7 Deemed owner Capital gains tax on liable to tax property...
1
H ouse rent al- lowance (HRA) is received by the salaried class. A deduction is per- missible under Section 10(13A) of the Income Tax Act, in accordance with Rule 2A of the Income Tax Rules. You can claim exemption on your HRA under the Income Tax Act if you stay in a rented house and get a HRA from your employer. The HRA deduction is based on salary, HRA re- ceived, the actual rent paid and place of residence. The place of residence is impor- tant. For Mumbai, Kolkata, Delhi or Chennai, the tax ex- emption on HRA is 50 percent of the basic salary, while for other cities it is 40 percent of the basic salary. The city of residence is to be considered for calculating HRA deduc- tion. The least value of these is al- lowed as tax exemption on HRA: ■ Actual rent allowance the employer provides as part of salary in the relevant pe- riod during which the rental accommodation was occupied ■ Actual rent paid for the house, less 10 percent of ba- sic pay ■ 50 percent of basic salary if you reside in Mumbai, Cal- cutta, Delhi or Chennai, or 40 percent if you reside in other cities In order to claim the ex- emption, the rent must actu- ally be paid for the rented premises which you occupy. Also, the rented premises must not be owned by you. As long as the rented house is not owned by you, the exemption of HRA will be available up to the limits specified. For the purpose of this de- duction, salary means basic salary and includes dearness allowance, if the terms of em- ployment provide it, and com- mission based on a fixed per- centage of turnover achieved by the employee. The deduction is available only for the period during which the rented house is oc- cupied by the employee and not for any period after that. It is to be noted that the tax benefits for home loans and HRA are two separate as- pects. In case you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on a home loan. You need to submit proof of rent paid through rent re- ceipts, duly signed and stamped, along with other de- tails such as the rented resi- dence address, name of the owner, period of rent etc. Ashish Gupta explains how you can avail a tax deduction on house rent allowance ance Rs 1.75 lakhs (Rs 6.75 lakhs mi- nus Rs 5 lakhs) he will pay tax at 20 percent, thus paying a total tax of Rs 61,000 (Rs 26,000 plus Rs 35,000). If Ramkumar had no income other than short-term capital gains, his total taxable income will be Rs 5 lakhs on which he has an exemption of up to Rs 2.4 lakhs and on the balance income of Rs 2.6 lakhs he will pay a tax of 10 percent which works out to Rs 26,000. If Ramkumar had also taken a policy for health insurance by pay- ing Rs 10,000, his total taxable in- come will be Rs 2.5 lakhs (Rs 2.6 lakhs minus Rs 10,000) and he will pay a tax of Rs 25,000. (The author is Director, DMS Financial Services Pvt Ltd) M any individuals consider pur- chasing plots of land purely for investment purposes with a view to sell them within two or three years. What are the in- come tax implications? Income (surplus) de- rived from the sale of a capital asset whether movable (such as sale of shares, units etc) or immovable (such as sale of plot of land, build- ing) results in capital gains. Capital gains could be short-term or long-term and in both cases the surplus is taxable under the Income Tax Act under the head 'Capital Gains'. Equity shares and property Where the asset is a share listed in a recog- nised stock exchange or a unit of a mutual fund, the period of holding should be more than 12 months to be classified as a long-term capital asset. Otherwise, it is classified as a short-term capital asset. For all other assets including property, the period of holding should be more than 36 months to be classified as long-term. Any income (surplus) derived from sale of a long-term capital asset is taxed as long-term capital gains. Similarly, income derived from a short-term capital asset is taxed as short-term capital gains. This classification is important as there is differential treatment with respect to levy of income tax for each of them. Let us confine the taxation aspect of capital gains to immovable property, particularly short-term. Computation of short-term capital gains The income (profit) derived from transfer of short-term immovable property is taxed as short-term capital gains. Short-term capital gains are 'excess of amount realised' over the cost