is exchanged for such gift by an individual on or after October 1, 2009.  

There are 3 aspects of the transaction which need to be considered in consolidation before concluding its taxability…

1. Money or Property received as Gift.

2. Relationship with the person gifting such money or property.

3. Occasion on which gift is received.

Let us first understand; what are those things which can be a taxable gift under the law.

1. Money i.e. cash or cheque or draft.

2. Property: The term “Property” is specifically narrated in the law. So besides those items, other gifts will not come in the purview of taxability and property includes;

i. immovable property being land or building or both;

ii. shares and securities;

iii. jewellery;

iv. archaeological collections;

v. drawings;

vi. paintings;

vii. sculptures;

viii. any work of art;

ix. bullion (bullion w.e.f June 1, 2010)

Lesson: Receipt of Gift other than in Money or Property is not liable for tax.

Second aspect to be look upon is the relationship with the person gifting such money or property. Income Tax Act has excluded transactions of gift received from relatives from taxing and relative with respect to an individual includes;

i. spouse of the individual;

ii. brother or sister of the individual;

iii. brother or sister of the spouse of the individual;

iv. brother or sister of either of the parents of the individual;

v. any lineal ascendant or descendant of the individual;

vi. any lineal ascendant or descendant of the spouse of the individual;

vii. spouse of the person referred to in items (ii) to (vi)

Lesson: Receipt of Gift in Money or Property from a relative is not liable for tax.

Now coming to occasions, gift received on specified events or circumstances is excluded from taxability such as;

i. on the occasion of the marriage of the individual;

ii. under a will or by way of inheritance;

iii. in contemplation of death of the payer or donor;

iv. from any local authority;

v. from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in section 10(23C);

vi. from any trust or institution registered under section 12AA.

Lesson: Receipt of Gift in Money or Property from a relative or from a non-relative on specified occasion/circumstances is not liable for tax.

So whenever you will be doing a taxability test for any gift transaction, go by each of these step and conclude. But it is not as simple and straight as it looks; it also includes many other aspects relating to computation and documentation; so it is always advised to consult your Tax Advocate or Tax Advisor on receipt of gift or if possible before entering into such gifting transactions.

Article found online

Tax Planning - Income From House Property

F.A.Q. on Income from House Property

Q1. How is income to be computed, if a property is partly let out and partly self-occupied?Answer. It has to be treated as two residential units and income from each unit has to be computed according to law by allocating common outgoings on a basis proportionate to area of occupation.

Q2. Is it necessary that the person must be a legal owner in order that the income should be computed under the head “income from property”?Answer. No. If a person is entitled to the income under the law, such income is bound to be assessed under the head “income from property”. Tax laws are generally concerned with beneficial ownership as laid down in CIT vs. Podar Cement Pvt. Ltd.

Q.3. Is municipal tax deductible in computation of income from: (i) self-occupied property; and (ii) where demand notice is reserved but it has not been paid?Answer. Since income from one self-occupied property is nil, subject only to deduction of interest the question of deduction of municipal tax does not arise. For let out proper-ties, municipal tax is deductible only if it is paid during the year.

Q.4. Is deduction for repairs available, when tenant undertakes repairs under the rental agreement? What is meant by repairs?Answer. By repairs we mean only substantial repairs as held in CIT vs. Parbutty Churn Law 1965 57 ITR 609 Cal and Sir Shadi Lai & Sons vs. CIT. Where even substantial repairs other than normal maintenance is undertaken by tenant, annual value should get enhanced by the extent of repairs which should have been borne by the landlord so that any deduction for repairs then available to landlord will neutralise the amount added to annual rent. It would, therefore, mean that where there is specific stipulation that all repairs will be borne by tenant, there can be no deduction for repairs.

