Computation of Eligible deduction as per Sec 80C

As per the provisions of the Act, all such income accruing or arising to a minor child shall be included. However, income of a minor child suffering from disability u/s 80U would not be included in the income of the parent but would be taxable in the hands of minor child. Also income of each minor child includible in the hands of the parent would be exempt to the extent of Rs. 1,500. Accordingly, in present case computation of income to be clubbed shall be as under:

In this situation, rent of Rs. 84,000 will be taxed in the hands of NRI.​ This is the case of transfer of income (rent) without transfer of asset (bungalow).

The capital gains will be taxable in the hands of father, as per the clubbing provisions. As the son is a minor, any income accruing to the minor will be clubbed in the hands of the parent.

Such interest received by wife will be taxed in the hands of husband as per the clubbing provisions.

Yes, the answer will differ and the interest income will be taxable in wife’s hands only.

The capital gains will be taxed in the hands of husband alone, unless he is able to substantiate that the share of 50% of his wife in the property is bought by her out of her own earned funds. In case the property is bought out of funds gifted by a husband to his wife, income will continue to be clubbed in the hands of husband.

PAN is a ten-digit alphanumeric unique identifier, issued by Income Tax Department of India.

PAN is mandatory for transacting in financial markets in India. PAN enables the department to link all transactions of the person with the Tax Department.

These transactions include tax payments, TDS/TCS credits, ROI, specified transactions, correspondence and so on. PAN, thus, acts as an identifier for the person with the Tax department.

Application for PAN can be made online/manually in paper in the prescribed Form along with required proof of identity and address and a passport size photograph to the PAN Authority.

Further, in case of NRIs, there may be certain unique scenarios where documents may need attestation by the Indian Embassy/Consulate/High Commission/Apostille. In certain cases, an Individual can digitally signed the PAN Application by using a DSC.

Any person who does not have a PAN and who enters into any transaction specified in the rules, shall make a declaration in Form No. 60 giving therein the particulars of such transaction either in paper form or electronically under the electronic verification code in accordance with the procedures, data structures and the standards specified by the Principal Director General of Income-tax(Systems) or Director General of Income-tax(Systems).

Yes, a minor can hold a PAN card. The minor will have to apply through a representative assessee and will need additional documents to be submitted along with the PAN application form. Further, photograph of minor shall not be printed on the PAN card.

Section 160 of the Act provides that a NRI, a minor, lunatic, idiot, and court of wards and such other persons may be represented through a Representative Assessee. In such cases, application for PAN can be made by the Representative Assessee.

While one endeavors to derive income, the possibility of incurring losses cannot be ruled out. Based on the principles of natural justice, a set-off should be available for loss incurred. The income tax laws in India recognize this and provide for adjustment and utilization of the losses against the income earned. However, there are conditions which have been introduced to prevent misuse of such provisions.

Set-off means adjustments of losses against the profit from another source / head of income in the same FY.

If, in a particular FY, the amount of loss incurred is not fully set-off against the income due to inadequacy of income, such loss may be carried forward to the subsequent years and set-off against income under the same head of income subject to certain exceptions. The specific provisions regarding carry forward of losses are explained in the above table.

If in any year, the taxpayer has incurred loss from any source under a particular head of income, then he is allowed to adjust such loss against income from any other source under the same head of income. This is known as inter-source or an intra-head adjustment. However, such set-off is subject to certain restrictions which have been summarized in the above table.

Exhibit 1: Where Loss of House A exceeds House B’s Income

Under the current Scenario the loss could be only set-offed to the extent of INR 30,000 rest 20,000 could be set-offed against the Income from other head if none then the same could be carried forward for next 8 years.

Exhibit 2: Where Loss of House A exceeds INR 200,000

Under the current Scenario the loss could be only set-offed to the extent of INR 200,000 rest 50,000 could be carried forward for next 8 years.

After making an intra-head adjustment, the assessee is then eligible to make an inter-head adjustment. If in any year, the taxpayer has incurred a loss under one head of income and has income under another head of income, then he can adjust the loss from one head of income against the other head. However, such set-off is subject to certain restrictions which have been summarized in the above table.

It shall be first necessary to ascertain the nature of the loss, i.e., whether it is short term capital loss or long term capital loss. Short term capital loss can be set-off against both long term and short term capital gains. Long term capital gains can be set off only against long term capital gains.

Now, if the loss incurred cannot be set-off entirely against the income earned in the same year, it may then be carried forward to the subsequent year provided Return of Loss has been filed within the prescribed time limit.

Taxable income for the FY 2019-20 will be INR 5,50,000. Loss from house property will be allowed to be set-off against other income.

No, she will not be allowed to carry forward the loss to the future years, as she has not filed the return within the due date.

Yes, if the loss is under the head ‘Income From House Property’, she will be allowed to carry it forward for the prescribed time period although the Return of Loss was not filed within the prescribed due date.

If income from any source is exempt from tax, then loss from such source cannot be set-off against any other income which is chargeable to tax or cannot be carried forward to subsequent years.

