NATURE OF INCOME DETERMINES DEDUCTIBILITY OF EXPENSES !!

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Query 1]

I have following query about Income Tax implication for my earnings. I am pensioner and getting pension which comes under tax slab. I have interest income. Recently, I have joined service on contract basis for 11 months for a fixed annual contract amount. Kindly guide me about the tax implication after receipt of contractual amount? About TDS, Is there any expenditure permitted to be deducted from gross total income and up to what limit and which are the expenditures permitted? Also guide whether Loan EMI (for house and car) are permitted to be deducted from total income for arriving at taxable income? [Deepak Pande-d_pande1@yahoo.in]

Opinion:

The 11 months fixed contractual amount could either be taxable under the head “Income from salary” or “Income from Business/Profession”. The nomenclature, nature of payment & relation between payer & payee will determine the head under which the income would be taxable. If the payment is of contractual nature (which appears to be so on the basis of information provided by you) then the same would be taxable under the head “Income from Business) and all the expenses like Depreciation on car, Interest on Car loan, petrol, telephone expenses etc incurred for earning the income would be deductible from your contractual receipt. However, if there exists a relationship of employer & employee inter se between the payer & payee then the amount would be taxable under the head “Income from Salary”, and no deductions towards expenses as mentioned above would be admissible. In either case, whether the receipt is taxable as salary or business income, the principal repayment of housing loan taken from the specified financial institution would be admissible as deduction u/s 80C subject to a max cap of Rs. 1 Lacs.

Query 2]

  1. I have salary income exceeding Rs. 5 Lacs but don’t have digital signature. Can I file return electronically without digital sign? How?
  2. Further, in the Hitavada dated 1st July’13, you have mentioned
    that ITR-1 cannot be used by person who:
    “(III) has income not chargeable to tax exceeding Rs.5,000/-.”
    I have dividend income more than Rs. 5,000/- which is not subject to tax. Then, which Return Form I should use? [Pawankumar. –     pawannathani21@yahoo.com]

Opinion:

  1. The return of income can be filed electronically without digital signature as well. In case the return in filed without digital signature, the only further requirements is that the signed copy of the acknowledgment is required to be filed at CPC, Bangalore within 120 days of filing the return. The detailed procedure involved in e-filing of income tax return is elaborated in Tax Talk dated 26.08.2013. You can retrieve the same from ehitavada.com or www.nareshjakhotia.blogspot.com
  2. Since you have exempt income (Dividend- Rs. 5,000/-), you can’t file income tax return in ITR-1. You can file the same in ITR-2.

Query 3]

I have sold the residential property in the year 2012-13. The same was gifted by my father in the year 1998-99 and it was purchased by him in the year 1978. Please let me how to calculate purchase value for calculation of capital gain by indexed costing? [ankurkhare7@icloud.com]

Opinion:

In case of gifted property, the cost of acquisition in the hands of previous owner is deemed as the cost in the hands of the subsequent owners. In your specific case, since the property was acquired prior to 01.04.1981, you can adopt the fair market value of the property as on 01.04.1981 as the cost of acquisition of the property. You may obtain the valuation report from the Government approved valuer in support of the fair market value of the property as on 01.04.1981.

Query 4]

  1. My son is an NRI during the year 2013. Can we deposit the amount in his PPF A/c? There are conflicting views about the deposits. Please clarify.
  2. My daughter is living in a rented premise in Raipur and running her own boutique. She &her husband don’t have any house in her own name. Whether the rent paid towards the house (used for residence) is also deductible from their yearly income? [mksar*****@gmail.com]

 

Opinion:

  1. NRI cannot open a PPF A/c. But if NRI already had a PPF account when he was resident in India, and during the continuity of PPF A/c he become an NRI, then he can continue investing in the account until it matures, but on a non repatriable basis. For the benefit of all, the relevant part of the rule is reproduced as under:
    “Provided that if a resident who subsequently becomes a Non Resident during the currency of the maturity period prescribed under the PPF scheme, may continue to subscribe to the Fund till its maturity, on a Non Repatriation Basis.’
  2. Any individual (whether salaried or businessmen) can claim deduction from its income towards rent payment of a residential accommodation u/s. 80GG of the Income Tax Act. The condition precedent to claiming deduction under this section is:-
    a] He has to prepare a declaration in Form No.10BA.
    b] He or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) (i.e., income from self-occupied house property).
    Amount of deduction – The deduction admissible shall be the lower of the following: –
    (i) house rent incurred in excess of 10% of “Total Income”; or
    (ii) Amount at 25% of “total income”; or
    (iii) Rs. 2000 per month.
    Note:
  3. The term “Total income” means total income after allowing all deductions expect the one provided under this section itself.
  4. In case of salried assessee who is in receipt of HRA from the employer, no deduction u/s 80GG is admissible. However, they can claim deduction u/s 10(13A) of the Income Tax Act-1961.
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