Q5. Is an annual charge on rent receivable on account of mortgage of property for obtaining funds for business or paying income tax deductible under section 24(1)(iv) of the Income Tax Act, 1961 ?Answer. No. Since it is a charge created voluntarily by the assessee, it is not deductible as was held in CIT vs. Indramani Devi Singhania in case of a business loan and CIT vs. Tarachand Kalyanji in the case of a charge created for payment of excess profit tax In the latter case, it was held that the amount is not deductible even if the charge has been created before 1st April, 1969, when such amount was deductible in law.

Q6. What are the conditions for deduction of unrealised rent?Answer. Rule 4 of the Income-tax Rules as substituted by the Income-tax (Eighth Amendment) Rules, 2001 prescribes the conditions as under:

Unrealised rent—For the purposes of the Explanation below sub-section (1) of section 23, the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where,—
(a) the tenancy is bona fide;
(b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;
(c) the defaulting tenant is not in occupation of any other property of the assessee;
(d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

Q7. Is salary paid to a caretaker deductible?Answer. No. Only deductions specified under section 24 are deductible.

Q8. How is the income of co-owned property computed?Answer. Income has to be split up between co-owners and each co-owner has to be assessed as his share of the income as provided under section 26 of the Act.

Q9. Where an assessee borrows a second loan for repaying the first loan taken for acquiring a property, will the interest on second loan be deductible as amount borrowed for acquiring the property?Answer. Yes. It is so conceded in Board’s Circular No. 28 dated 20th August, 1969.

Q10. Ground rent—whether arrears of earlier years deductible?Answer. No. The deduction under section 24(1 )(v) is confined to the ground rent of previous year, and thus arrears of earlier years are not deductible. Ground rent is no longer deductible from A.Y.2002-2003.

Q11. Interest deductible under section 24(1 )(vi): whether simple interest or compound Interest?Answer. Only simple interest is deductible.

Q12. What is the treatment given to loss from property?Answer. Loss from property can be set off against other heads of income in the same year and to the extent unabsorbed, it will be carried forward and set off in next eight years.

Q13. Where municipal valuation is higher than the rent charged, what is the basis of computation of property income?Answer. The law requires that either annual value as fixed by the local authorities or actual rent received, whichever is higher, should be treated as annual value. But where the assessee is unable to enhance the rent due to Rent Control Act, there is a case for acceptance of rent receivable as the basis. It was so held in CIT vs. Sampathammal Chordia 2000 245 ITR 290 Mad.

Q14. Are municipal taxes allowed on the basis of tax leviable for a year or on the basis of payment? If it is on the basis of what is leviable, what happens if demand for earlier years is received only during the year with the result that the payments for earlier years are made during the year?Answer. Section 23(1) allows property tax levied by local authority on the basis of payment from assessment year 1985-86 vide amendment by Taxation Laws (Amendment) Act, 1984 so that the controversy in the prior law is now avoided. So, the amount paid during the year, including any amount of arrears for earlier years, is deductible in the year of payment.

Q15. Where the assessee is a mutual association having a property, will the property income be covered by the principle of mutuality so as to be exempt?Answer. Yes, it has been held that principle of mutuality applies even to income from house property in Chelmsford Club vs. CIT (2000) 243 ITR 89 (SC).

Q16. The assessee — Mrs. A is in enjoyment of the property but the right is limited only for life under a Will in her favour. Who has to pay the tax, whether she as the person in enjoyment of the property as the holder of life interest or the remainderman treated as the owner in law?Answer. Ownership is a bundle of rights. Right to enjoy the property is also a right which is part of such ownership right. Hence it will be assessable in the hands of life interest owner. It has been so held in Estate of Ambalal Sarabhai vs. CIT 2000 245 ITR 445 Guj.


Q17. Where an assessee receives interest on deposit taken from a tenant, is it necessary to enhance the annual value by the notional interest which would have otherwise been payable?Answer. Where actual rent received is more than the fair rent, i.e., annual value fixed by the local authorities, notional interest need not be added. It was so held in CIT vs. J.K. Investors (Bombay) Ltd. 2001) 167 CTR (Mad) 163. Where such notional interest is to be taken, as for example, where no rent is charged because of such interest free deposit, the interest or other income earned by deployment of the interest free deposit will have to be correspondingly reduced from the annual value but the law does not provide for the same.

