“LOGIC & LAW MAY NOT CO-EXIST”

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u/s 201(1A)

Query 1]

Can u please enlighten me on following issues related to TDS.  Interest rate on late deposit of TDS liability is 18% p.a. i.e., @ 1.50% pm or part thereof (effective from the date of TDS deducted). Can you please elaborate about “part thereof” (giving detailed calculation). I am giving examples:

  1. TDS is deducted of Rs. 1,000/- on 01/05/2014. It is deposited on 20/06/2014. So what will be the period on which interest (@ 1.50 % p.m.) is to be paid with reference to “part thereof”? Is it for (31 + 20= 51) days or will have to pay for 2 months?
  2. TDS deducted of Rs.1,000/- on 18/05/2014. Deposited on 09/06/2014. So what will be the period on which interest (@ 1.50 % p.m.) is to be paid with reference to part thereof? Is it for (13 + 09 = 21) days or will have to pay for 2 months? [Dinesh Gaharwar- dineshsinghg2000@yahoo.com]

Opinion:

Interest for failure to deduct or failure to pay TDS within due date is leviable u/s 201(1A) of the Income Tax Act-1961. For such default, interest is chargeable as under:
a] @ 1% per month or part thereof from the date on which tax was deductible to the date on which tax is actually deducted.

b] @ 1.50% per month or part thereof from the date on which tax was actually deducted to the date on which tax is actually paid.

The word “Part thereof” means even a delay of a day would be reckoned as a month & interest would be chargeable for entire month.

To illustrate, in the first case, TDS was done on 01/05/2014, Due date of TDS deposit was 07/06/2014, whereas TDS was actually deposited on 20/06/2014. Effectively, as per section 201(1A), there was a delay of 2 months from the date of tax deduction [and not 51 days as part of a month is considered as one month for the purpose of section 201(1A)].

In the second case, TDS was done on 18/05/2014, Due date of TDS deposit was 07/06/2014, whereas TDS was actually deposited on 09/06/2014. Effectively, there was a delay of 2 months [and not 21 days] for levy of interest.

In short, as far as interest on TDS payment is concerned, the numerical counting starts from “Two” and not “One”. Illogical it may sound but the fact remains, Logic and Law may not co-exist.

 

Query 2]

My query is given below and would request you to kindly explain the same in your forthcoming column. 

I had purchased a flat in Nagpur and as per Sale Deed dated 30.08.1995, the cost was at Rs. 1.75 Lacs while it was valued as per Govt. reckoner at Rs. 2.15 Lacs.  I had sold this flat as per Sale Deed dated 04.04.2014 for Rs. 21.50 lakh and the proceeds are being used in the house constructed for me in our native place in Kerala.  I am planning to complete the construction before March 2015. Please clarify: 

  1. Tax implication towards LTCG, if any?
  2. Since the proceeds are being fully utilized for construction of house, procedures to be followed for filing of returns for the coming FY as I am a regular tax payer? You are aware that labour cost has increased considerably and it will comprise of a major part in the cost of building apart from material cost.
  3. Please advise regarding maintenance of documentation for the purpose of filing tax returns. 
  4. Any other precautions to be taken? [Vinit Nair-vinitneox@gmail.com]

Opinion:

  1. The ready reckoner value of Rs. 2.15 Lacs is not at all relevant while determining the capital gain tax. The cost of acquisition would be Rs. 1.75 Lacs plus all the purchases expenses like stamp duty, registration expenses etc incurred at the time of purchase. Since the flat is sold after a holding period of more than 36 months, you would be entitled for indexation benefit. It may be noted that CII for FY 1995-96 is “281” whereas it is “1024” for the FY 2014-15. Ignoring purchase expenses, your indexed cost of acquisition would be Rs. 6.38 Lacs.
  2. The capital gain would be computed by taking Rs. 21.50 Lacs or ready reckoner value if it is higher than the actual sale consideration of Rs. 21.50 Lacs. Assuming that your actual sale consideration is not less than the ready reckoner valuation, Long Term Capital Gain (LTCG) would be Rs. 15.12 Lacs.
  3. LTCG on sale of a house property could be saved by claiming an exemption u/s 54. For claiming an exemption u/s 54, tax payer have to invest the amount of Long term Capital Gain from sale of house (i.e., Rs. 15.12 Lacs, in your specific case) towards:
    a] purchase of another house property within a period of 2 years or
    b] construction of a house within 3 years period from the date of transfer.
    Since you will be constructing a house property within a period of 3 years (rather within a period of one year only), you would be entitled for LTCG exemption and there will not be any LTCG tax liability on you.
  4. In support of your exemption claim, you are advised to properly document & maintain all the papers, bills & records in support of your investment in the construction of the house property. Even labour cost would be considered for the purpose of exemption.
  5. As a precautionary measure, in case entire LTCG is not invested towards construction of a house on or before 31.07.2015, do set aside the amount by depositing it in the Capital Gain Deposit Account Scheme (CGDAS) with a scheduled bank. Amount invested in CGDAS would also be eligible for exemption u/s 54 in such cases. The amount can be subsequently withdrawn anytime before 03.04.2017 towards construction expenses.

u/s 201(1A)


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