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A N Shanbhag answers your tax queries

August 25, 2006 09:53 IST

The A N Shanbhag NR Group specialises in tax and investment advisory services for Residents and Non-Resident Indians.

A N Shanbhag and Sandeep Shanbhag spent over an hour on the Rediff Chat on Thursday, August 24, responding to readers' queries on tax and investment issues.

Here's the illuminating chat transcript:

SHANDU asked,  Is it mandatory to file return by Form-2E for this year?
Shanbhag Group answers, Hello everyone, let us begin with the chat. By this year, if you mean FY 06-07, then yes, you will have to submit the new form.

manoj asked, hi i m working in egypt, my company is indian and getting salery in india in INR in my indian bank, my comapny also deducting income tax but as i supposed that i will get tax exempted as i have been out of India for more than 183 days. No tax is deducted in egypt for me. Please confirm the facts.
Shanbhag Group answers, Though you are out of India for 182 days, since you are employed in India with an Indian company, your salary will be taxed in India.

vikas asked, Sir, i want to know the best options for saving a tax which are missed by common man ... i am aware of NSC and PPF, HRA, Insurance etc. Apart from that is thier anything through which we can save tax ... thanks
Shanbhag Group answers, You havent mentioned ELSS. Also, there is Sec 80C deduction available on tuition fees for children. And now on bank deposits .

bhalotia asked, hello sir, my brother is on abroad assignment from indian employer with family, for a year, he is getting salary in $, my question is (1) should he transfer those earning to india by converting in rupee or there is any option to invest there itself or hold (save) in $. (2) in india or u s what is the best available options for investment considering tax & return & growth, kindly give your valuable advice. palakbabul
Shanbhag Group answers, If your brother is abroad on work permit, and he spends less than 182 days in India, then he will be an NRI and he wont have to pay tax on his income abroad. Also, there is no tax on transfer of funds to India. SO we recommend transferring funds to India and investing the same here in good equity diversified funds .

ankur asked, sir, My salary structure has Rs. 40000/- as Education reimbursment. I would like to know if I produce bills in evidence (like original reciepts for course I am persuing), then is this amount taxable?
Shanbhag Group answers, This reimbursement is fully taxable. Only interest on education loan taken is deductible.

k asked, hello...good evening can you please clarify me on the following iam a salaried professional what will be my long term capital gain tax when i sell a)shares b)mutual fund units if i have paid capital gains tax will the remaining amount added to my income and be taxed for income tax? thanks
Shanbhag Group answers, Long-term tax on shares sold on a recognised se in INDia and equity mfs is taxfree. It wont be added back to your normal income

smarajit asked, i just (2 month ago) started working online for an american website and am being paid in dollars by monthly cheque. Will my income tax pattern be any different than what is mentioned in the slabs for a salaried individuals?
Shanbhag Group answers, No, it would remain the same.

dev asked, Hi, i am 23 year old, i am working in an MNC, next year i would like to sponsor my higher education abroad,but all tax saving scheme have atleast 3 years locking period.Where do i put my money in to get this problem solved.
Shanbhag Group answers, All tax saving schemes come with some lock in or another. Also, you cannot take the risk with equity schemes since the purpose for which you need the money cannot be postponed. Therefore, the best bet would be to park the money in FDs or FMPs that give 8+% returns p.a

SHANDU asked,  am paying LIC premiums for my father who is retired and dependent on me. Can I submit those receipts for my tax exemption? Also, does he have to file a return? Will he fixed deposits attract tax deducted at source (TDS)?
Shanbhag Group answers, LIC premium for father is not deductible. IT is only for spouse and children. He has to file return only if his inocme is more than Rs. 185000 (if he is over 65) and his FDs will attract TDS in the normal course

kamatarun asked, what is the tax treatment of ULIP from insurance companies on repurchase/maturity?
Shanbhag Group answers, As of now, ULIP maturity is taxfree. However, once EET comes in, the same will be taxable

slkapil asked, sir, I have a house jointly held by me and my wife. Can I claim HRA for the full house from my company after taking the receipt from my wife. What are the tax obligations
Shanbhag Group answers, Technically you can do that but the ITO would not stand for that. You should avoid this strategy

rudra asked, i have not filed my it return for this year, i am planning to file now, do i have to fill the new from or i can fill the old form of Saral
Shanbhag Group answers, In our experience, the IT dept is still accepting old forms.