But it stands to reason that such reduction may have to be allowed, though it is doubtful whether such reasonable interpretation will be acceptable to revenue.

Q18. Is it open to the Assessing Officer to substitute reasonable rent where the property is let out to an associate company at a lower rate?Answer. Since annual value is not the only criterion, it is open to the Assessing Officer to adopt a reasonable rate where it is let out at a concessional rate. It was so held in T. V. Sundaram Iyengar & Sons Ltd. vs. CIT.

Q19. Where the property is in existence for less than 12 months, is it possible to assess the income as income from property since the scheme of the Act is to assess the annual rent? Does the income escape assessment in such cases?Answer. The argument that the property should have been held for entire 12 months to be assessable under the head ‘Income from property’ was accepted in P.J. Eapen vs. CIT. But it was held that such income will be assessable under ‘Other sources’. The decision is open to doubt because there is no reason why the proportionate income should not be assessed with reference to the period of holding because such proportionality is recognised in section 23 where the property is let out for part of the year and used for own residence for rest of the year under section 23(2)(a)(ii). Hence, similar apportionment should be possible though the annual value is with reference to the income which the property might fetch if let out from year to year.

Q20. Where the deduction under section 24 exceeds the available income, can such excess be allowable?Answer. Where the property is partly let out and partly used for own residence, the deduction under section 24(1) will be limited to the income determined under that clause under the substituted section 24 by Finance Act, 2001. with effect from 1.4.2002, there are no detailed deductions but only 30% of annual value and interest on borrowed capital subject to the limit of ` 30,000 for self-occupied property with enhanced limit up to `2.00 lakhs subject to conditions as to the date of the loan and the date of construction. Hence, there can be a loss from the property depending upon interest on borrowed capital. It is only in respect of annual value, that there cannot be loss.

Q21. There is a practice of receiving deposit instead of rent. The assessee accounts for interest on such deposits as its income. Should he also account for notional income from property?Answer. The answer was against the assessee in S.Ujjanappa vs. CIT, where it was held that ownership confers the duty to account for notional income from such property. The issue as to whether it involves double taxation was not posed in this case. Interest income earned by the assessee on the deposits or notional interest when used in business could have been set off against such income. There is clearly double taxation implicit in such cases. In Webb’s Agricultural & Automobile Industries vs. ITO , a car received by way of lottery winnings brought to tax as income was held to be eligible for depreciation, though assessee had not paid for the same, because of the notional cost. This line of reasoning should avoid elimination of double taxation by setting off the two incomes one notional and the other real as between them, but the law on the subject is still nebulous.

Q22. Is the amount of interest paid on unpaid consideration for acquiring property deductible as interest on borrowing under section 24(1 )(vi) of the Income-tax Act?Answer. In the context of similar interest on unpaid consideration for acquiring a business; the Supreme Court had held in Bombay Steam Navigation Co. (1953) P. Ltd. vs. CIT that such interest is not deductible under section 36(1)(iii) of the Income-tax Act, 1961. But in the same case, it was found that it can be allowed as deduction under section 37 of the Act. It is for this reason that it has felt that in absence of similar residuary clause, interest on unpaid consideration for acquiring property would not be deductible.

However it was found in CIT vs. Sunil Kumar Sharma following CIT vs. R.P. Goenka and J.P. Goenka that it makes no difference, whether the buyer borrows from a third party to acquire a property or gets the necessary financial assistance from the seller of the property. It should be construed that the seller is the lender and the purchaser is the borrower. It would thus appear that such interest is deductible.

