Income tax as a subject is complicated to explain due to various interpretation, judgements given over six decades. Hence an attempt is made to give clarity to the concepts and relevant applicable provisions without using jargons based on the queries received, observations made while helping taxpayers in filing their income tax returns. The dynamics involved in every transaction and related interpretation calls for a detailed analysis of the provisions of the income tax act.
The queries received and issues observed are used as a basis for explaining various concepts.
Readers are requested not to conclude the tax treatment based only on the articles published in this column which is generic and not specific in nature.
You can send your queries to email@example.com to get answers on this subject.
1. I have sold a land and I have invested the sale proceeds in an apartment which is under construction. Will I get any benefit with respect to capital gain?
The duration of holding the property in your hands is not specified in your query. I assume it is long-term in nature. To claim an exemption on the sale of land, the taxpayer has to invest in another residential house property either by purchasing a house within 2 years from the date of sale or construct within 3 years from the date of sale. The minimum amount to invest in this case is the net sale consideration (Sale value minus brokerage paid on sales). Yes, you can avail exemption by investing in under construction property one and only if it is followed by registration in your name.
2. I have sold a land for Rs.52 Lakhs. No brokerage paid on sale. The land was purchased in 2003, Indexed cost of acquisition is Rs.36 Lakhs. My capital gain is Rs. 16 Lakhs I have reinvested Rs 36 Lakhs in House property. Will I get the exemption completely on 16 Lakhs?
Though the actual cost of purchase of land is not mentioned in the query, based on the numbers given, you will not get complete exemption of Rs.16 Lakhs. The income tax act says that if the land is sold and re-invested in a house property, the exemption is given as follows:
If the amount of investment made in the new property exceeds the net consideration, the entire capital gain is exempted.
If the amount of investment made in the new property is less than the net consideration, then the amount of exemption is proportionate to the investment made over net sale consideration. In your case 36 Lakhs / 52 Lakhs multiplied by 16 Lakhs. The exemption is Rs.11.08 Lakhs and not Rs.16 Lakhs.
3. I have taken a loan for purchasing of a house. The construction is not complete and I have not taken possession of the property yet, Can I avail tax benefit on the interest paid?
The interest paid on a home loan can be taken into consideration only if the construction is complete. The interest paid during the construction years is called as pre-construction period interest. This pre-construction period interest can be availed in 5 equal installments starting from the year in which the construction is complete. This should not be confused with the benefit given to claim capital gain exemption on under construction property. The income tax act categorizes the income under various heads namely salary income, house property income, business or profession income, capital gain income and other sources. The payment of interest falls under the head “House Property Income” and Investment in House Property falls under the head “Capital Gain”, Rules are different. The interest paid should not be considered while calculating the income from house property until the year of completion.
4. I am a salaried employee, medical expenses though bill submitted is not considered and my form 16 does not reflect. Is it possible to claim this deduction at the time of filing the return?
It is important to understand the salary structure. If the salary structure has a medical allowance as a line item, then the medical expenses can be availed. If the salary structure is only Basic, HRA and Other allowance then you cannot avail medical expenses even at the time of filing the return.
5. I could not submit proof of investment to my employer as the investments were made after the due date for submission. Is it possible to claim the deduction at the time of filing the return
even if it is not considered in form 16?
Many people to avail tax benefit and to reduce the tax liability, resort to claiming expenses or investment outside of form 16 at the time of filing the return. But if you have proof of investment and it is genuine it can be considered while filing the income tax return. But the onus to prove the claim is on you and not on the employer.
6. I am a self-employed person. I am staying in a rented house. Can I claim HRA benefit?
House Rent Allowance concept comes only when there is an employer-employee relationship. In other words, only if you get salary HRA benefit can be claimed. Not to worry. For taxpayers who are not salaried but staying in rented accommodation, can avail the rent paid up to 60000 per annum as a deduction. Often this deduction is ignored while filing the return.
