[aaykarbhavan] Business standard news update and legal digest 17-2-2014

Getting ready for filing income tax returns?

NEHA PANDEY DEORAS By this time of the year, most salaried individuals would have received mails from the human resource team at their organisation, asking for tax saving declaration( s) for financial year ( FY) 2013- 14. So, many must be in the process of finalising their tax- saving investments and other deductions they intend to claim for this financial year. Individuals would need to give the details of their investments with the declaration form. If he/ she fails to do so, they will have to take a huge cut in their next monthly salary. The company will deduct applicable tax at source ( that is, TDS) from their salary for the month of March in the financial year. Of course, individuals can later claim a refund from the income tax ( I- T) department for extra payments. Here's a list of some tax rules and deductions announced in the last Union Budget and that you need to be aware of while making your declarations this year: INCOME SURCHARGE OVER ~1 CRORE Instead of a introducing a new tax slab, the finance minister announced a surcharge of 10 per cent for taxable income of more than ₹ 1 crore annually. "This will mean an additional burden of ₹ 3- 4 lakh on the ₹ 1- crore income level," says Amarpal Chadha, partner, tax and regulatory services, EY. This surcharge is applicable only for financial year 2013- 14, as of now. (See box Who will the surcharge be levied on?) HIGHER DDT ON DEBT FUNDS The Budget rationalised taxes for debt mutual funds. Earlier, the dividend distribution tax on debt funds such as monthly income plans (MIPs) was 12.5 per cent. This was raised to 25 per cent for debt fund investors and a Hindu Undivided Family. Of course, the dividend will be tax- free at the hands of the individual. But the important point is that it will be deducted by the fund house before giving the dividend. It is applicable without taking into account the income of the person. For instance, if a retired person invests in an MIP for his monthly needs and does not come under any income tax bracket, the tax will still be deducted from his dividend income. This makes bank fixed deposits more attractive because the interest income from those are added to the income and the tax is levied in line with the income tax bracket. EXTRA BENEFITS Interest for first- time home buyers If you bought a first house this financial year, you are entitled to an additional tax benefit of ₹ 1 lakh on the interest paid on that loan under section 80EEE. But there are a few caveats before you claim for this benefit. "The value of the residential property bought should not exceed ₹ 40 lakh. The loan taken to buy the property should not be more than ₹ 25 lakh. Also, this deduction is available only to those assessees who dont own any other residential property on the date of sanction of the loan," says Suresh Surana, founder of tax advisory firm RSM Astute Consulting. If interest paid during the year is less than ₹ 1 lakh, the unclaimed deduction can be utilised in the subsequent year. Experts say the ₹ 40 lakh value includes transaction taxes such as stamp duty and registration. Thus, if you purchase aflat of this value, you have to pay 20 per cent or ₹ 8 lakh upfront. For the rest (₹ 32 lakh), deductions can be utilised for loan amounts up to ₹ 25 lakh. All purchases have to be made within 2013- 14. Of course most experts feel this will only help those in the periphery of metro cities and in Tier- II and Tier- III locations. Benefit for disabled paying life policy premium "There was a benefit brought in for the disabled and those suffering from ailments for paying life insurance premiums. They will get premium benefit of up to 15 per cent of the sum assured, as against 10 per cent earlier," says Gautam Nayak, partner of CNK & Associates. Unfortunately, there are very few policies for such individuals. Tax relief for lower income bracket Those earning an annual salary of less than ₹ 5 lakh or the income bracket of ₹ 2- 5 lakh are entitled to a small rebate this year. The entire tax liability of an individual or ₹ 2,000, whichever is lower, will be allowed as a rebate under Section 87A of the I- T Act. NEW PRODUCT: INFLATIONINDEXATION BONDS: The minister announced plans to launch inflation- indexed bonds in the Budget. And, the Reserve Bank of India declared its first tranche of such bonds in December 2013, the Inflation- Indexed National Savings Certificate Cumulative ( IINSC). It is linked to the Consumer Price Index (CPI); it can be used as a hedge against gold. IINSC is open till March 31, 2014 for investment. The interest rate on offer will be 150 basis points more than the composite inflation rate. For the month of December, the rate of inflation would be 9.8 per cent. Consequently, the interest rate on offer is 11.44 per cent. As for claiming tax, you can choose between cash or receipt basis and accrual basis. Say you invest ₹ 10,000 in a one- year bond on January 1, 2014. Lets assume the bond pays 10 per cent interest, annually, that is, on December 31, 2014. If you choose to pay tax on a cash basis, you will report the interest income of ₹ 1,000 in FY2014- 15. If you choose an accrual basis, you will report interest income of ₹ 250 on March 31, 2014 and the remaining ₹ 750 in FY2014- 15, explains Vaibhav Sankla, director at H& R Block, a tax consultancy firm. "Most individuals follow the accrual method, as it is in sync with Form 26AS. Otherwise, you need to do a lot of paperwork when filing returns in the next year, as it complicates the return filing process. But you are free to choose any of the two; just be consistent all through," he adds. Apart from the many old rules, you need to be aware of a number of new ones to be able to claim your deductions well PAN OF HOUSE OWNER MANDATORY: Though not a new addition, it has a bigger impact on salaried taxpayers. In an attempt to further tighten its grip on tax evaders, the I- T department now wants tenants to produce their house owner's PAN for House Rent Allowance ( HRA) exemptions of ₹ 1 lakh or more annually or ₹ 8,333 monthly. Earlier, the department asked taxpayers to produce a rent agreement or PAN card of the landlord if the monthly rent exceeded ₹ 15,000, or ₹ 1.80 lakh annually. "If a tenant is not able to produce his/ her owners PAN, he/ she must give a declaration to this effect from the owner, along with the name and address of the latter at the time of claiming HRA exemption," says Kuldip Kumar, executive director ( tax & regulatory services) at PwC. However, the circular is silent on whether the employees HRA can be honoured in the absence of such documentation. "Because, the law or the I- T Act does not prohibit anyone from getting HRA benefits in the absence of owner details," says Gautam Nayak, partner at CNK & Associates. Section 10 ( 13A) on HRA benefits does not have any amendments done to the effect that HRA claims will not be honoured if the owner's details are not attached. Even Section 139 ( A), which talks about when to provide aPAN, does mention this case and neither does Rule 114( B), which pertains to transactions where PAN is mandatory, says Nayak. If you bought your first house this financial year, you are entitled to an additional tax benefit of ₹ 1 lakh on the interest paid on that loan under section 80EEE In this file photo, a taxpayer speaks on a mobile phone next to a tax filing counter on the last day of filing in New Delhi on July 31, 2013. PHOTO: REUTERS WHO WILL THE 10% SURCHARGE BE LEVIED ON? Case 1 Case 2 Total income ~ 1 crore ~ 2 crore Deductions* Sec 80C = ~ 1 lakh ( investment) Sec 80C = ~ 1 lakh ( investment) Sec 24 = ~ 1.50 lakh ( interest) Sec 24 = ~ 1.50 lakh ( interest) Sec 80D = ~ 15,000 + Sec 80D = ~ 15,000 + ~20,000 ( health insurance) ~ 20,000 ( health insurance) Total = ~ 2.85 lakh Total = ~ 2.85 lakh Taxable income ~ 97.15 lakh ~ 1.97 crore Surcharge levy Not to be levied To be levied Tax rate 30% 30% + 10% surcharge Taxamount ~ 29.14 lakh ~ 78.86 lakh *Very basic deductions have been taken into account