Q23. What is the change in respect of computation of property income by the Finance Act, 2005?Answer. There is no change in computation of property income, but the incentive for re-payment of loan for acquiring a property is enlarged by removing the limit of Rs. 20,000 in respect of such repayment and by providing such repayment as an outright deduction from the gross total income by the new section 80C substituting section 88, subject, however, to the limit of total deduction under section 80C to Rs. 1.50 lakh. Interest payable on such loan would be admissible as deduction, if the property were let out, subject to limit of Rs. 30,000 in case of self- occupation.

Q24. If a person puts up a property on leased land, is the lease rent deductible as income from property?Answer. There is no special provision for deduction of lease rent as was available in the pre-existing law under section 24 either as an annual charge on the property or as ground rent, but all the same, what is payable on leased land gets diverted at source and should not be part of the annual value, so that in determination of annual value, the amount should be deductible. Any other view could not be reasonable. An alternative argument may well be that if it is not deductible, income itself may not be assessable as a property income as the assessee is not the full owner of the property, so that income will be assessable as from “Other sources”, so that the deduction in such a case cannot be denied, though the assessee may not be eligible for an ad hoc deduction at 30%; but only actual repairs, where it is assessable as income from other sources.

Q25. Where a landlord undertakes to meet the expenses of watch and ward, corridor, lighting, lift, etc., are such expenses deductible from property income?
Answer. Expenses which are ordinarily borne by the tenant, but undertaken by the landlord according to terms of rental agreement will go to reduce the annual value, because the rental value of the property can only be the net income after meeting the tenant’s burden.

Q26. Where the assessee allows the property to be used by firm of which he is a partner without charging rent, is he entitled to self-occupation allowance or depreciation?Answer. Since the firm is not a separate legal entity, the use of property by the firm should be treated as use and occupation of the property by the partner itself, so that self-occupation benefit will be available from income from such property. If the property is used for business, there is eligibility for depreciation also.

Q27. Where a partner allows the use of the property by the firm and charges rent for the same, would he be entitled to ad hoc deduction at 30% or depreciation of the property because of the use for business?Answer. Since the rent is received from a firm of which he is a partner, the amount of rent receivable may not be treated as received in his capacity as landlord, but as a partner. If the property is used for business, the owner should be entitled to depreciation. It was so held in CIT vs. Ramlubhaiya R. Malhotra following A.M. Ponnuranga Mudaliar vs. CIT. The latter decision was followed in CIT vs. Texspin Engineering and Manufacturing Works.

Q28. In the case where a tenant sublets the property, is the rent paid by the tenant deductible from the income from subletting?Answer. Since the tenant is not the owner, the income should ordinarily be assessable as income from other sources, so that the rent paid should be deductible. Even if it were lease- hold property, the rent paid may have to be taken into account in determining the annual value. Contrary view taken in CIT Hemraj Mahabir Prasad Ltd. would need review.

Q.29. Where the assessee borrows money on mortgage of his property for his daughter’s marriage, is such interest paid deductible from the property income?
Answer. Merely because the loan is charged on the property, interest does not become deductible, because the amount is not borrowed for purpose of acquiring or constructing the property.

Source Online Article

Budget 2015 - Income Tax Changes made in Finance Bill, 2015 by Lok Sabha

Finance Bill, 2015 was passed in Lok Sabha on 30.04.2015 with certain amendments via notice of amendment dated 30.04.2015. In this article I have covered some of the amendment in Provisions related to Direct Taxes. Read- Lok Sabha approves Finance bill 2015

1. Mat Exemption to Foreign CompaniesIn the original bill it was provided to only FII. Therefore, the Finance Bill, 2015 as passed by Lok Sabha proposes to provide relief from MAT to foreign companies as well. Capital gains from transfer of securities, interest, royalty and FTS accruing or arising to foreign company has been proposed to be excluded from chargeability of MAT if tax payable on such income is less than 18.5%. Further, expenditures, if any, debited to the profit loss account, corresponding to such income shall also be added back to the book profit for the purpose of computation of MAT.