of acquisition and the cost of improve- ment if any such as fencing, and expenses such as brokerage. The surplus, if any, is taxed as a short-term capital gain. Short-term capital gains are sim- ply added to the income and taxed at normal rates. If your income as it is was taxable at the highest slab rate, the short-term capital gains will also be taxed at the highest tax rate. If your income falls below the minimum taxable limit you will need to add the short-term capi- tal gains to this income and then work out the tax as per the slabs given for the aggregate in- cluding short-term capital gains. You can claim deductions under relevant Sections such as 80C, 80D, 80G etc for any invest- ments/payments made by you from the tax- able income including short-term capital gains. How it works The pension income of Ramkumar, a pen- sioner is Rs 1.75 lakhs. He is 65 years old on April 1, 2010. He has short-term capital gains of Rs 5 lakhs on sale of a plot of land in the outskirts of the city. The taxable income in this case will be Rs 6.75 lakhs and being a sen- ior citizen he will have exemption of up to Rs 2.4 lakhs. The first slab of income being Rs 5 lakhs (as per the Union Budget announced in February 2010 applicable from April 1), on an amount of Rs 2.6 lakhs he will pay tax at 10 percent amounting to Rs 26,000 and on the bal- 7 MONEY MATTERS FRIDAY, APRIL 9, 2010 A TIMES OF INDIA PRESENTATION F or an income to be taxable under the head ‘Income from House Property”, certain conditions need to be met. Firstly, the as- sessee must own the property. Secondly, the property should consist of buildings or land adjacent thereto. Further, the property must be rented out so as to derive rental income. It must not be used for the business or profession of the assessee. A common question raised by many is whether only the owner is liable to tax on ‘In- come from House Property’. In some circumstances, the person liable to tax may not be the owner of the house. The provisions of the In- come Tax Act extend the purview of taxation to in- clude not only the owner, but even the deemed owner of a property, to make him liable to tax under ‘Income from House Property’. Under the Act, a deemed owner is an owner by implication. He may not be the owner in the true sense of the word. But from a taxation perspective, such a person is treated as the owner and is liable to tax, just like a real owner of the property would be. For example, in case an in- dividual transfers a property for inadequate consideration or gifts a property to a minor child, he will be treated as deemed owner of that proper- ty. Although legally the owner of the property is the minor child, the income from that property will be treated as in- come of the person who has transferred it. The law pre- sumes that such a transfer has been triggered with the intention of avoiding tax. Another stipulation is con- tained under Section 53A of the Transfer of Property Act. Section 53A of the Transfer of Property Act deals with situa- tions where though an agree- ment to buy property has not been registered with the ap- propriate authority, a person who has purchased such a property will be treated as the owner of the property. Ac- cordingly, a person who meets the provisions of Section 53A of the Transfer of Property Act will be treated as deemed owner of that property for tax purposes. In case a person has ac- quired a right through long- term lease of a property, he will be treated as the owner of that property. Long-term lease means lease for period of more than 12 years. Income from that property will be tax- able in his hands. Similarly, a member of a co-operative so- ciety, company or other asso- ciation of persons to whom a building has been allotted un- der a house building scheme of a society will also be treat- ed as deemed owner of that property and taxed like a real owner. The holder of an impart- ible estate will be treated as the owner of that entire prop- erty. In case where a Hindu Undivided Family (HUF) jointly holds property on be- half of all its members, it will be treated as the owner though legally the property is in the name of an individual member of the family. Such deemed owners of property are treated as a real owners for tax purposes and liable to tax accordingly. Deemed owner liable to tax Capital gains tax on property investment Rajeshwari Arvind outlines the tax implications on capital gains arising out of sale