For example, if an assessee incurs loss from any agricultural activity, then such loss cannot be adjusted against any other taxable income.

• Profit and gains from any business or profession carried on by the assessee at any time during the previous year.

• Any compensation or other payment due to or received by any specified person

• Income derived by a trade, professional or similar association from specific services performed for its members

• Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of Government of India

• Any duty of Customs or Excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971.

• Value of any benefits or perquisites arising from a business or the exercise of a profession.

• Interest, salary, bonus, commission or remuneration due to or received by a partner from partnership firm

• Any sum received or receivable for not carrying out any activity in relation to any business or profession

• Any sum received or receivable for not sharing any know-how, patent, copyright, trademark, license, franchise, or any other business or commercial right or information or technique likely to assist in the manufacture of goods or provision of services.

• Any sum received under a Key man Insurance policy including the sum of bonus on such policy

• Any profit or gains arising from conversion of inventory into capital asset.

• Income from speculative transactions. However, it shall be deemed to be distinct and separate from any other business.

• Any foreign exchange gain or loss arising in respect of specified foreign currency transactions shall be treated as income or loss.

• Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Govt. or State Govt. or any authority or body or agency to the assessee would be included. However, in the following cases subsidy or grant shall not be treated as income:

  • The subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset

  • The subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be.

• Rent, rates, taxes, repairs (excluding capital expenditure) and insurance for premises

• Repairs (excluding capital expenditure) and insurance of machinery, plant and furniture

• Depreciation on buildings, machinery, plant or furniture, being tangible assets;

• Amortization know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature, being intangible assets

• Additional depreciation on new plant and machinery (other than ships, aircraft, office appliances, second hand plant or machinery, etc.).

• Deduction under section 32AC is available if actual cost of new plant and machinery acquired and installed by a manufacturing company during the previous year exceeds Rs. 25/100 Crores, as the case may be available to Company engaged in business or manufacturing or production of any article or thing.

• Investment allowance for investment in new plant and machinery if manufacturing unit is set-up in the notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal for All assessee who acquired new plant and machinery for the purpose of setting-up manufacturing unit in the notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal.

• Amount deposited in Tea / Coffee / Rubber Development Account by assessee engaged in business of growing and manufacturing tea/Coffee/Rubber in India.

• Amount deposited in Special Account with SBI / Site Restoration Account by assessee carrying on business of prospecting for, or extraction or production of, petroleum or natural gas or both in India.

• Revenue expenditure on scientific research pertaining to business of assessee is allowed as deduction.

• Contribution to approved research association, university, college or other institution to be used for scientific research shall be allowed as deduction.

• Contribution to an approved company registered in India to be used for the purpose of scientific research is allowed as deduction.

• Contribution to approved research association, university, college or other institution with objects of undertaking statistical research or research in social sciences shall be allowed as deduction.

• Capital expenditure incurred during the year on scientific research relating to the business carried on by the assessee is allowed as deduction

• Payment to a National Laboratory or University or an Indian Institute of Technology or a specified person is allowed as deduction. The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under an approved programme.

• Any expenditure incurred by a company on scientific research (including capital expenditure other than on land and building) on in-house scientific research and development facilities as approved by the prescribed authorities shall be allowed as deduction. Expenditure on scientific research in relation to Drug and Pharmaceuticals shall include expenses incurred on clinical trials, obtaining approvals from authorities and for filing an application for patent.

• Capital expenditure incurred and actually paid for acquiring any right to use spectrum for telecommunication services shall be allowed as deduction over the useful life of the spectrum.

• Capital expenditure incurred for acquiring any license or right to operate telecommunication services shall be allowed as deduction over the term of the license.

• Expenditure by way of payment of any sum to a public sector company/local authority/approved association or institution for carrying out any eligible scheme or project. Deduction in respect of `expenditure on specified businesses, as under:

  • Setting up and operating a cold chain facility

  • Setting up and operating a warehousing facility for storage of agricultural produce

  • Building and operating, anywhere in India, a hospital with at least 100 beds for patients

  • Developing and building a housing project under a notified scheme for affordable housing

  • Production of fertilizer in India

• Deduction in respect of expenditure on specified businesses, as under:

  • Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network;

  • Building and operating, anywhere in India, a hotel of two-star or above category;

  • Developing and building a housing project under a scheme for slum redevelopment or rehabilitation

  • Setting up and operating an inland container depot or a container freight station

  • Bee-keeping and production of honey and beeswax

  • Setting up and operating a warehousing facility for storage of sugar

  • Laying and operating a slurry pipeline for the transportation of iron ore

  • Setting up and operating a semi-conductor wafer fabrication manufacturing unit

  • Developing or maintaining and operating, or developing, maintaining and operating a new infrastructure facility

• Payment to following Funds are allowed as deduction:

  • National Fund for Rural Development; and

  • Notified National Urban Poverty Eradication Fund

• Expenditure incurred by a company (not being expenditure in the nature of cost of any land or building) on any notified skill development project is allowed as deduction

• An Assessee can amortize certain preliminary expenses (up to maximum of 5% of cost of the project or capital employed, whichever is more)

• Expenditure incurred after 31-3-1999 in respect of amalgamation or demerger can be amortized by an Indian Company

• Expenditure incurred under Voluntary Retirement Scheme is allowed as deduction.