2. MAT exemption on notional gain arising on transfer of share of SPVA new clause is proposed to be inserted to re-compute the gains from transfer of said units (as referred to in point (c) above) which shall be added back for computation of MAT. It is proposed that the amount of gain from transfer of said units shall be computed by taking into account the cost of shares exchanged with units or the carrying amount of the shares at time of exchange where such shares are carried at a value other than the cost through profit & loss account.

Accordingly, notional loss arising from transfer of asset or notional loss arising from change in carrying amount of said units and actual loss from transfer of said units shall be added back to the book profit for the purpose of computation of MAT.

3. Deduction under Section 80D in case of individual
The Finance Bill, 2015 as presented originally omitted to propose amendment to clause (a) and clause (b) of sub-section (2) of Section 80D to enable assessee to claim deduction of Rs. 25,000 instead of Rs. 15,000. However, sub-section (4) of Section 80D was amended to allow deduction of Rs. 30,000 instead of Rs. 25,000 if individual or his family member or any of his parent is a senior citizen or very senior citizen.

4. Residential Status of a CompanyThe Finance Bill, 2015 as presented earlier proposed to amend Section 6 to provide that a company shall be said to be resident in India if its place of effective management, at any time in that year, is in India. In other words, the concept of Control or Management (wholly in India) is replaced with Place of Effective Management (at any time in India).

Thus, the Finance Bill, 2015 as passed by the Lok Sabha has proposed to omit the words ‘at any time’ which shall have effect that a company shall be deemed to be resident in India if its place of effective management is in India.

5. Filing of return is mandatory if assessee has foreign assetsThe Finance Bill, 2015 as passed by the Lok Sabha has proposed mandatory filing of return by a person, being a resident other than not ordinarily resident in India, who at any time during the previous year:

(a) holds, as a beneficial owner or otherwise, any asset (including financial interest in any entity) located outside India or has signing authority in any account located outside India; or

(b) is a beneficiary of any asset (including any financial interest in any entity) located outside India.

However, filing of return shall not be mandatory under this proviso for an individual, being a beneficiary of any asset (including any financial interest in any entity) located outside India, if income arising from such an asset is includible in the income of the person who is beneficial owner of such an asset.

6. Subsidies are no longer capital receipts
To end the dispute, it is proposed to amend the definition of ‘Income’ under Section 2(24) in the Finance Bill, 2015 as passed by the Lok Sabha.

A new sub-clause (xviii) is proposed to be inserted in Section 2(24) to provide that assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assesse [other than one considered under Explanation 10 to Section 43(1)] would be included in assessee’s income.

Thus, any subsidy which is not reduced from the actual cost of the asset in view of provisions of Explanation 10 to Section 43(1) shall be taxable as revenue receipts of the assessee.

7. Bad debts could be claimed without writing off debt in books of accountIn order to remove this anomaly, it is proposed in the Finance Bill, 2015 as passed by the Lok Sabha that bad-debts could be claimed without writing off in books of account if the amount of debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standard notified under section 145(2) without recording the same in the accounts.

Thus, Section 36(vii), once again, proposed to be amended to get back to original position (i.e., the position that stood till Assessment Year 1988-89) but to a limited extent

8. Interest on loan taken for acquisition of an asset could only be capitalized till the asset is first put to useThe Finance Bill, 2015 as passed by Lok Sabha proposes to remove this distinction in allowability of interest in case of existing business and in case of extension of existing business. It proposes to remove the words “for extension of existing business or profession” from proviso to Section 36(1)(iii). Thus, it is proposed that interest on borrowings used for acquisition of asset till the asset is put to use shall not be allowed as deduction in any case.

9. Determination of period of holding and cost of acquisition in case of shares acquired on redemption of GDRsIt is proposed that cost of acquisition of shares acquired by a non-resident on redemption of GDRs shall be the price of such shares as prevailing on any recognized stock exchange on the date on which a request for redemption is made by the assessee.