Karan asked, Hi,is the taxation policy same for balanced funds as equity funds?
Shanbhag Group answers, ITA doesnt distinguish between balanced funds and equity funds. As long as the equity % is more than 65%, the fund will qualify for tax exemption

Ax asked, Sir, if my company has not taken my NRI status into consideration while computing tax, then how can they rectify it? This happened in 2005-06 and the Form 16 has been issued and I've filed my return with incorrect Form 16 as well.
Shanbhag Group answers, You can file a revised return as an NRI and claim the refund of tax paid. However, you have to be certain that your status is indeed that of NRI

Nikunj asked, Sir, if a person is a salaried employee and deals in shares,F&O as a trader/investor, then how tax will be calculated in his case. Whether income from shares/F&o will fall under capital Gains/Speculation Business/Normal Business. Further, whether he can get set-off for STT?
Shanbhag Group answers, F&O income is no longer considered speculation income. It will be classified as income from trading(business income). YOu can take credit of STT against tax payable in respect to that income

itisme asked, When you are allotted PAN number, is it a must that you have to file IT return. I am a day trader, is it a must I have to file tax return. Or is there a limit on income beyond which you have to file return.
Shanbhag Group answers, It is not necessary to file a tax return just bcos you are alloted a PAN. Unless and until your income is more than Rs. 1 lakh, you are not liable to file a tax return

Shankar asked, what is the best option for tax savings with better returns compared to PPF or NSC
Shanbhag Group answers, You may have a look at ELSS. Also, if you need insurance, you may consider buying term insurance. Now Bank FDs also qualify for tax deduction

girish asked, If expenditure can be shown to reduce tax then what commodities come under these category?
Shanbhag Group answers, unless you have business income, you cannot show exp to reduce tax. All expenses relevant to earning the business income can be deductible

Mohank asked, Sir, recently I got a good ESOP package from my company. Is there any way we can save tax on the same?
Shanbhag Group answers, Getting an ESOP package per se doenst entail tax payment. Tax may be payable only when you sell the ESOP shares. That too, if you sell after one year on a stock exchange in India, the tax will be exempted.

Yogesh asked, Sir, I went to Belgium for a post doc research work for two years and have not filed taxes for the past two years. Will I have to pay a big penlty if I file the returns now?
Shanbhag Group answers, If your income did not exceed the taxable limit, there was no tax return needed to be filed.

Raghu asked, hi..if im getting a wire transfer from abroad to my account. Is that amount taxable?
Shanbhag Group answers, If the money (over Rs. 50,000) is being sent by a person other than a relative, then the amount will be taxable.

TANUJ OBEROI asked, hai give me some information about fringe tax.
Shanbhag Group answers, Fringe benefit tax is payable on certian items of expenses by the employer. The employee doesnt have to pay tax on the same

sd1 asked, Dear shangvi can u please tell me How u get the tax benefit on home loan,i.e whether tax will be calculated on total EMI paid per year or on total interest paid per year.
Shanbhag Group answers, EMI is divided into two parts -- the interest and the principal. The interest is deductible up to Rs. 1.5 lacs p.a if it is a self ocucpied house. else there is no ceiling. the principal is deductible up to Rs. 1 lakh u/s 80C

tanaaz asked, if one wishes to give one's parents, siblings, aunts etc. cash as a gift are there any tax implications for the receiver and the giver? Would it be better to give cash on make investmetns in their name? Your advice would be appreciated
Shanbhag Group answers, The complete law is as follows:

Where any sum of money exceeding Rs. 50,000 is received without consideration by an individual or an HUF from any person, the whole of such sum will be charged to income tax of the recipient under the head, Income from Other Sources. "Provided that this clause shall not apply to any sum of money received a) from any relative; or b) on the occasion of the marriage of the individual; or c) under a will or by way of inheritance; or d) in contemplation of death of the payer. e) from any local authority. f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in Sec. 10(23). g) from any charitable trust or institution.