of a site Tax deduction on HRA How it applies For example, assume one earns a basic salary of Rs 20,000 per month and rents a flat in Mumbai for Rs 5,000 per month. His actual HRA is Rs 8,000. He is eligible for 50 percent of the basic pay for HRA exemption. Least of: ■ Actual HRA received - Rs 8,000 ■ 50 percent of basic salary - Rs 10,000 ■ Excess of rent paid over 10 percent of salary, i.e., Rs 5,000 less Rs 2,000 - Rs 3,000. As such, Rs 3,000 per month is the least and will be the exemption allowable for HRA deduction. Ashish Gupta explains how a deemed owner is liable to tax www.rashidevelopers . corn Wi th 65 acres of p lanned development around , expectin g a mere dream home is lowerin g your expectations. That ’s true. You’ll come across tree-lined avenues , wide tarred roads , good civi c infrastructure , hi gh h compound walls with solar fencing, a modern clubhouse.., and then of course , large-sized sites for you to build your dream home. Well , to save your valuable time and money we have come up wi th aesthetically built Villas , where you can Choose that option as well. What ’s more , the project is in close proximity to the Bengaluru International Airport. APPROVED Choose from plot sizes of RAS HI —— —— —— -- 50 x0’ !pkn Z* ii1r 100% released BIAPPA Premium Residential Enclave approved l ayout . @ Doddaballa pur Bank loan arranged for purchase of Site/Villa BIAAPAjTP/LAO/05/2007-08 Dated 28-04-2007 Call: 9844252259 / 9844133694 / 9844256073 9886026626 / 9844008171 RASH! D EVELOPERS C-205 , House of Lords , St. Marks Road , Bengaluru-560 001. Tel: 080-22103131 22103132 , 22103133 , 22103134.Email:[email protected] sms JMERs to 575758 ldb ld *COflditioflS S D I / / E-mail: ajmerabangalore@ajmera .com • [email protected] Contact No. Toll-free No. 1iP# llP po i of Urne and the vahday of th: off ered pnce nadhunayak@ajmera.com • [email protected] Site Office : +91-92436 06777 1800-209-256372 are at the sole discretion of the developers . www.ajmerabangalore.com Madhu : + 91-93422 05053 Am itabh : +91-93797 58546
Transcript of 7 Deemed owner Capital gains tax on liable to tax property...
House rent al-lowance (HRA) isreceived by thesalaried class. Adeduction is per-
missible under Section10(13A) of the Income TaxAct, in accordance with Rule2A of the Income Tax Rules.You can claim exemption onyour HRA under the IncomeTax Act if you stay in a rentedhouse and get a HRA fromyour employer.
The HRA deduction isbased on salary, HRA re-ceived, the actual rent paidand place of residence. Theplace of residence is impor-tant. For Mumbai, Kolkata,Delhi or Chennai, the tax ex-emption on HRA is 50 percentof the basic salary, while forother cities it is 40 percent ofthe basic salary. The city ofresidence is to be consideredfor calculating HRA deduc-tion.
The least value of these is al-lowed as tax exemption onHRA:
� Actual rent allowance theemployer provides as partof salary in the relevant pe-riod during which therental accommodation wasoccupied
� Actual rent paid for thehouse, less 10 percent of ba-sic pay
� 50 percent of basic salary ifyou reside in Mumbai, Cal-cutta, Delhi or Chennai, or40 percent if you reside inother cities
In order to claim the ex-emption, the rent must actu-ally be paid for the rentedpremises which you occupy.Also, the rented premisesmust not be owned by you. Aslong as the rented house is notowned by you, the exemptionof HRA will be available up tothe limits specified.
For the purpose of this de-duction, salary means basicsalary and includes dearnessallowance, if the terms of em-ployment provide it, and com-mission based on a fixed per-centage of turnover achievedby the employee.
The deduction is availableonly for the period duringwhich the rented house is oc-cupied by the employee andnot for any period after that.It is to be noted that the taxbenefits for home loans andHRA are two separate as-pects. In case you are payingrent for an accommodation,you can claim tax benefits onthe HRA component of yoursalary, while also availing taxbenefits on a home loan.
You need to submit proof ofrent paid through rent re-
ceipts, duly signed andstamped, along with other de-tails such as the rented resi-dence address, name of theowner, period of rent etc.
Ashish Gupta
explains how
you can avail a
tax deduction
on house rent
allowance
ance Rs 1.75 lakhs (Rs 6.75 lakhs mi-nus Rs 5 lakhs) he will pay tax at 20
percent, thus paying a total tax ofRs 61,000 (Rs 26,000 plus Rs 35,000).