10. Additional Depreciation and Investment Allowance allowed to industries set-up in Bihar and West BengalThe Finance Bill, 2015 as presented on February 28, 2015 proposed to allow higher additional depreciation at the rate of 35% (instead of 20%) in respect of the actual cost of new machinery or plant acquired and installed by a manufacturing undertaking or enterprise set-up in the notified backward area of the State of Andhra Pradesh and the State of Telangana.

The Finance Bill, 2015 as passed by the Lok Sabha proposes to extend the benefit of additional depreciation and investment allowance to the manufacturing undertaking or enterprise set-up in the notified backward area of State of Bihar and State of West Bengal as well.

Source Online Article

TDS deducted, no need to file Income Tax Return? - A Misunderstanding of Common Man

Arjuna (Fictional Character): Krishna, Income Tax Department is sending notices to Taxpayers for not filling Returns of last 3-4 years based on TDS, etc. What are they?

Krishna (Fictional Character): Arjuna, Income Tax department send notices to Taxpayers on the basis of information linked with PAN , such as TDS by Banks on FDRs, Mutual Fund transaction, Immovable Property Transactions, Cash Transaction in Saving A/c, Credit Card Transaction etc. Many Taxpayers thinks that there is no need to file Income Tax Return as their TDS is already being deducted on Income earned. It is a big misunderstanding for beginners or common man. If Taxpayer has Taxable Income in any year or if he has Refund to claim then it is necessary for him to file Income Tax Return. Further if a notice is received even after Return is filed then compliance of it should be given. Further Limit of TDS deduction and basic exemption limit for taxable income, both are different. Hence even income is below taxable income, TDS is deducted by the payer and above misunderstanding starts. Further salaried persons also have same understanding, as they feel that on their total salary TDS is deducted, hence all tax is paid, no need to file return, etc.

Arjuna: Krishna, What is relation between Income Tax and TDS?

Krishna: Arjuna, TDS means Tax deducted at Source. According to Income Tax Act, in some specified Transactions like salary, rent, interest, commission, fees, etc, while paying or accounting expenditure, whichever is earlier, TDS have to be deducted and required to be paid to the Government treasury. This means the Payer pays Taxes of the Receiver. E.g. “A” is employee at “B” and his monthly salary is Rs. 60,000 then “B” has to deduct TDS from salary of “A” and required to pay TDS to Government. That means TDS depends on the type of Transaction. But responsibility for filling Income Tax Return lies with the receiver. The receiver Taxpayer has to show all the Income received in Financial Year from Salary, Rent, Interest, etc. in Income Tax Return. After considering all incomes, deductions, etc and after computing the tax if it comes to Income Tax payable then it should be paid or if refund arises then it should be mentioned in return. Taxpayer has to mention the details of TDS Credit received in Income Tax Return. I.e, reconciliation of TDS as per Form 26AS and Income Tax return filed needs to be done. Any mis match may lead to further notice to taxpayer.

Arjuna: Krishna, who should file Income Tax Return?

Krishna: Arjuna, A Person is required to file Income Tax Return if he has Taxable income i.e. his Income is exceeding basic exemption limit (For FY 2014-15 Rs. 2.5 lakhs) even if Tax liability arises or not. If TDS of a person is deducted and Refund arises, same can be claimed, by filing Income Tax Return. E.g. many taxpayers have only income of Interest on deposits. If Interest received is not exceeding Basic Exemption Limit then it is not necessary to file Income Tax Return. But if TDS is deducted on the Interest then he has to file Income Tax Return for getting refund. To save himself from TDS deduction such Taxpayers can file Form 15G or 15H before receiving Income for not deducting TDS.

Arjuna: Krishna, what precautions should one takes before filling Income Tax Return?

Krishna: Arjuna, Every Taxpayer should download 26AS from the Income Tax department’s website. Income and TDS as per 26AS should be verified with the Income Tax Return. Taxpayer may have to face the Department if Income is shown less than the Income shown in 26AS.