7. I have purchased a hearing aid worth Rs.30000 for my father. I am a salaried employee. Is there any additional benefit that I can avail of this?
A resident individual or HUF can claim deduction u/s 80DD of the income tax act expenses incurred on dependent with respect to specified disabilities.
Expenses incurred on medical treatment, rehabilitation, training or nursing of a disabled dependent can be claimed as a deduction.
The disabilities specified are –
a. Cognitive or severe mental disabilities
b. Low Vision
e. Hearing impairment
f. Locomotor disability
g. Mental illness
i. Cerebral Palsy
j. Or Multiple disorders.
The amount of deduction that can be availed is maximum of Rs.75000 if the percentage of disability is more than 40%. The amount of deduction that can be availed is maximum of Rs.125,000 if the percentage of disability is more than 80%.
This deduction is over and above the deduction claimed u/s 80C.
A medical certificate stating the disability and the percentage of disability as issued by the central or state government medical board is required to claim the deduction.
Since the purchase of hearing aid falls under the specified disability “hearing impairment”, you can claim the deduction.
8. I have purchased a property and paid stamp duty charges. Is there any benefit that can be claimed on the purchase of property?
The stamp duty paid on the purchase of property can be claimed under Section 80C of the income tax act. The stamp duty paid is eligible for claiming deduction up to Rs.1.50 Lakhs
9. I have decided to sell my house property and has also finalized the sale value. Both the parties are ready to register the property at the market value which is more than the guidance value. But I was told that the guidance value only will be considered at the registrar office? I am not sure about the treatment from the income tax perspective as my sale deed will reflect only the guidance value.
From the income tax perspective, any capital gain arising on sale of property, it should be disclosed and tax as applicable has to be paid (or claim exemption). It is wise to disclose the total sale consideration (and not the guidance value) received for income tax purposes. Usually, in a property sale, the sale agreement is made first and later sale deed is made. Usually, the sale agreement will reflect the total sale consideration and sale deed will reflect only the value at which the property is registered. Keeping the sale agreement and the evidence for receiving the sale consideration as the basis, offer the total sale consideration received to determine capital gain and capital gain tax.
10. I am spending Rs.1.10 lakhs as school fees on my children. But this is not considered by my employer for tax purposes. I was also told that the school fees cannot be claimed as a deduction.
We have often seen that some employers do not consider the school fees paid while calculating the tax liability.
As per section 80C, tuition fees paid can be considered for deduction. This is eligible for claiming deduction up to Rs.1.50 Lakhs
But please note that only tuition fee is eligible and no other payments made to the school in the name of activity fees, annual fees, music fees, van fees etc is eligible for claiming the deduction.
If you have the receipt then you can claim the deduction while filing the income tax return.
11. I have paid property tax for 4 years in 2017-18. Whether tax paid for earlier years can be claimed in this year?
Property tax paid is deducted from the rental income while calculating the income from house property. Only on payment of property tax, it can be claimed. It does not matter for which year you have paid the property tax, but in which year you have paid only matters. Hence the property tax paid during 2017-18 including property tax paid for earlier years can be claimed as deduction while computing your tax liability.
12. I have a land which I am intending to sell and waiting for the right price. Meanwhile, I have purchased a property on January 18. I read in your column that to avail capital gain exemption on the sale of land, I have to invest in house property. Can I sell the land now and claim an exemption based on the house property purchased on Jan 18?
Section 54F of the income tax Act says that any long-term capital asset other than a residential house property if sold exemption from capital gain can be availed if a residential house property is purchased
a. Within 1 year before the date of transfer or
b. Within 2 years from the date of transfer
c. Or constructed within 3 years from the date of transfer.
Since you have already purchased a house property on Jan 18, you will be able to claim exemption under 54F if you can sell the land within Dec 18.
Since you have not mentioned the holding period of Land I assume it is to be long-term in nature and section 54F is applicable only for a long-term asset.
We would like to thank the readers for sending queries.