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Chat Transcript

Balwant Jain

Tax and Investment Expert ,

How the ITR is to be verified


Questions Answered

Balwant Jain: welcome everyone

guest: I have purchased one Flat and done joint registry with wife. Wife is Housewife & having source of income from Bank FD interest & House Rent only. FD fund is given by my father in law to wife. Rental income is received in wife\`s Bank account. - Wife will File ITR and show the full rental income along with the bank FD interest. - As the total income of wife(Including House Rent FD Interest) will be less than 5 Lakh, no tax liability will be there. - Is it correct to show the Jointly registered Home total rental income in wife\`s ITR as his tax liability is NIL(Below % Lakh income).

Balwant Jain: Since the money for buying the house has been fully provided by you, the full rent will become taxable in your hand. The fact that your wife has been made joint owner in the agreement is not relevant for tax purposes. Even the order in which you are named in the purchase agreement is not relevant. What is relevant is the ratio in which each one of the joint owner has contributed towards cost of the property. So the rentals will become fully taxable in your hands. Please do not commit this mistake of showing rental income in her ITR.. Even if money paid by you for buying the property is treated as gift from you to your wife, the rental income will still become taxable in your hands due to clubbing provisions.

guest: For the last financial year my bank has shown all the interest accrued on all my Fixed deposits with them in Form 26AS, although I did not receive any interest in the previous year. The maturity of these FD is in financial year 2022-2023. This has put me in a cash crunch because though I have not received any income but had to show it as income in the FY in my IT return because it is shown in Form 26AS under Sec 194A and I had to pay 30% tax (my IT bracket). I have the following queries : (a) Was the bank right in showing the accrued interest in an individual\`s Form 26AS when it has not actually paid it to the customer. I understand this does not become income of a person till he receives it? (b) Do I have to pay tax on the whole interest again in the Financial year 2022-2023 when these FDs mature and the bank actually credits it in my account. Will it not be double taxation? Please advise as to how I can get this situation remedied with the bank and IT department/CPC.

Balwant Jain: Answers to your questions. a) Please note interest income becomes taxable when it accrues. However the income tax laws give you an option to follow either cash or mercantile method of accounting. Meaning thereby option to offer the income either on accrual basis or on receipt basis. Please note that this option is available only in respect of income which is taxable either under the head "Profits and gains of business or profession" or "Income from other sources". Generally all the banks follow mercantile system of accounting where the income and expenditure are accounted on accrual basis. So for the bank the interest on bank fixed deposits which is an expenditure for them, which has accrued till the year end though not paid has accrued so the bank has to deduct TDS on it and file TDS returns showing the details of the persons to whom the interest has accrued. b) Since you have already shown this as income during the previous year, the same will not become at the time of receipt in the year 2022-2023. You also had an option to follow either of the method of accounting in respect of bank interest as this is taxable under the head “Income from other Sources.” So you could have shown your interest as taxable on receipt basis or show it as your income on accrual basis thereby matching your numbers with those of the bank. It is advisable to follow accrual method of accounting so as to ensure that income from interest on fixed deposits gets spread over the years of it tenure. Moreover it is very convenient for your to avail the corresponding credit for the TDS in the same year.

guest: F/D in the name of my wife. I am having pension income, income from Other Source. (SB interest, interest of bank deposit & adding my wife’s Bank deposit interest. Is it correct form ITR-1 to be used ? As per new ITR-1 form under the Head other source of income SB interest, interest of bank deposit refund interest to be shown separately but where to mention my wife interest income of bank deposit. Is it to be selected \"Any other\", but what to mention in description & wife\`s name , Pan be mentioned or not ? Uploading the return can be done from any other place &name of that place to be mentioned ?

Balwant Jain: If tax has been deducted on interest credited to your wife fixed deposits and you want to claim the refund of the same, you cannot file ITR 1 but instead will have to file ITR 2. However if no tax has been deducted, you can use ITR 1 and you need to include the FD interest with your FD interest and no need to show it separately.

guest: My father in law had a property (residential house of 1000 yards) in Chandigarh. He had 8 children. After his death my wife got 1/8th share in 2015. She died in 2017 and after her death, ownership rights of her share was transferred to me and my two sons. Now we have sold our share for Rs 2.01 crores 10th July 2020 and received Rs 67 lakh each. From the deal 2.01 lakhs TDS was deducted. What are the tax liabilities of each one of us, on this transaction. In which manner the amount is to be utilized. Is TDS deposited is refundable and how and which IT Return form is needed for to be submitted.

