Monday 9 December 2013

For tax payers, there's more to Income Tax Act than exemption on income.

Income Tax exemption: Nidhi Sinha has a week to submit her investment declaration, which is necessary to save income tax on her salary. This time the accounts department of the IT firm, where she works as a software engineer, has asked her to furnish the PAN number of the owner of the house she has rented if she wants exemption on her house rent allowance (HRA).

Nidhi was paying Rs 10,000 as rent but she was never asked to furnish the house owner’s PAN number while filing her IT declaration. Earlier, only taxpayers paying Rs 1.80 lakh or more annually as rent had to mention the PAN number of the house owner. This year, the limit has been revised to Rs 1 lakh bringing Nidhi under the provision.

The change is a part of the many amendments incorporated by the Central Board of Direct taxes (CBDT) through Budget 2013-14 announcement, notifications and circulars in the current financial year.

While taxpayers are mostly aware that they can claim deductions up to Rs 1 lakh through investments under LIC, PF, PPF, tuition fee and housing loan, among others, they should keep in mind the small but important changes while tax planning and submitting their declarations each year.

Living as tenant
For salaried individuals, one of the most common exemption sought is HRA. If living in a rented house, taxpayers are required to submit rent receipt from landlords to claim the exemption. In 2012-13, an assessee paying rent less than Rs 15,000 per month did not have to submit Permanent Account Number (PAN) details of the landlord along with the rent receipt for claiming exemption.

However, the income tax department, in its drive to tighten the leash on tax evaders, last month amended the rule. So, now, instead of Rs 15,000 per month, assessees paying a rent of Rs 8,333 a month or Rs 1 lakh yearly will have to submit the PAN of their landlords along with the rent receipts.

This seemingly-small change may prove to be a challenge for a much larger number of assessees as in many cases, landlords may be unwilling to give out the PAN details.

If the landlord does not have a PAN, the assessee has to submit a declaration to this effect along with name and address of the landlord.

First-time home buyers
Tax assesees, who are buying their first house, are entitled to a deduction of up to Rs 2.50 lakh on interest payable on the home loan not exceeding Rs 25 lakh and sanctioned during April 1, 2013 to March, 31, 2014. This new provision has been added under a new section 80EE in the Income Tax Act.

Sudhir Kaushik, a tax expert and co-founder of tax-filing portal Taxspanner.com, said, “Taxpayers should also keep in mind that the value of the residential house property does not exceed Rs 40 lakh and they don’t own any residential property on the date of sanction of the loan.”

He added that this is an additional relief of Rs 1 lakh over and above the existing Rs 1.50 lakh per annum for first-time house buyers under section 24 of the Income Tax Act.

The changes are aimed at bringing in more transparency in the tax system while bringing evaders under the tax net.

Capital gains
With the change in definition of agricultural land, the scope of capital gains tax has also been enhanced, a point to be kept in mind while assessing tax payable.

Capital gains tax is charged on profit arising from sale of a capital asset. As per section 2(14) of the Act, capital asset excludes agricultural land situated outside the specified area which are notified.

However, as per the revised definition, all areas whether notified or not, are covered under it while various limits have been proposed for land to qualify as agricultural land.

According to the amendment, the land would be considered for agricultural purpose if it is not situated in any area within the distance, measured aerially of not more than 2 km from the local limits of any municipality and has a population of more than 10,000 but not exceeding one lakh; or 6 km from the local limits of any municipality and has a population of more than one lakh but not exceeding ten lakh; or 8 km from the local limits of any municipality and which has a population of more than ten lakh. While assessing one’s tax liability, the revision has to be borne in mind.

Market players
In the Budget 2013-14 announcements, the government also increased the eligibility limit in Rajiv Gandhi Equity Saving Scheme or RGESS, which was launched last year to encourage small investors’ participation in the capital market.

Now, taxpayers having a gross income of Rs 12 lakh or below will be able to make investment in the scheme as against Rs 10 lakh or less last year. Taxpayers can invest up to Rs 50,000 in eligible securities and will have a lock-in period of three years. They will be able to enjoy deduction for three consecutive assessment years beginning the assessment year in which shares are acquired by the taxpayer.

Commodity derivatives transaction will now be treated as normal business with effect from assessment year 2014-15. It was earlier considered speculation business. The impact of the amendment will be that now taxpayers would be able to adjust the losses in other business against profit on commodity.

Contribution to CGHS
Another amendment in the Income Tax Act that would have a significant impact on taxpayers is the deduction in contributions to central and state health schemes similar to Central Government Health Scheme (CGHS). This was not available to taxpayers earlier.

“It increases the scope of scheme where taxpayer can contribute his income according to his requirement and claim tax benefit within the prescribed limit,” Kaushik said.

Deduction for donation to National Children Funds has also been doubled from 50 per cent to 100 per cent while deduction on account of life insurance premium, which is allowed only when premium paid is less than 10 per cent of the sum assured, has now been increased to 15 per cent for taxpayer suffering from severe disability under section 80C of the Income Tax Act.

Other amendments
Interest on savings is exempt up to Rs 10,000 for assessment year 2013-14 while interest from post office saving is exempt up to Rs 3,500 or Rs 7,000 for joint accounts.

A relief of Rs 2,000 is allowed under section 87A of the I-T act for taxpayers having net taxable income below Rs 5 lakh per annum.

Taxpayers buying immovable property of Rs 50 lakh or above will be required to deduct TDS (tax deducted at source) at the rate of one per cent from the payment made to the seller. The TDS payment is to be paid through form no 26QB, which requires information including PAN of both buyer and seller, personal details and property details.

Tax break
This year, instead of Rs 15,000 per month, assessees paying a rent of Rs 8,333 a month or Rs 1 lakh yearly will have to submit the PAN of their house owners along with the rent receipts. If the landlord does not have a PAN, the assessee has to submit a declaration to this effect along with name and address of the owner.

Tax assesees, who are buying their first house, are entitled to a deduction of up to Rs 2.50 lakh on interest payable on the home loan not exceeding Rs 25 lakh and sanctioned during April 1, 2013 to March, 31, 2014. This new provision has been added under a new section 80EE in the Income Tax Act.

Taxpayers with a gross income of Rs 12 lakh or below will be able to make investment in the scheme as against Rs 10 lakh or less last year. Taxpayers can invest up to Rs 50,000 in eligible securities and will have a lock-in period of three years .

Another amendment in the Income Tax Act that would have a significant impact on taxpayers is the deduction in contributions to central and state health schemes similar to Central Government Health Scheme (CGHS). This was not available to taxpayers earlier Taxpayers buying immovable property of Rs 50 lakh or above will be required to deduct TDS at the rate of one per cent from the payment made to the seller. The TDS payment is to be paid through form no 26QB.

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