Arjuna: Krishna, if a Taxpayer receives a notice for not filling Income Tax Return, then what should be done?

Krishna: Arjuna, the Taxpayer has to give Online Compliance if he receives notice for not filling Income Tax Return in this Year and its Status has to be mentioned. The Taxpayer has to mention whether he has filed Income Tax return or not, if he has filed, then he needs to mention the Return filling date, Acknowledgement No., Circle/ Ward and whether online or paper form. If return is not filed then the reason for non-filing is required to be given. Further he has to mention whether the notice received is for his own PAN or for other related PAN. The Taxpayer can file previous year’s returns on the basis of the said notice. If it comes to tax payable then Taxpayer should pay tax and interest, file return and then submit online compliance.

Arjuna: Krishna, What should the Taxpayer learn from the Income Tax Return, TDS and Notice?

Krishna: Arjuna, the responsibility of TDS deduction is of the deductor, Filling of Income Tax Return is of self and to draw notice is of the Department. If a Taxpayer files Income Tax Return correctly then department will not issue notice and no online compliance has to be made. Many taxpayers think that after the TDS is deducted there is no need to File Income Tax Return. A small confusion / misunderstanding in the eyes of law becomes complex in future. Like our health may get damaged, if we don’t pay attention to minor illness. This means Compliance of law and Disease of body should be cured immediately otherwise its effects may create complication in future.

Article Source Tax Guru

Deduction we use to forget while computing taxable income

Medical treatment of specified ailments under section 80DDB:-

Deductions of expenses on medical treatment of specified ailments (such as AIDS, cancer and neurological diseases) can be claimed under Section 80DDB. The maximum amount of deduction allowed from gross total income is restricted to Rs 40,000 (which goes up to Rs 60,000 if the age of the person treated is 60 years or more) on condition that no medical reimbursement is received from any insurance company or employer for this amount.

In order to claim this deduction, however, you will have to submit Form 10-1 from a specialist doctor working in a government hospital in India, confirming the treatment of the disease.

Deduction for Medical treatment of dependent :-

Under Section 80DD of the Act, where an individual has incurred expenditure for the medical treatment, training and rehabilitation of a dependent, being a person with disability or has paid or deposited any amount under prescribed scheme for the maintenance of dependent, such individual will be allowed a deduction to the extent of Rs 50,000. However, if the dependent is suffering from severe disability, a deduction of Rs 75,000 will be allowed.

Charitable deductions under section 80G:

Deduction is also available under Section 80G of the I-T Act in respect of donations made by an individual to certain funds, charitable institutions and so on. There is no restriction on the amount of charity. The rate of deduction, however, is either 50 or 100 per cent, depending on the choice of trust. Also, donations must be made to registered institutions only.

Deductions under section 80GG in respect of rent paid:

Deduction to the extent of Rs 2,000 per month or 25 per cent of total income (whichever is less) is available under Section 80GG of the I-T Act in respect of rent paid by an individual on his accommodation, provided the individual does not get any house rent allowance.

Foreign taxes paid:-

Foreign Tax Credits may be claimed by an individual in respect of doubly-taxed income which is taxed in India as well as in a foreign country provided the conditions as prescribed under the Double Taxation Avoidance Agreement between India and the foreign country are satisfied. Even if there is no Double Taxation Avoidance Agreement between India and the foreign country, credits may also be claimed under the Act, subject to specified conditions.

Deduction under section 80U for Person with disability:-

Under Section 80U of the Act, an individual who is certified by the prescribed medical authority to be a person with disability shall be allowed a deduction of Rs 50,000 and an individual, who is certified as a person with severe disability, shall be allowed a deduction of Rs 75,000. W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh.

Interest on loan taken for Home improvement:-

Expenditure incurred by an individual on repair and maintenance of house property and interest paid on loan taken for such repairs and maintenance of house property are allowed as deduction while computing income from house property. Thus, if you have gone for any home improvement project, don’t forget to make your claim.

