Income Disclosure

Query 1]

1. If a person has not made any investments in LIC or in PPF, so can he claim bogus deduction under sec 80C? 

2. If a person has not filled ITR in previous years though he was liable to pay tax but he didn’t pay & file so. But now, in AY 16-17, he thinks that his income would be less & so he wants to claim the TDS refund. So, would the IT deptt. will scrutinize his previous records also? (Note that while viewing this person 26AS, no income is being showed).

3. One of my friend is from Nagpur & do job in Nagpur only. He receives HRA of Rs. 5,000/- monthly. Can he show, while filling ITR, that he is paying rent to his father & can claim part deduction in HRA? Please advice. [adityapatel1025@gmail.com]

Opinion:

‘The difference between tax avoidance and tax evasion is the thickness of a prison wall’– Denis Healey

 

1. Income tax Act-1961 has incorporated numerous penalty and prosecution provision for the defaulters & evaders. Penal provisions are there:
   –  concealment of income
   –  furnishing inaccurate particular of income
   –  failure to maintain the books of account wherever applicable
   –  failure to furnish return of income
   –  acceptance or repayment of loans/ deposits of Rs. 20,000/- or more in cash
   –  failure to answer any questions put to any person by an income tax authority
   –  failure to comply with the summons issued by income tax authorities
   –  also to sign any statements required by income tax authorities
   –  willful attempt to evade tax/interest etc. Income Disclosure
   Above is just an illustrative list of penal clauses. For each and every failure/ default/ evasion, there is a penalty, fine or even prosecution provision. As a true well wisher, you should advise your friend not to venture in any sort of bogus claim or malpractices, whether by claiming LIC / PFF deduction on the basis of bogus receipts or any such other mode. Taxpayer should note that the tax always costs less than the penalty, fine and prosecution.
2. The department is tracking the information of non filers very vigorously and vigilantly. The citizens with taxable income should ensure to file the return without any ignorance. The non filers could be subject to hefty penalty, fine & prosecution. In normal course, returns for the previous year are not scrutinized on the basis of the current year returns. But, with the increased usage of technology by the department, the probability of getting trapped is enormously high. It is advisable for your friend to file the return for the current year even though his income is less than the basic exemption limit because department is issuing the notices to the non filers having TDS to their credit but have not filed their income tax return even for claiming refund of their own (TDS) money. It is advisable to file the return voluntarily and claim the TDS refund rather than waiting & complying the subsequent notices of the department.
   Non filer who hasn’t filed the return of earlier years may take the benefit of “Income Declaration Scheme-2016” as proposed in the recent union budget-2016. By this scheme, non filers and persons with unaccounted income/investment have been bestowed with an opportunity to declare their untaxed income by paying 45% of the undisclosed income as tax, penalty & krishi vikas cess. The scheme is proposed to commence from 1^st June 2016 & would be operational for a short span of time. I would cover the details of the schemes after it gets the approval of the parliament.
3. Your friend can claim deduction by paying rent to his father. There is no bar in paying the rent to the father and claiming deduction u/s 10(13A) towards HRA.

 Query 2]

I am a railway employee. I had purchased a two BHK flat @ Rs. 6,55,000/- in the year 2007-February. Due to some personal reason I sold the flat @ Rs. 29.61 Lacs on July-2015. Out of this amount, PNB has deducted outstanding Rs. 10.00 Lacs as home loan and Rs. 5.00 lacs approx of OD amount. Balance amount I have received through cheque. To avoid LTCG tax, what I have to do? I wanted to purchase a flat within Rs. 35 Lacs, but it may took some time. I am having retirement time of Approx 2 years 9 months. My son is working in a Pvt. I.T sector since last 8 months. I want to purchase the flat in the name of my son with me as a co- borrower & want to save tax for both of us. Requesting you to please explain & suggest what I have to do now. [Kalyan Kumar Roy- kalyankumarroy31@gmail.com]

Opinion:

1. An Individual/HUF earning Long Term Capital Gain (LTCG) from sale of house property can save tax by claiming an exemption u/s 54. For exemption, taxpayer would be require to invest the amount of LTCG for purchase or construction of the house property within a prescribed time period. The prescribed time periods are as under:
   a] For purchase- One year before or two years from the date of sale.
   b] For Constructions-Three years from the date of sale.
2. Cost Inflation Index (CII) for the relevant FY 2006-07 & 2015-16 are “519” & “1081” respectively. Your indexed cost of acquisition would be Rs. 13.64 Lacs and LTCG would be Rs. 15.96 Lacs. The amount of Rs. 10 Lacs or Rs. 5 Lacs directly applied towards loan repayment would not at all be relevant for working out the amount of LTCG. To save tax, you can invest the amount of Rs. 15.96 Lacs in another house property within a prescribed time frame.
3. You intend to purchase the house property for Rs. 35 Lacs. You can purchase it joint-ownership with your son. You can do so in around 50:50 ratio whereby you could invest your LTCG as your share in the house property and your son could avail housing loan against his share in the house property. As a result of this, (a) you could save tax on LTCG and (b) your son would be able to get tax benefit available against housing loan u/s 24(b) towards interest & u/s 80C towards principal repayment of housing loan.

Query 3]

I read an article long back written by you in Hitawada news paper.

In the article you have mention that speculative trading (intra-day without delivery) losses can be carry over for four AY.  As for as F&O, the losses can be carry over for 8 years. In case of delivery base share trading whether it is under “Income from Capital Gain” or ‘Income from Business”, losses, if any, can be carry over for how many years?

Can you please explain. [R Venkataraman-venkat.2804@rediffmail.com]

Opinion:

Loss from delivery based share trading, whether it is taxable under the head “Income from Business & Profession” or under the head “Income from Capital gain”, can be carried forward for set off for next 8 years. It may further be note that Long term Capital Loss (LTCL) can only be set off only against LTCG. LTCL cannot be set off against STCG. Carry forward short term capital loss can be set off against capital gain (long term or short term) of the immediately succeeding 8 assessment years.

Income Disclosure

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