If the gift amounts received by the donee from all the sources, other than mentioned above, exceeds Rs. 50,000, the donee has to treat the entire amount as income for the year and pay income tax thereon.

"Relative" means i) spouse ii) brother or sister iii) brother or sister of spouse iv) brother or sister of either parents v) any lineal ascendant or descendant vi) any lineal ascendant or descendant of the spouse. vii) spouse of the persons referred in clauses (ii) to (vi)." Obviously, his new gift tax has become donee-based. Note that the donor has to be a relative as per the above definition. Take the instance of Miss X whose mother's brother is Mr. Y. Yes, Y is a relative of X (mother's brother) but X is not a relative of Y (sister's daughter).

Ravikumar asked, Is income arising out commission by selling insurance policies is taxable?
Shanbhag Group answers, Yes, it is

swati asked, im a professional working as a project architect in a reputed firm in pune. here i'm not employed but a consultant. is advance tax applicable to me and how?
Shanbhag Group answers, Yes as follows: If the tax payable for the year is Rs. 5,000 or more, advance tax is payable without having to submit any estimate or statement of income to the ITO in 3 installments during each FY as follows : On or before 15th September : 30% of estimated tax. 15th December : 60% less tax already paid. 15th March : 100% less tax already paid. Any payment of advance tax made before March 31 shall also be treated as advance tax paid during the FY. Tax deducted at source is treated as advance tax paid.

castortroy asked, sir, sebi is going to introduce the 'capital guranteed mutual fund'. is this going to be worth investing in?
Shanbhag Group answers, The capital guranteed funds are yet to be lauched. Also the guarantee is implied as a rating agency will certify that the investments are made in such a way that may prevent capital erosion. ALso, note that the returns from such schemes will not be as high as equity schemes currently available

Alagar asked, If a person getting salary income from his employer runs his own business firm in free hours (after office hours), and if he had not any profit from that business, under which category he has to file his income tax returns? Under "Salaried Employee" or "Business Professional"? (What is the situation if there is any profit on his biz?)
Shanbhag Group answers, A return includes all heads of income. You may file your return in the salary circle. note that the salary income cannot be set off against business loss if any

sai asked, What does EEP stand for and what does it mean in reference to the ULIP question?
Shanbhag Group answers, EET stands for Exempt Exempt Taxed. There is not tax on investment, no tax on income but the maturity will be taxed. After this law comes in, the maturity proceeds of ULIP as also those of PPF, ELSS, NSC etc will be taxed.

prakash asked, Dear Sir, I use to travel abroad frequenty on a business visit from my Indian co. co is paying allowance of 50 $ per day for my expenses. they are deduction tax on this amount while I settle the travel account. Is this correct. Pl note I am not submitting any exp proff for this. Pl confir.
Shanbhag Group answers, In this case, you are getting an allowance and not reimbusement of expenses. Hence there is tax deduction on the same.

aad_amit asked, Sir, My wife and I , both, are working. My question is, can my wife claim LIC premium for tax benefit for the policy on my name?
Shanbhag Group answers, If she is paying the premium out of her income, then yes she may claim the deduction.

binunice asked, How can I claim Tax benefits on Housing Loans?
Shanbhag Group answers, The following tax benefits are available on housing loans : U/s 24 deduction of Rs. 30,000 is available on interest on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing, whereas the enhanced limit of Rs. 1,50,000 is applicable on loans taken on or after 1.4.99 only for acquiring or constructing.

The acquisition or construction should be completed within 3 years from the end of the year in which the capital was borrowed. It is possible to claim this deduction on two or more loans. In any case, the ceiling on total amount of deduction is Rs. 1,50,000 in a year. If the house is rented out, the entire interest payable without any ceiling can be deducted from the rent received.

The phrase used for availability of deduction is interest payable and not interest paid. Therefore, if the finance company collects the loan first and interest later, the borrower will be able to claim the deduction u/s 80C on a larger amount and also claim deduction of interest u/s 24 on accrual basis.