Balwant Jain: Since you all had 1/3 share in the share of property sold, the 1/3 share of the long term capital gains will become taxable in your respective hands. In case your father in law had bought or constructed the house before 1-4-2001, the proportionate market value of the property on 1st April 2001 can be taken as your cost. However if it was acquired after that date then the proportionate cost actually incurred by him will be your cost for capital gains. Moreover the benefit of indexation will be available to you from the date when your father in law became owner to the property or 1-4-2001 as the case may be as per the decision of Bombay High Court in the case of Manjula J shah. The tax payable is at flat rate of 20.8% of the difference between the sale price and indexed cost. If you want to avail exemption from payment of long term capital gains either you can invest the capital gains for buying or constructing a residential house or invest the capital gains in capital gains bondsof specified entities. In case you do not wish to make investments in house or bonds, you are free to use the money the way you want. In case you make investments to avail the tax exemption, you will be able to claim the refund of the TDS or the same would be adjusted against your tax liability. You will have to use ITR 2 unless any of you is doing any business in which case ITR 3 will be applicable.

guest: When I closed an ex-resident savings account, I was issued a bank draft in my name for the available funds. Can I deposit the draft and such funds to my NRE account? I do not have an NRO account at all, only an NRE account.

Balwant Jain: deposits in NRE Account are allowed for funds received from out of India, in permitted foreign currencies. Therefore, you will have to open an NRO account and deposit the draft into that account. In NRO account you are permitted to credit of any legitimate dues in India.

guest: I am in 20% tax slab. I have opended an RD account with post office of denomination Rs 2500/month for 5 years will pay me 1.50 lacs plus interest of Rs 38500/-. Will the whole amout of Rs. 1,88,500 received on maturity amount be taxable?

Balwant Jain: The full amount of 1,88,5000 which will not become taxable in your hand at the time of maturity. Only the interest of Rs. 38,500/- will become taxable in your hand at the time of receipt of such maturity proceeds in case you have not offered the accrued interest on such RD for tax in each of the year. . However you have an option to offer the interest income for tax as accrued in each of the financial year. You can get an interest certificate from your post office for interest accrued at the end of each financial year after end of the year.

guest: If I purchase unlisted share without paying STT but sale after holding 3 years after listing and pay STT then what would be the Tax rate on the capital gain?

Balwant Jain: If the unlisted shares are listed before 31st January, 2018 the fair market value of the shares on 31st January 2018 shall be taken as the cost of the shares. However if the shares are listed after 31st January, the indexed cost of acquisition shall have to be taken as cost of acquisition. Since STT is being paid at the time of sale, such transactions will get covered under Section 112 A and shall be taxed at flat 10% after initial exemption of one lakh. You need to hold these shares for just 12 months after getting listed and not three years.

guest: I have property my own old house which value is near about 10 lakhs. After sale I want to deposit this amount in my saving a/c and I will go to a rented house have planned to buy new house later on. So I want to know whether t 10 lakhs rupee are taxable or not.

Balwant Jain: Since you are planning to sell your old house, I presume the same must have been held for more than two years and thus the profits will be taxed as long term capital gains and the capital gains, computed after taking into account the indexed cost, shall become taxable at flat rate of 20.80%. Since you are planning to acquire new house, you need to buy a ready to move in house within two years from date of sale of this house or get a new house constructed within three years from the date of sale of the house. However if the money is not fully or partly utilized for acquiring new house by the due date of filing of ITR which is generally 31st July of the subsequent year, the amount which remains unutilized has to be deposited in a capital gains account with banks under capital gains scheme. You can use the money so deposited in the account for acquisition of the new house. If you do not want to acquire the house right now, you can use the money the way you want till 31st July.

guest: Whether long term capital gains exemption is applicable for the transactions of sale of second home / third home or it is only applicable for sale of first home.

Balwant Jain: I understand you are talking about exemption available under Section 54 which is available if the long-term capital gains from sale of a residential house are utilized for purchase/construction of another residential house within specified time. There are no restrictions as to the number of times you can avail benefit of this exemption as long as the long term capital gains on sale of one house are invested in another house. Moreover there is no restriction as to the number of houses, which you can own on the date of sale of the residential house property. In case long term capital gains arising on sale of a residential house are invested for purchase or construction of more than one residential house, you will get the benefit only in respect of capital gains invested in one house only of your choice. There is only one onetime exception to this rule of having to invest in one house where you can invest long term capital gains in investing two residential houses provided the long term capital gain amount does not exceed two crores.

guest: I have two daughters and one son. Can I claim the school fee in respect of all the three children under Section 80 C? My wife is also working.

Balwant Jain: As per provisions of Section 80 C, an individual can claim deduction, in respect of tuition fee paid for education of two children only. Since the law clearly provides that the deduction under Section 80 C for tuition fee can be claimed only in respect of two children you can not claim the deduction for tuition fee of all the three children but can only do this for two of your children. Since your wife is also working, she can claim the deduction for the third child in her ITR

guest: Can the retired Senior Citizens pay the taxes in March 21 for the current Financial Year ?

Balwant Jain: A senior citizen does not have to pay any advance tax provided he is not engaged in any business or profession. So a senior citizen does not have to pay the tax even in March 2021 for the current financial year. However please ensure to file your income tax return by 31st July 2021 and pay the tax at the same time to avoid interest and penalty.
Balwant Jain: Thanks everyone for joining in.
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