Query 1]
My friend is a central government pensioner. In fact, he along with his wife were seriously injured in a car accident on 01/07/2010. Wife had suffered multiple fractures and now able to move around with some rods inside her limbs after one years treatment. But the man after remained in coma for four months with further treatment in Delhi, he is now completely bed ridden with his right side of body fully paralyzed. He is not even able to put his signatures instead puts his thumb impressions. His medical certificate given by medical board shows 90% permanent disability. His Date of Birth (DOB) is 03/04/1953 & he took voluntary retirement six months prior to his Date of retirement (DOR). His all pensionary benefits like, Gratuity, leave encashment etc is spent in his & his wife’s treatment. He did not file any Tax return for the past three years as he did not get any salary being bed ridden. Now, from April 2013, as he is receiving his pension, he needs to file his return. His monthly pension is approximately Rs. 33,000/-, out of that he spends Rs. 15,000/-in physiotherapy and medicines. Rs.60,000/-is deposited in lump under a tax saving fund for three years. It is learnt that Bank is also deducting some Tax from his pension. He want to know whether he has to file any return for the period he was not paid any salary during paralysis? Can he start filing his return from 2013-14? Is there any Tax rebate for such disability and what type of form is to be used to file the return? I shall be highly obliged if suitable guidance is given through “TaxTalk” column. [Devashish Mukherjee, Raipur –m_devashish@yahoo.com]
Opinion:
Before I reply to your query, I express deep gratitude for all the help you are extending to your friend during such adverse time. The world is beautiful all because of good people like you all around.
On the information sought by you, the point-wise replies are as under:
- As income during the current year is exceeding the basic exemption limit, he has to mandatorily file his return of income.
- In case of Individuals, filing of the return is mandatory only if gross total income (i.e., income before claiming deductions towards LIC/PPF/Tax saving instruments u/s 80C) exceeds the basic exemption limit. There was no liability to file the return of income in earlier year as your friend, as mentioned in the query, was not having any taxable income.
- There are two provisions (Section 80DDB & Section 80U) which can confer some benefit to your friend. Depending upon the facts of his individual case, he need to ascertain whether he is entitled to any relief or not.
a] Deduction u/s 80DDB:
The deduction u/s 80DDB is available if the expenses for medical treatment of specified disease or ailment is incurred by assessee on himself or on dependant. The specified disease for the purpose of section 80DDB is prescribed in Rule 11DD as under:
(1) For the purposes of section 80DDB, the following shall be the eligible diseases or ailments :
(i) Neurological Diseases where the disability level has been certified to be of 40% and above,—
(a) Dementia ;
(b) Dystonia Musculorum Deformans ;
(c) Motor Neuron Disease ;
(d) Ataxia ;
(e) Chorea ;
(f) Hemiballismus ;
(g) Aphasia ;
(h) Parkinsons Disease ;
(ii) Malignant Cancers;
(iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;
(iv) Chronic Renal failure;
(v) Hematological disorders :
(i) Hemophilia ;
(ii) Thalassaemia.
The amount of deduction allowable under section 80DDB is the expenditure actually incurred or Rs. 40,000/- (Rs. 60,000/- for senior citizen) whichever is lower.
b] Deduction u/s 80U:
Deduction under section 80U of the I.T. Act, 1961 is available to an individual who is resident and who at any time during the previous year is certified by a medical authority to be a person with disability. If your friend is suffering from disability as covered herein below mentioned, he can claim deduction u/s 80U.
“Person with Disability” means a person suffering from not less than 40% of any of the disability given below:
i) blindness
ii) low vision
iii) leprosy-cured
iv) hearing impairment
v) locomotor disability
vi) mental retardation
vii) mental illness
viii) austim
ix) cerebral palsy
x) multiple disability referred to in clauses (a), (c), & (h) of section 2 of the National Trust for welfare of persons with Austim Cerebral Palsy, Mental Retardation & Multiple Disabilities Act-1999.
The deduction under this Section is a sum of Rs 50,000/- in normal cases and if the person is suffering from a severe disability (80% or more) then a sum of Rs. 1,00,000/- is allowable as deductions. - The Income Tax Returns forms (ITR) for the current FY 2013-14 have not yet been announced. The same may likely be notified somewhere in the last week of March or the in the first week of April. I will ensure to cover the ITR to be used for filing the return for FY 2014-15 in Tax Talk column for the benefit of all.
Query 2]
I am retired bank manager and preferred provident fund instead of pension. Now, my bank has given me option whereby I have to return provident fund (100% employer’s contribution) with 56% interest and get pension with arrears. Since pension amount is subject to income tax, this amount of interest, in my opinion, should be deducted from pension amount to arrive at taxable income as this is loss /charge on income. Please advice. [Mohan Bhureja-mvbhureja@gmail.com]
Opinion:
Pension income is taxable under the head “Income from Salary”. There are very few restrictive payments/expenses that are eligible for deduction against the salary income.
