A N Shanbhag answers queries on EPF, house rent and double taxation
Suppose someone sells his blue chip demat shares to his wife at face value (much below the market price) in a regular way through DP (depository participants) before March 1, 2004 and she likewise sells her shares to him, what will be the capital gain tax implications (on both occasions) if both decide to sell their respective acquired blue chip shares in the market after one year of the first transaction?
D Bandyopadhyay
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The ITO will not allow the exemption available since he can rightfully claim that these transactions were effected only to evade capital gains tax. Even the capital loss, if any, in the initial sale at face value, will be disallowed.
Incidentally, you must have realised by now that Parliament has plugged the loophole that I had pointed out in the Budget-03 proposals. Now, the transaction has to be through a recognised stock exchange and that too in only BSE-500 scrips and IPOs.
One self-occupied house is permitted as tax-free. Suppose a person has a house in city A, but lives in city B due to certain compulsions in a rented house and pays house rent.
He has no alternative but to give his house in city A on rent. Is there any scope in IT law to enable him to set off his income from the let-out house in city A against his expenditure on house rent in city B where he is staying.
Saroj Kumar Mohanty
The person cannot set off the income from house property against the payment of rent. You should have mentioned if you are getting HRA or not.
The annual value of a house or part of a house shall be taken as nil if it i) is in the occupation of the owner for his own residence or ii) cannot be occupied by him because of his employment, business or profession at any other place and he has to reside at that place in a building not belonging to him.
However, if you give your house on rent, it cannot have nil annual value.
All assessees, including employees not getting HRA, paying rent for furnished or unfurnished accommodation in excess of 10 per cent of their total income are entitled to a deduction of least of i) rent in excess of 10 per cent of total income; ii) 25 per cent of total income and iii) Rs 2,000 per month. The deduction is not available if the accommodation is i) owned by the assessee or his spouse or minor child or the HUF of which he is a member at the place where he normally resides or has his office, employment, business or profession or ii) owned by him at any other place and occupied by him (income claimed to be nil).
I am planning to settle in India. I am a US citizen by birth. I wish to take over my father's business in India.
Being a US citizen, would Indian taxation law allow me to pay my taxes in America, and not be taxed in India? Would it be different if I had a PIO Card or NRI status?
Chintan Sheth
Your Indian income will be taxed in India. Possibly, it will also be taxed in America. Please ascertain about its taxability from a tax consultant in America. If you stay permanently in India, your status will be Resident Indian and your American income will also be taxable in India.
However, tax paid in USA may be adjusted against tax payable in India depending on the terms of DTAA between USA and India. Double Taxation Avoidance Agreements between India and other countries, wherever such agreements exist, are available on www.incometaxindia.gov.in.
If you had posed the query last year, the answer would have been in the negative. Unfortunately, the authorities have changed the provisions, making your income earned abroad taxable.
I read your article on EPF. I have a specific query: on retirement, is it obligatory that the former employee has to write to the PF commissioner of the respective state for retaining the whole balance so that it earns further tax-free interest?
G D Prasad
The retired employee has to write to the PF Commissioner (or the trustees of the Co-PF) to claim the refund of his accumulations in the fund, whenever he desires to do so. There is no need to inform anyone of the intention of continuing the fund. The employee will earn the interest automatically in the interim period.
It is a known fact that the commissioner's office takes its own sweet time to refund dues even after it receives a refund request. The employee is entitled to the interest up to the date of the refund.
The author may be contacted at
anshanbhag@yahoo.com