If Ramkumar had no incomeother than short-term capitalgains, his total taxable income willbe Rs 5 lakhs on which he has anexemption of up to Rs 2.4 lakhs andon the balance income of Rs 2.6lakhs he will pay a tax of 10 percentwhich works out to Rs 26,000.
If Ramkumar had also taken apolicy for health insurance by pay-ing Rs 10,000, his total taxable in-come will be Rs 2.5 lakhs (Rs 2.6lakhs minus Rs 10,000) and he willpay a tax of Rs 25,000.
(The author is Director,DMS Financial Services Pvt Ltd)
Many individuals consider pur-chasing plots of land purely forinvestment purposes with aview to sell them within two orthree years. What are the in-
come tax implications? Income (surplus) de-rived from the sale of a capital asset whethermovable (such as sale of shares, units etc) orimmovable (such as sale of plot of land, build-ing) results in capital gains. Capital gainscould be short-term or long-term and in bothcases the surplus is taxable under the IncomeTax Act under the head 'Capital Gains'.
Equity shares and property
Where the asset is a share listed in a recog-nised stock exchange or a unit of a mutualfund, the period of holding should be morethan 12 months to be classified as a long-termcapital asset. Otherwise, it is classified as ashort-term capital asset. For all other assetsincluding property, the period of holdingshould be more than 36 months to be classifiedas long-term.
Any income (surplus) derived from sale of along-term capital asset is taxed as long-termcapital gains. Similarly, income derived from ashort-term capital asset is taxed as short-termcapital gains. This classification is importantas there is differential treatment with respectto levy of income tax for each of them.
Let us confine the taxation aspect of capitalgains to immovable property, particularlyshort-term.
Computation of short-term
capital gains
The income (profit) derived from transfer ofshort-term immovable property is taxed asshort-term capital gains. Short-term capitalgains are 'excess of amount realised' over thecost of acquisition and the cost of improve-ment if any such as fencing, and expensessuch as brokerage.
The surplus, if any, is taxed as a short-termcapital gain. Short-term capital gains are sim-ply added to the income and taxed at normalrates. If your income as it is was taxable at thehighest slab rate, the short-term capital gainswill also be taxed at the highest tax rate. Ifyour income falls below the minimum taxablelimit you will need to add the short-term capi-tal gains to this income and then work out thetax as per the slabs given for the aggregate in-cluding short-term capital gains. You canclaim deductions under relevant Sectionssuch as 80C, 80D, 80G etc for any invest-ments/payments made by you from the tax-able income including short-term capitalgains.
How it works
The pension income of Ramkumar, a pen-sioner is Rs 1.75 lakhs. He is 65 years old onApril 1, 2010. He has short-term capital gainsof Rs 5 lakhs on sale of a plot of land in theoutskirts of the city. The taxable income inthis case will be Rs 6.75 lakhs and being a sen-ior citizen he will have exemption of up to Rs2.4 lakhs. The first slab of income being Rs 5lakhs (as per the Union Budget announced inFebruary 2010 applicable from April 1), on anamount of Rs 2.6 lakhs he will pay tax at 10percent amounting to Rs 26,000 and on the bal-
7 MONEY MATTERS
F R I D A Y, A P R I L 9 , 2 0 1 0 A TIMES OF INDIA PRESENTATION
For an income to betaxable under thehead ‘Income fromHouse Property”,certain conditions
need to be met. Firstly, the as-sessee must own the property.Secondly, the property shouldconsist of buildings or landadjacent thereto. Further, theproperty must be rented outso as to derive rental income.It must not be used for thebusiness or profession of theassessee.
A common question raisedby many is whether only theowner is liable to tax on ‘In-come from House Property’.In some circumstances, theperson liable to tax may notbe the owner of the house.
The provisions of the In-come Tax Act extend thepurview of taxation to in-clude not only the owner, buteven the deemed owner of a
property, to make him liableto tax under ‘Income fromHouse Property’. Under theAct, a deemed owner is anowner by implication. He maynot be the owner in the truesense of the word. But from ataxation perspective, such aperson is treated as the ownerand is liable to tax, just like areal owner of the propertywould be.