The interest payment can wait until the principal amount is collected. Some employers, especially PSUs and banks, follow this practice. Needless to observe that the deduction obtained on the basis of accrual cannot be again claimed on the basis of actual. It is necessary for the assessee to obtain a certificate from the lender that such interest was payable in respect of the amount advanced for acquisition or construction of the house, or as refinance of the principle amount outstanding under an earlier loan taken for such purpose.

Additional deduction u/s 80C, within the overall limit of Rs. 1,00,000 for the repayment made of the principal amount is available. This deduction is available only on loans for acquiring or constructing a housing property but the cost of any addition, alteration, renovation or repair carried out to the housing property is eligible irrespective of whether the funds applied are owned or borrowed.

his deduction on repayment of capital is available on loan taken from specific sources whereas for deduction of interest the loan can be taken from any source. The deduction u/s 80C and the interest u/s 24 are allowed only when the income from house property becomes chargeable to tax. In other words, the construction should be complete, the flat should be ready for occupation and the municipal annual value is known.

The interest for the years prior to the year in which the property was completed, shall be deducted in equal installments for the year during which it was completed and each of the 4 immediately succeeding years. Unfortunately, there is no corresponding provision for the capital repayment. This is an interesting feature. If the construction or acquisition is completed anytime in a FY, the interest paid during the entire FY is deemed to be the normal interest though a part of the FY is pre-construction period.

query asked, My company is listed in US stock Exchange. How will be capital gain qualify for long term gain?
Shanbhag Group answers, Long term gains will be taxable @20%. Indexation is allowed. The 10% optional rate will not be allowed.

rao asked, Sir, is the compensation amount received by me from my new employer taxable? Is the GPF, leave encashment, gratuity amount received by me from the previous employer taxable?
Shanbhag Group answers, GPF is tax-free only if your PF is 5 years old. Leave encashment is tax-free. Gratuity is taxfree subject to certain conditions

ravi asked, Sir, After change of our status to resident, can we put cash in £ in my wifes name as RFC account to reduce tax burden, is it allowed, she was not on regular employment but an NRI. Also, is there wealth tax on our amount in deposits after change of our status to Resident. Thanks in advance.
Shanbhag Group answers, RFC is tax-free only if you qualify to be an RNOR which status you can have for about 2 years and in some cases 3 years. Thereafter it will be taxable. It is recommended that you gift the funds to your wife when you are abroad. If you do so in India, either thru the RFC account or otherwise, clubbing provisions will apply and the income will start being taxed in your hands. There is no wealth tax applicable on your deposits

bharat asked, Hi.Im working with a US based company.I am employed by them but working from home in Mumbai. I receive my Salary through remittance from Remit2India. The Amount is being taxed in US and sent to me. But i file my returns here and pay tax on it. Is my Salary non-taxable since its an inward remittance and India has a Double Taxation Avoidance Agreement with US ?
Shanbhag Group answers, Yes, you can take advantage of the DTAA between USA and India. You will have to file your tax return in India and claim credit for taxes paid in the US. DTAA provisons are tricky and it would be advisable to do this with the help of a competent tax consultant

Prem asked, My previous company did not give me credit for the HRA that I incurred as rent in the Form 16 that they sent me. Can I claim exemption when I file the returns with the IT department?
Shanbhag Group answers, Yes, you can do so. You will have to submit the rent receipts along with the return

SHANDU asked, Does the NRI have to pay property tax if they buy property in India? Can a person fill a NRI in a income tax form if he has been out of India for six months though he is Indian citizen?
Shanbhag Group answers, Yes, property tax is payable by everyone, resident or NRI. And the answer to your second question too is in the positive

jnkar asked, How to take care of the capital gains w.r.t Shares
Shanbhag Group answers, Long term capital gains are tax-free short term gains are taxable at 10.2%.

