TAX PLANNING: PRE-MORTEM IS BETTER THAN POST-MORTEM

TAX PLANNING: PRE-MORTEM IS BETTER THAN POST-MORTEM

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TAX PLANNING

Query 1]

  1. Sir, kindly clear my doubt regarding filing of income tax return for the F.Y 2010-11 (A.Y. 2011-12) for the salary class person having taxable income, either male or female, whose income tax is deducted subject to tax liability having income less than Five Lacs rupees and having no other income. Whether such assessee is liable to file income tax return. Kindly give clarification. [aparajit@gmail.com]
  2. Whether the basic exemption limit has been enhanced to Rs. 5 Lacs? Whether the salaried assessee with salary income from private employer are also exempt from filing the income tax return if the gross salary received is less than Rs. 5 Lacs or it is applicable to Government Employee only? [[MS,KA]

Opinion:

The Central Board of Direct Taxes has notified the scheme exempting salaried taxpayers with total income up to Rs.5 Lacs from filing income tax return for the Assessment year 2011-12 vide Notification No. 36/2011. Individuals having total income up to Rs.5,00, 000/- for FY 2010-11, after allowable deductions, consisting of salary from a single employer and interest income from deposits in a saving bank account up to Rs.10,000/- are not required to file their income tax return. You may further refer Tax Talk dated 18.07.2011 wherein the circular contents has been aptly elaborated. The basic exemption limit has not been enhanced. Merely immunity from filing the income tax return is granted to the Salaried Assessee, be it a Government employee or a private employee, with salary income up to Rs. 5 Lacs satisfying certain conditions.

Query 2]

We had purchased a flat in F.Y. 2005-2006, Dated: 5/12/2005 as per Sale Deed for Rs. 9, 45,000/- & paid stamp duty of Rs. 36,000/-. The ownership is of the flat is in the name of my mother(M) & three brothers(including myself) S1, S2, S3 & we had taken Housing loan of Rs. 8,95,388/- having equal share. Now, the above said flat was sold for Rs. 22,55,431/- the receipts of which is as under:

  1. 8, 73,931/- Paid by Purchaser directly to H/Loan by Cheque Dt. 17/08/2010
  2. 4,60,500/- Paid to S1 by Cheque Dt. 17/08/2010
  3. 4,60,500/- Paid to S2 by Cheque Dt. 17/08/2010
  4. 4,60,500/- Paid to M by Cheque Dt. 17/08/2010

22, 55,431/- Total Receipts

It may be noted that till date the sale deed of above flat sold is not done. All three sons (S1, S2, S3) are salaried employee & taxable, TDS done. Only one of S1 had purchased a new flat for Rs. 7, 50,000/- & stamp duty paid Rs. 31, 470/- as per sale deed Dated: 1/6/2010. Mother has taxable income below exemption limit. Now my queries are as under:

  1. Whether 8, 73,931/- paid to H/Loan Bank will be added in S1, S2, S3 & M Receipts? If yes, what proportion?
  2. What will be taxable capital gain to each of them?
  3. If there any tax planning is done to save tax of M, S2 & S3? [rahuldhurai@gmail.com]

Opinion:

  1. On the basis of facts submitted by you, it is very difficult to ascertain the year in which the transfer of the flat took place. The sale consideration is received by all the co-owners in the F.Y. 2010-11. However, no sale deed has yet been executed in favor of the buyer. Handling over of the possession of the property in such case plays a crucial role in determining the year of transfer. If the possession is handed over to the buyer in the F.Y. 2010-11, the LTCG would be taxable in the F.Y. 2010-11. If the possession is coupled with the sale deed, then the amount would be taxable in the year of executing of the sale deed.
  2. Assuming that the possession is handed over to the buyer in the F.Y. 2010-11 itself, the Long Term Capital Gain (LTCG) shall be as under:

    a) Cost of Acquisition  = Rs. 9,81,000/- (You can further include Registration charges paid for registry, Brokerage, Legal fees etc in the cost of Acquisition)
    b) Year of Acquisition                                                        = 2005-2006
    c) Cost Inflation Index (CII) for the F.Y. 2005-06          = 497
    d) Sale consideration                                                            = Rs. 22,55,431/-
    [However, if the value adopted by the Stamp duty authorities is higher than Rs. 22,55,431/-, then LTCG would be required to be calculated by taking such higher value.]
    e) Year of Sale/Transfer                                                      = 2010-11
    f) Cost Inflation index for the F.Y. 2010-11                    = 711
    g) Indexed cost of Acquisition is Rs. 14,03,402/-  (Rs. 9,81, 000* 711/497)
    h) Long term capital gain = Rs. 22,55,431 (-) 14,03,402/- = 8,52,029/-.
    i) Taxable long term capital gain taxable in the hands of each of the co-owner shall be Rs. 2,13,007.50.

  3. With above presumption as to the year of transfer as F.Y. 2010-11, replies to your other queries are as under:
    a] S1 is eligible for exemption u/s 54 as the LTCG is invested for purchase of another residential house property within one year before the date of transfer of house property. No LTCG would be taxable in the hands of S1.
    b] LTCG would be taxable in the hands of S2, S3 & M. The unutilized basic exemption limit of M can be used against her LTCG & the remaining amount of LTCG would be taxable.
    c] The amount of Rs. 8,73,931/- paid by the buyer to the housing loan account would not be a deductible amount while computing LTCG.

    d] Tax Planning Angel:

    As far as the tax planning is concerned, we always believe pre-mortem is better than postmortem. The other co-owners (except M) could have gifted their share in the house property to S1. Since S1 has invested the amount of LTCG for purchase of another residential house property, S1 could have claimed exemption u/s 54 even on the LTCG of S2 & S3.

    e] Caution Side of the Transaction:
    If anyone who has claimed deduction u/s 80C towards principal repayment of housing loan transfers the house property within five years of its purchase, shall have following two effect:

    i] No deduction shall be allowed in the year in which such transfer took place
    ii] All deduction allowed up to that year shall be assessed as income in THAT year in which such transfer took place.

  4. Exemption u/s 54
    Exemption u/s 54 is available if the assessee invests amount of LTCG for purchase of another residential house property One year before or two years after the date of transfer; or, in the alternative, the assessee constructs a residential house within a period of three years from the date of the transfer of the original house. If F.Y. 2010-11 is not the year of transfer of the house property, then availability of exemption in the hands of S1 needs re-examination. For exemption claim u/s 54, the transfer of your joint property should have been completed within one year from 01.06.2010.

TAX PLANNING


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