 

BRIEF CASEN [1] M J ANTONY A weekly selection of key court orders Right to redeem mortgage is basic The right to redeem a mortgage on repayment of a loan is a Constitutional right of a borrower and it is also a human right, which should not be fettered by unfair conditions, the Supreme Court stated last week in its judgment, Mathew Verghese vs M Amritha Kumar. The court was disposing of a complex case involving the Securitisation Act, the Debt Recovery Act, the Transfer of Property Act and other laws. It said that if there are differences in the amounts tendered and demanded by the lender, it could be decided later. The mortgaged property should be returned first and the disputes could be settled later. The court asserted: " We wish to state that the endeavour of the secured creditor while resorting to any sale for realisation of dues of a mortgaged asset should be that the mortgagor is entitled to some lenience to ensure that her constitutional right to property is preserved rather than being deprived of." Though the loan should be recovered expeditiously, financial institutions and lenders should not behave unreasonably or in an arbitrary manner in flagrant violation of ordinary laws, the court warned. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Govt can't change incentive scheme If a government gives an assurance to industries that they would be given uninterrupted supply of electricity, it cannot change the terms of the incentive scheme when it is unable to fulfil the commitment. In this case, SVA Steel Re- rolling Mills vs State of Kerala, the state government promised continuous power supply for five years to new units. When there was a power shortage, the government modified the terms of the scheme and stated that when there was reduction of supply to the extent of 50 per cent or more, such period would be added to the period of five years. The industries challenged the change of policy in the high court and lost. On appeal, the Supreme Court ruled that the benefit period should be extended even for days when the supply was above 50 per cent but not 100 per cent promised. Many units cannot function without full uninterrupted power supply and they would also incur several incidental costs. It would be " unfair and immoral" for the state not to act according to its promise. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Sales tax benefit on rawmaterials The Supreme Court has set aside the judgment of the Jharkhand High Court which had stated that Steel India Ltd was not eligible for sales tax exemption granted to certain industries under an incentive scheme. The state revenue authorities had denied the benefit to the firm which purchased raw materials such as steel scraps and produced agriculture and household articles out of them. They maintained that no new commodity comes into existence and there was no ' manufacture'. The tax exemption was available only if a new product came into existence. That view was accepted by the high court. However, the firm appealed to the Supreme Court. It said that the expression ' manufacture' in the state law covered production, making, extracting, altering, ornamenting, finishing or otherwise processing of the raw material. In this case, the steel scraps were turned into agricultural equipment and household articles. Therefore, the authorities were directed to issue exemption certificates. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Transformer integral to factory A transformer in an industrial unit is an essential item in manufacture and, therefore it can claim concessional rate of sales tax under the UP Trade Tax Act, the Supreme Court ruled while dismissing the appeal of the Commissioner of Sales Tax against M/ s Akzo Nobel India Ltd. The company manufactured and sold urea fertiliser and claimed concessional rate as the transformer was included in "accessories and components" required for manufacture of notified goods. The revenue authorities denied the benefit and issued showcause notice to the firm, contending that purchaser of transformer was not eligible for the concession. The Allahabad High Court did not accept it and granted the benefit to the manufacturer. On appeal, the Supreme Court upheld the high court view stating that transformer was an "adjunct to the efficient use of the manufacturing unit."

 

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CS A Rengarajan

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