Ramesh asked, We have given free house to one employee. Since it would be H.R.Perquisite. Shall we deduct tax separately on H.R.Perquisite since it has to be shown in form 12BA and does H.R.Perquisite is liable to FBT. Ramesh
Shanbhag Group answers, Yes, it would be taxable as a perk in the employee's hands. As such there is no FBT payable on this

SHANDU asked, I live in a rented accommodation in Gurgaon and get House Rent Allowance. In June 2004, I booked a house (still under construction) with a home loan. Can I claim the HRA as well as benefits from the home loan?
Shanbhag Group answers, Yes, you can as long as you pay rent and live in the rented accomodation. Homeloan tax benefits would be available once the house is complete and ready for possession.

Meena asked, Hi are the FDs invested in Banks for period of 5 years come under 80C?
Shanbhag Group answers, Only notified FDs and not all. Check with the bank before investing

kris asked, Sir,I have more paid income tax for the last, i filed saral also, when i will getting the extra tax that i paid,if i want to when i will be get what should i do for that
Shanbhag Group answers, You may file revised return

SubhashGaitonde asked, Sandeep, This is Subhash Gaitonde here. I wanted to find out how I can take Tax Exemptions for two house loans. Can I show nominal rent as income by not renting one of the houses out and self occupy the second one and claim exemption on both loans
Shanbhag Group answers, The second house will automatically be taken as rented. The nominal rent wont work as the ITA has certain formulae for calculating the rent if the actual rent is less than market rates.

deepc asked, What are the tax saving options for an individual earning above Rs 10 lakhs? Is there a way the salary straucture can be altered to reduce the taxable component?
Shanbhag Group answers, The only signifcant tax saving option is Sec. 80C Yes the salary stucture can be altered in a limited way to reduce the tax burden. However, nowadays it is almost impossible to bring tax to nil level. It is better to try and op[timise post tax income.

pri asked, Is it necessary to submit the returns if there is refund in your form 16A
Shanbhag Group answers, It is necessary to submit return if your income is more than the basic tax threshold. It is also necessary to file a retrun for claiming a refund . 

ak asked, Me and my wife have taken a (joint) housing loan last year and the property is on both our names(we didnt specify any share in the property). As I am abroad since last one year (and no salary in India), can my wife claim the whole tax benefit(as its she who is paying the EMI for this period). And once I am back can and start getting my salary in India I take up the entire EMI payment and I alone claim the tax deductions? (The total amt of loan taken is abt 65% of the total value of the property)
Shanbhag Group answers, No you cannot do that. The shares should be ascertainable. If not mentioned in the agreement, you can have an agreement between yourselves for the same. However, you cannot change back and forth.

manishkeyal asked, loan taken & invested in shares,can interest be deducted out of short term capital gain and deduction of Rs 100000/-deposited in NSC availed.
Shanbhag Group answers, For short-term capital gain, interest against loan cannot be deducted. Also for this, NSC investment will not be allowed

raghss58 asked, is sec. 44 AB applicable to public charitable trusts whose main oblect is education and they are collecting fees and incoem is in excess of Rs. 40 lacs
Shanbhag Group answers, A charitable trust doesnt have any professional or business income and therefore Sec. 44AB is not applicable

anup asked, Good afternoon Sir, I work for a reputed Indian software company and they have deputed me to UK. They pay me the salary in India as and give me an allowance here in UK. The salary in India is taxable and I am filing IT Return for that income. The UK allowance is paid to me as a fixed amount every month. My employer pays the income tax to HMRC UK internally and they do not issue any tax certificate to me. If I take some of my saving from UK Allowances to India, will it be taxable in India ? What are the tax rates ? Please guide me. Thanks , Anup.
Shanbhag Group answers, The answer to your question has many ifs and buts. If you are working abroad on a work permit and have not spent more than 182 days in India, then and only then will your income earned in UK be tax-free in India. Else, you may be taxable in India too and will ahve to be resort to the DTAA. ALso note that the taxability ahs to be determined at the first instant when you earn the income. Having earned the income, whether you transfer the same to India or not will not affect the taxablilty.