Allowance for daily expenses:-

Allowance for daily expenses are exempt from tax under Section 10(14)(i) of the Act read with Rule 2BB(1)(b) of the Income-Tax Rules, 1962, if the same are actually incurred on ordinary daily charges while the employee is on tour and absent from his normal place of duty.

Profit on sale of property used for residence :

It would also help to remember that capital gains arising from the transfer of residential property is exempt from tax in the hands of individual under Section 54 of the Act to the extent “expenditure is incurred on the purchase of another residential house within a period of one year before or two years after the date of transfer or expenditure is incurred on construction of a house property within a period of three years after the date of transfer.

Tuition fee paid for the education of children:

Believe it or not, but many taxpayers often forget to claim deduction in respect of the tuition fee paid for the education of their children. Deduction, however, is available to an individual under Section 80C of the I-T Act in respect of tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether paid at the time of admission or thereafter to any university, college, school or other educational institution situated within India for the purpose of full-time education of any of the children of the individual.

Interest on loan taken for higher education:-

Taxpayers also tend to forget that the interest paid on an education loan taken for higher studies qualifies for deduction under Section 80E of the I-T Act. Also, effective April 1, 2008, the said deduction is also available where the loan is taken for the purpose of higher education of spouse or children of the individual or the student for whom the individual is a legal guardian. Thus, if you have taken a loan for higher education, don’t forget to make your claim. Also remember that the deduction benefit on interest is allowed for maximum eight years, or till the interest is fully paid.

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Section 80C – Investment in Equity Linked Savings Scheme (ELSS)

It is the time of year when most of people invest in various products to claim the deduction under Income Tax Act. Surprising that most of them choose either bank FD’s or PPF as their first priority for Tax saving although from so many years Equity Linked Savings Scheme (ELSS) has emerged as best product for tax saving investments in Indian market.

An Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund which gives following advantage-

• Opportunity to grow your money.
• Qualifies for tax exemptions under section u/s. 80C of the Indian Income Tax Act.
• Long-term capital gains from these funds are tax free in your hands.
• Shorter lock-in period of 3 years as compared to NSC & PPF
• Exposure to equity results in high earning potential
• Dividend payout option enables gains even during lock-in period
• Investing through Systematic Investment Plan (SIP) averages out your investments over a period of time

Even when markets were negative, ELSS has given fair returns with double tax exemption, not only you can claim the exemption u/s 80 C but also the gains will be exempt from tax. Lack of awareness and half knowledge is the most prominent reason for the same. Following is the list of Top performing ELSS.

Fund / Benchmarks	Return %	Rank	Return %	Rank
Reliance Tax Saver Fund	95.47	1	39.20	2
Axis Long Term Equity Fund	71.03	2	41.30	1
Birla Sun Life Tax Relief 96	62.61	3	31.82	3
Kotak Tax Saver	62.43	4	21.65	29
Franklin India Taxshield Fund	62.12	5	29.36	6
HDFC Taxsaver Fund	61.07	6	27.31	13
Birla Sun Life Tax Plan	60.77	7	30.74	4
BNP Paribas Long Term Equity Fund	58.06	8	28.40	7
Religare Invesco Tax Plan	57.49	9	30.28	5
DSP BlackRock Tax Saver Fund	57.19	10	28.18	9
HSBC Tax Saver Equity Fund	55.39	11	25.80	20

Now you can see the difference in return of FD and PPF and ELSS. According to most of the experts in the street ELSS is still the best option to make 80C investments as steep fall in the prices of crude will work as a boon for India. Indian markets will continue to perform robustly.

Points to remember while choosing an appropriate ELSS

You must always remember to do thorough research when you invest in an ELSS fund. You must look at the long term performance of the fund before putting your money in it. Also remember to look at the fund details like the fund manager’s investment approach, portfolio of the fund, the expense ratio of the fund and how volatile the fund has been in the past.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Article on www.taxguru.in

Submitted by Shaifaly Girdharwal