For example, in case an in-dividual transfers a propertyfor inadequate considerationor gifts a property to a minorchild, he will be treated asdeemed owner of that proper-ty. Although legally the ownerof the property is the minorchild, the income from thatproperty will be treated as in-come of the person who hastransferred it. The law pre-sumes that such a transferhas been triggered with theintention of avoiding tax.
Another stipulation is con-tained under Section 53A ofthe Transfer of Property Act.Section 53A of the Transfer ofProperty Act deals with situa-tions where though an agree-ment to buy property has notbeen registered with the ap-propriate authority, a personwho has purchased such aproperty will be treated as theowner of the property. Ac-
cordingly, a person who meetsthe provisions of Section 53Aof the Transfer of PropertyAct will be treated as deemedowner of that property for taxpurposes.
In case a person has ac-quired a right through long-term lease of a property, hewill be treated as the owner ofthat property. Long-termlease means lease for periodof more than 12 years. Incomefrom that property will be tax-able in his hands. Similarly, amember of a co-operative so-ciety, company or other asso-ciation of persons to whom abuilding has been allotted un-der a house building schemeof a society will also be treat-ed as deemed owner of thatproperty and taxed like a realowner.
The holder of an impart-ible estate will be treated asthe owner of that entire prop-erty. In case where a HinduUndivided Family (HUF)jointly holds property on be-half of all its members, it willbe treated as the ownerthough legally the property isin the name of an individualmember of the family.
Such deemed owners ofproperty are treated as a realowners for tax purposes andliable to tax accordingly.
Deemed owner
liable to tax
Capital gains tax onproperty investment
Rajeshwari Arvind
outlines the tax
implications on capital
gains arising out of sale
of a site
Tax deduction on HRA
How it applies
For example, assume one earns a basic salary of Rs20,000 per month and rents a flat in Mumbai for Rs 5,000per month. His actual HRA is Rs 8,000. He is eligible for 50percent of the basic pay for HRA exemption.
Least of:
� Actual HRA received - Rs 8,000
� 50 percent of basic salary - Rs 10,000
� Excess of rent paid over 10 percent of salary, i.e., Rs5,000 less Rs 2,000 - Rs 3,000.
As such, Rs 3,000 per month is the least and will be theexemption allowable for HRA deduction.
Ashish Gupta
explains how a
deemed owner
is liable to tax
www.rashidevelopers . corn
With 65 acres ofplanned development around ,
expecting a mere dream home
is lowerin g your expectations.
That ’s true. You’ll come across tree-lined avenues,
wide tarred roads, good civic infrastructure,
high h compound walls with solar fencing,
a modern clubhouse.., and then of course,
large-sized sites for you to build your dream home.
Well , to save your valuable time and money
we have come up with aesthetically built Villas,
where you can Choose that option as well.
What ’s more, the project is in close proximity
to the Bengaluru International Airport.APPROVED
Choose from plot sizes of RAS HI ——————--
50 x 0 ’ !pkn�Z*ii1r100% released BIAPPA Premium Residential Enclave
approved layout . @ Doddaballa purBank loan arranged
for purchase of Site/Villa BIAAPAjTP/LAO/05/2007-08 Dated 28-04-2007
Call: 9844252259 / 9844133694/ 98442560739886026626 / 9844008171
RASH! DEVELOPERSC-205 , House of Lords , St. Marks Road, Bengaluru-560 001. Tel: 080-2210313122103132, 22103133, 2 2 10 3 13 4 . E m a i l : i n f o @ r a s h i d e v e lo p e r s . c o m
sms �JMERs to 575758
ldbld *COflditioflS S�D�I�/ / E-mail: ajmerabangalore@ajmera .com • [email protected] Contact No. Toll-free No.
1iP#llP po�i of Urne and the vahday of th: off ered pnce [email protected] • [email protected] Site Office : +91-92436 06777 1800-209-256372
are at the sole discretion of the developers . www.ajmerabangalore.com Madhu : + 91-93422 05053Amitabh : +91-93797 58546
