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Of tax and capital gains

July 03, 2007 12:25 IST

After sale of original property, you need to either buy a flat or construct a house. Else you will be taxed.

My father's house was sold in 2004. I received my share from the sale proceeds, which I deposited in a capital gains account scheme of a nationalised bank. I have not invested the same in a new property and I also do not expect to invest it in a new property before July 2007 when it matures. Can I extend the term of the deposit which is made in the capital gains account scheme? If not, will it be possible for me to invest the money which I withdraw from the capital gains account scheme in bonds of the National Housing Bank or Rural Electrification Corporation?
--
S Srinivasan, Coimbatore

There is no provision in Income Tax Act for extending the term of the capital gains account scheme. If within three years from the date of sale of the original property, you do not complete construction of the other residential house or if within two years from the date of sale of the original property you do not purchase other residential house, the capital gain which was earlier exempt because of investment in the capital gains account scheme will be chargeable to tax in the year in which the period of three years expires.

From the information you have provided, you cannot get any exemption by investing the proceeds in bonds of the National Housing Bank or Rural Electrification Corporation.

My daughter is a student, unmarried and above 18 years of age. How much amount can I gift her without paying any gift tax?
-- Vishwanathan, Chennai

TheĀ amount that you can gift your daughter is unlimited. Under section 56(v) of the Income Tax Act, 1961, a gift from a parent to a daughter is exempt from income tax in her hands. Similarly, there is no gift tax liability on you, the donor, since gift tax was abolished with effect from October 1, 1998.

I have taken a single-premium policy from LIC for an amount of Rs 72,000. How will this be treated under Section 80C? Will I get exemption for the whole amount or only 20 per cent?
-- Raj Shekhar, Bangalore

While payment of life insurance premium on one's own life does qualify for deduction from gross total income by virtue of Section 80C up to a maximum of Rs 1 lakh, such premium should not exceed 20 per cent of the actual capital sum assured. You have not indicated what the sum assured on your policy is. If it is say, Rs 2 lakh, your deduction will be restricted to Rs 40,000, being 20 per cent of the sum assured.

I want to invest Rs 6 lakh in the post office monthly income scheme. Since I'm a tax-payer, I want to invest Rs 3 lakh in my wife's name, who currently earsn no income. Can I do that? Further, I want to invest Rs 3 lakh in my daughter's name, who is a minor with my wife as guardian, so that the interest income is accrued to her. Is it possible to save tax by doing this?
-- Ajay Sharma, Mumbai

I don't think you will meet your objective of saving income tax. Gifting Rs 3 lakh apiece to your wife and minor daughter won't invite any gift tax. However, when this money is invested, any income that accrues from it will be clubbed with your income. Under Section 64, income earned from the assets transferred by an individual to the spouse and minor child is to be included in that person's income.

I have been giving home tuitions to students and offering accounting work for enterprises. I understand that my income from private accounting services will come under the head 'income from business or profession'. Under what head will my income from tuition fee be classified? What are the available deductions on these heads of income?
-- Jhanvi Shah, email

Even your income from tuition fees will be taxed under the head 'income from business or profession', against which you can claim all legitimate expenses incurred. These expenses would include rent, electricity charges, telephone expenses, assistant's salary, vehicle expenses , stationery etc. You have to maintain books of accounts and bank accounts in support of your income and expenses for easy verification by income tax department.

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Kanu Doshi
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