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May 31, 2000

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"Is the rebate on 88C on net or gross salary?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask.

My friend keeps talking about the number of files they have in the family and how new files keep getting created every now and then. Their family is into business. I and my husband are salaried individuals. I would like to know what exactly do these files mean, how they are created and is there any tax advantage in it?

Manjula Radhakrishnan

Every person who has income above the non-taxable limit are subject to tax. Such persons are refereed to as an assessee under the Income Tax Act, 1961.
Every assessee is required to apply for a permanent account number under the Act and also file a return as also if they qualify under the One-by-Six Scheme.
File is a colloquial term used in the income tax circles to denote an assesee. The term is also freely used by income tax practitioners to refer to their clients. Since every person is required to file returns it is but natural that records of income and expenditure need to be kept. Moreover, the income tax officer is authorised to call for information from the assesses for the current Assessment year as well as for the previous Assessment years in case he suspects tax evasion.

As you have rightly observed, with a new addition in the family, the child receives gift that may be in cash or other monetary instruments. Such capital build up also leads to the creation of file in the name of the new member. However, such transactions come under the scrutiny of Income Tax Officers by virtue of the various provisions contained in the Act. However, such capital build up is done generally with a long term perspective that can be utilised once the child attains the age of majority.

Apart from the above there are no other Legal advantages/benefits.

I receive a monthly pension of Rs 6,400 through LIC with whom my employer had an employees' superanuation scheme. Is this entire amount taxable?

P M Unnikrishnan

Uncommuted pension as received by you on monthly basis is taxable under the head salary.

Recently, my father has sold a piece of agricultural land which he inherited. He retired from service 15 years back and does not get any pension. Now he wants to invest this amount to get some regular income. What are the best options ? Is it essential to invest this under section 54EA or 54EB ? What forms need to be submitted to declare that he has no other source of income ?

Mukund

Capital gains tax is attracted when a capital asset is sold/transferred during the year by the assessee. The term capital asset does not cover agricultural land in India which is not situated:

  • In any area within the jurisdiction of municipal limits or cantonment board having a population of 10,000 or more; or
  • In areas within 8 kilometres from the local limits of any municipality or cantonment board specified by the Central Government by way of notification in the gazette.
As you have not mentioned the location and other details we are unable to determine whether the agricultural land belonging to your father would qualify as capital asset liable to capital gains tax.
Your father would be eligible for deduction u/s 54B if he had invested the net consideration in another agricultural land.

However, as the criteria being getting regular returns on the investment, you have two courses of action ahead of you:

  • First, pay the capital gains tax (if applicable) and invest in any good mutual fund enabling your father to receive tax free income.
  • Second, invest in specified assets u/s 54 EA and/or EB having a lock-in period of 3 years and 7 years respectively, if the sale has been completed before April 1, 2000. For transfer/sale completed after March 31, 2000, investment may be made u/s 54EC. In these cases the returns may be lower compared to returns given by good mutual funds.

I am a software professional living in Delhi in rented apartment. My monthly income is Rs 16,500. Which are the various allowances that will help me reduce the income tax liability?

Ahamad Alisha

The structure of your salary depends primarily on your Company's policy. However, we have tried to provide you with some allowances that can be claimed as non-taxable.

  • Conveyance allowance - up to Rs 800 per month
  • Food allowance - up to Rs 840 per month
  • Medical allowance - for specified illnesses subject to submission of proof of payment
  • House rent allowance - based on your salary breakup
  • LTA - Once in two years using the modes specified for such purpose and subject to submission of proof/evidence
  • Education allowance - up to Rs. 50 per child per month for maximum two children
  • Refresher courses/training expenses - Subject to submission of proof

In the assessment year 1995-96 I had purchased land in Delhi for Rs 125,000. In the current assessment year of 2000-01, I sold the above land for Rs 200,000 and purchased a residential flat jointly with my wife for Rs 660,000, out of which 400,000 is from a bank housing loan and the balance of Rs 260,000 is contributed equally by me and my wife ( she being has her own sources of income and an income tax assessee). Kindly advise me on my capital gain tax liability and modes of saving tax. I fall in the 30 per cent tax bracket.