Balagopal asked, Is thee any stipulation that the tax exemption on housing loan instalment or interest is available for one house alone, or is it available for the second house also ?
Shanbhag Group answers, Interest deduction may be claimed on multiple houses as long as it is within the limits specified by Income Tax Act. However as per the principal repayment is concerned, it is a grey area whether more than one house qualifies or not. This is on account of the wordings of the Act.

bikashbiyala asked, For how long can an NRI maintain an RFC A/C??
Shanbhag Group answers, For any number of years without any limit. However, interest will be taxable once you lose your RNOR status.

ashok ve asked, what are the Capital gains charges applicable for mutual funds: long term r short term ? waht is the tax amount ? plz answer my question
Shanbhag Group answers, Equity-based MF schemes are governed differently from the debt-based schemes. In both the cases, dividend is tax-free in the hands of the investor. However, there is a dividend distribution tax @14.025% payable by the MF directly to the exchequer in the case of debt-based whereas the equity-based are exempt from this tax. Equity-based schemes are also exempt from long-term capital gains tax. The short-term capital gains are taxed @10.2% only. In the case of debt-based schemes, short-term gains are treated as normal income of the assessee and taxed at the rates applicable to the assessee. The long-term gains will attract tax @10.2% without indexation or @20.4% with indexation, whichever is more beneficial to the assessee. In the case of ELSS, there is an additional benefit of deduction u/s 80C.

malli asked, hello Sir My wife has just completed her studies. we both have on PPF account each. As of now, i am paying for both the accounts. I opened an account in her name only as asaving Can i claim tax benefits for the amount paid for her account also
Shanbhag Group answers, YEs you can, however, the total investment cannot exceed Rs. 1 lakh for tax deduction. for example, if you invest 70K in your account, then 30K may be invested in your wife's account. note that this is for tax deduction only. you can invest the full 70K in her account if you so desire.

aniljain asked, I'm a US citizen (currently on NROR status) living in India. I still hold investment assets in the US. I report my US investment income on my US returns every year. However, because of the US tax slabs, I'm able to escape without having to pay any "actual tax" on my US investment income. My question is about how the Indian tax authorities will treat my US investment income after I become an ordinary resident: Will I have to pay tax to India on income which was reported on my US return but did not attract any actual US tax?
Shanbhag Group answers, Yes, you will have to and since you are not paying any tax in the US, the DTAA will not benefit you.

december5 asked, Hello Sir, In case my new prospective employer pays for the shortfall in notice period to my existing employer...will IT department treat it as a income i received from new employer and tax me? What should i do to avoid it..may be treat it as a reimbursement?
Shanbhag Group answers, Yes, it will be taxable as profit in lieu of salary. An obligation discharged by the employer which otherwise would have been payable by the employee is taxable.

gokul asked, hi, is it acceptable to stay in parents home and provide rent receipt from father to avoid tax?
Shanbhag Group answers, Yes, you can do so technically. However, note that the rent will be taxable in your father's hands.

malli asked, If i can claim tax benefit for the amount, paiud to her account, what are the steps to be taken , and what are the documents to be produced
Shanbhag Group answers, the PPF chalaan will have to be attached with the return asked, what is implication of PAN no. for NRI like me who left India on 02.10.2001 and is still working here (24.08.2006). Also, I am planning to "return permanently" next year to India around July - August 2007. Will my Income (salary)in UAE from April to July 2007 will be taxable in India? seek advice then: Should i arrive in india on 1st October 2007 (i.e.01.10.2007) to avail NRI status for Assessment year 2008-2009? Thanks. Raj
Shanbhag Group answers, There is no implication of PAN. Yes, if you return in July, then the UAE income will be taxable. For adquate safety you should return after February 1, 2008. This is bcos for a person permanently coming back, 60 days and not 182 days will be applicable.

PURI asked, My 15 years PPF account was matured in the month of March 2006. Neither i have extended it for further 5 years nor I have withdrawn the amout. I donot want to withdraw amount.Please inform - Wether my account will carry the benefit of interest.
Shanbhag Group answers, PPF account can be continued without any contribution. It will continue to earn interest.

Thank you folks for your patience. While it was our pleasure, hope the session was beneficial to all.

If you have any questions on Tax- or Investment-related issues, please mail them to We will have them answered by The A N Shanbhag NR Group.

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