There is no provision in the income tax to allow the deduction towards interest payment (56%) done by you as mentioned in the query. Resultantly, entire pension would be subject to income tax.
Query 3]
One of my lady relative, who is a senior citizen, is filing ITR-2 for so many years. Her income for FY 2012-13 is as follows:
- Salary : 42,000/-
- Capital gains
Short term : 27,000/-
Long term : Rs. 23,700/-(exempt) - Other sources : 92,600/- (includes interest,
commission from
Shriram transport finance
co. ltd, furniture rent) - Loss from MCX trade(silver) : 2,73,000/-
She has made her mind not to trade in MCX anymore and does not want to carry forward her losses for 8 years. Also, she does not want to file return in lengthy form ITR- -4. Can she file ITR-2 as usual? Till which date, she can file at the latest? [Shankerlal Fatnani- srf.fatnani@yahoo.co.in]
Opinion:
Income from MCX is chargeable to tax under the head “Income from Business & Profession”. The terminology “Income” includes loss in a legal term. Any person having income under the head business cannot file return in ITR-1 or 2. Returns forms have to be signed by the taxpayer undertaking that all the particulars of income are truly stated therein. She cannot file the return of income in ITR-2 even if she doesn’t or can’t carry forward the loss of MCX. The due date of filing the return of income for the FY 2012-13 in her case was 31st July 2013. However, the return for the FY 2012-13 can be filed latest by 31st March 2014 without any penalty of late filing. As she will be filing the return after due date (i.e., 31st July), she is not entitled to carry forward the MCX loss.
Query 4]
I had already taken a housing loan 3 years back in my name. The loan is in my name and I am also getting the interest rebate of Rs. 90,000/- as per section 24(b). Now, I had purchased another house and this time the loan is taken jointly in the name of my wife (who is also employed) and me. My query is, how can we both take the benefit of interest rebate in this case? The interest portion for our second house is around Rs. 2 Lacs. Can we both get the interest rebate of Rs. 1,50,000/- (Rs 1,50,000/- for myself and Rs 1,40,000/-for my wife). [KSK-kunjsuresh@yahoo.co.in]
Opinion:
The new house property purchased in a joint ownership is your second house property. It may be noted that, in case of joint ownership, deduction towards interest or principal repayment is not available as per the convenience of individual co-owners/co-applicant but is admissible based on the documentations & supporting evidences. In short, your claim against interest payment of Rs. 2 Lacs cannot be as per your convenience (Rs. 60,000/- & Rs. 1.40 Lacs) but has to be in the ratio of individual share in the loan of each co-owner.
Readers may please note that the tax treatment of the second house property is not same or similar as that applicable to first house property. The second house property has a different tax treatment under the Income Tax Act-1961. I am elaborating the tax issues involved in the second house property as under:
- The income from house property is taxable on the basis of its “Annual Value”.
(The term “Annual value” is elaborated at point No. 5 hereunder.) - One house used by the tax payer for his/her own residence is exempt from tax as its annual value is treated as Nil.
- Where the assessee owns only one house property and it cannot actually be occupied by him because it is situated at a place other than a place where he is employed or carries on business or profession, in such a case also the annual value of the property will be taken as nil provided the property is not actually let out.
- If taxpayers have two or more houses which are used for own residence, then assessee have the option to choose one of the house (according to his own choice) as self-occupied house, for which an assessee would like to get an exemption from tax and its annual value will be considered as Nil. The second house (or other houses) shall be deemed to be have to been let out [whether not actually let out].
- What is Annual Value of house property and how it is determined?
The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property is higher, it shall be treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property. - How to calculate annual value/taxable value of property:
Annual value of property is considered as higher of the following:
(i) Actual rent received a year;
(ii) Reasonable expected rent of the property.
[ The reasonable expected rent is deemed to be the sum for which the property might reasonably be expected to be let out from year to year and is normally higher of (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]
As mentioned earlier, the assessee has the option to choose only one house as self-occupied property. Other house properties are assessable to income tax on the basis of its annual value. - Deductions:
From the annual value the following deductions are available under the Income Tax Act: –
a] Municipal Tax paid.
b] 30% of the net annual value of the house property towards Repair & Maintenance charges (Deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).
c] Actual Interest paid on housing loan whether house is actually let
out or is deemed to be let-out.
d] For self-occupied property, maximum interest on housing load is restricted to Rs. 1,50,000 p.a., subject to certain other stipulations. - Effectively, if Assessee owns more than one house property & is kept for own use,
a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above.
In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.
However, for the second house property, no deduction is available for repayment towards the principal portion of housing loan under section 80C as clause ( xviii)
to section 80C of the I T Act reads as under: –
“(xviii) for the purposes of purchase or construction of ‘ a’ residential house property the income from …..”.
In your specific case, it appears that your second house property have higher interest commitment as well as may have higher annual value in comparison to your first house property. If both the properties are kept for your own use, you can plan, based on the above tax issues involved, about the property to be treated as self occupied & the property to be offered for taxation on notional basis.
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