Vinay Gupta

Based on the information provided by you, we presume that the land is a capital asset liable to capital gains tax and that it is a long-term asset. Assuming there are no cost of improvement or other costs to be considered, the capital gains would work out as follows:

  • Cost of land in financial year 1994-95: Rs 125,000
  • Indexed cost: Rs 187,741
  • Sale consideration in FY 1999-2000: Rs 200,000
  • Long-term capital gain (c - b): Rs 12,259
  • Capital gains tax excluding surcharge: Rs 2,452
It seems from the information given by you that your share of investment works out to Rs 130,000. Under section 54 of the Income Tax Act, 1961, you may avail of an exemption. In your case, the long term capital gains is less than the amount invested in the new asset and hence your entire capital gains would be exempt from tax.

How is the additional rebate of Rs 5,000 to be accounted to women employees? If the total tax of a women employee during the year works out to Rs 25,000 (without surcharge) her tax liability will be Rs 20,000 + surcharge. Or does this additional rebate of Rs 5,000 mean that she has to make additional investments (like investments under sec 88).
Also, to avail of the exemption of interest on a housing loan, is the benefit available for a loan undertaken for house repair.

S Poornalingam

Can you tell me about the the redate allowed under section 88C for women employees. The maximum salary which would be exempt from tax and also if it is the net or the gross salary which is taken as the basis for calcualtion of the exemption amount.

Anuradha

The rebate u/s 88C is available to women is allowed from the tax liability before surcharge. But, the following two conditions must be satisfied:

  • Such woman should be below the age of 65 years at any time during the previous year
  • She should be resident in India
The rebate under this section to the extent of 100 per cent of the tax or upto Rs 5,000 whichever is lower without any requirement of specific investments. An example illustrating the same is provided below.
SITUATION 1
Net taxable salary for the year: Rs 85,000
Tax on total income: Rs 6,000
Rebate under section 88C: Rs 5,000
Net tax: Rs 1,000
Surcharge @10 per cent: Rs 100
Total tax payable: Rs 1,100

SITUATION 1
Net taxable salary for the year: Rs 75,000
Tax on total income: Rs 4,000
Rebate under section 88C: Rs 4,000
Net tax: Nil
Surcharge @10 per cent: Nil
Total tax payable: Nil
As for an answer to Poornalingam's query on housing loans, the deduction for interest on loan taken for the purpose of repair of house is available under section 24(1)(vi) of the Income Tax Act, 1961.

I am a salaried resident individual and have a mentally retarded child of about 12 years age. I am told I can get deduction for a minimum amount of Rs 40,000 in respect of maintenance and medical treatment under Section 80DD of IT Act. Is this amount allowed only on production of bills? If it is on actuals then can I also include the transportation charges incurred to take him for physiotherapy treatment.

Raj Gurrapadi

Section 80DD currently provides for the deduction of Rs 40,000 in respect of maintenance including medical treatment of handicapped dependents. The amount allowed is subject to few conditions:

  • The taxpayer is an individual and is resident in India
  • The taxpayer has incurred some expenditure for the medical treatment, training and rehabilitation of a handicapped dependent. Or has paid or deposited some money in any scheme framed in this behalf by LIC or UTI for the maintenance of the handicapped dependent
  • Such expense or deposit is made out of taxable income of the taxpayer
  • In your child's case a certificate from psychiatrist working in a government hospital is required
If the above conditions are satisfied then the deduction is allowed regardless of the amount expended or deposited.

I want to clarify which is the depreciation on forklift for handling the material.

Ashok

Forklift for handling material is covered under the block Plant and Machinery and the relevant rate of depreciation under the IT Act, 1961 is 25 per cent.

I have an apartment and intend to buy another which would be ready by 2002 December. I plan to finance this purchase by selling my existing apartment and taking a housing loan. I need to know the capital gains liability.

N Mathawale

As you are planning to invest the entire net sale consideration in the new house you could take benefit of deduction u/s 54 of the I.T. Act, 1961, whereby your entire capital gains tax would be exempted.
The time limit for purchase or construction of a new house to avail of the deduction u/s 54 is as follows:

  • In case of purchase of house - one year before the date of sale or within two years after the date of sale.
  • In case of construction of house - within three years after the date of sale.
Yes you can sell the old house after acquiring the new house within the time frame specified above.

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