• Insurance premium covering risk of damage or destruction of stocks/stores

• Medical insurance premium paid by any mode other than cash, to insure employee’s health under scheme framed by GIC of India and approved by Central Government; or scheme framed by any other insurer and approved by IRDA

• Bonus or commission paid to employees which would not have been payable as profit or dividend if it had not been paid as bonus or commission

• Interest on borrowed capital

• Employer’s contributions to recognized provident fund and approved superannuation fund

• Any sum paid by assessee-employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee.

• Employer’s contribution towards approved gratuity fund created exclusively for the benefit of employees under an irrevocable trust shall be allowed as deduction

• Deposit of employee’s contributions in their respective provident fund or superannuation fund or any fund set up under Employees’ State Insurance Act, 1948

• Bad debts which have been written off as irrecoverable

• Expenditure incurred by a company on promotion of family planning amongst employees is allowed as deduction.

• Any expenditure incurred by a notified corporation or body corporate constituted or established by a Central, State or Provincial Act, for the objects and purposes authorized by the respective Act is allowed as deduction.

• Securities Transaction Tax paid

• Amount equal to commodities transaction tax paid by an assessee in respect of taxable commodities transactions entered into in the course of his business during the previous year is allowed as deduction

• Amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for purchase of sugarcane.

• Any other expenditure [not being personal or capital expenditure and expenditure mentioned in sections 30 to 36] laid out wholly and exclusively for purposes of business or profession.

Indexed Cost of Acquisition/ Improvement is a concept which grants deduction of a larger amount than actual cost of acquisition / improvement considering the prevalent inflation index for the FY.

Indexation benefit is not available on depreciable asset, bonds (other than capital indexed bonds issued by Indian Government) and debentures.

For indexation purpose, the Cost Inflation Index (‘CII’) is notified by the Government for every FY.

As per the provisions of the Act, the Resident Indian will be required to deduct tax at maximum marginal rate of 31.2% on short term capital gains or 20.8% on long term capital gains arising in the hands of NRI on sale of the house.

In some cases, the Resident Buyer may deduct tax at the maximum marginal rate of 31.2% on the entire sale proceeds.

NRI is actually liable to pay tax at the rate of 31.2% or 20.6% depending upon the period of holding only on the amount of capital gain arising on sale of the immovable property. However, as the buyer may deduct tax at the prescribed rate on the entire sale proceeds (in the absence of exact details of capital gains), the NRI can avail any of the following options to optimise tax deduction:

i. Obtaining Tax Exemption Certificate (TEC) from Income Tax Department

ii. Filing ROI and claim refund of excess TDS withheld by the buyer

Further, the NRI may also be a resident in another country and may also be liable to pay tax in the other country leading to double taxation of the same income. In order to avoid such hardship, NRI may avail benefits under the DTAA, if any, between the two countries. NRI may also claim credit of taxes paid in India in his country of residence.

Mr. R has the following options to claim complete exemption of capital gains arising on sale of his residential house, provided the house that was sold was a Long Term Capital Asset:

Reinvest in another residential house:

• Mr. R can avail the exemption if the new residential house was purchased one year before the date of transfer.

• Mr. R needs to purchase one/ two RESIDENTIAL house in India within a period of two years from the date of sale of the old residential house (i.e. before August 31, 2018), or,

• Mr. R can construct one/ two RESIDENTIAL house in India within a period of three years from the date of sale of old residential house (i.e. on or before August 31, 2019).

• If Mr. R has not purchased/constructed the new RESIDENTIAL house(s) before July 31, 2017 (i.e. due-date for filing tax return for the year in which the old residential house is sold), then he will have to open an account under the ‘Capital Gains Account Scheme’ with a Nationalized Bank and deposit the amount of capital gains. He needs to then utilize the amount out of this account for purchasing/constructing the new residential house within the time lines prescribed above.

Invest in Specified bonds:

• Mr. R can reinvest the amount of capital gains arising on sale of old residential house in specified bonds within 6 months from the date of sale of old residential house

• Such amount of investment in specified bonds should not exceed Rs. 50 lakhs in the current as well as subsequent financial year. Lock-in period of such specified bonds is ‘r’ years.

• Further, the government has notified that an additional amount of Rs. 50 lakhs may be invested in a ‘long-term specified asset’, to avail an exemption for the same. However, no such ‘long-term specified asset’ has been notified till date.

Investment in equity shares of a new eligible Indian company:

• Mr. R will be eligible to claim exemption in proportion of amount reinvested in equity shares of a new eligible Indian company or eligible start-up (as defined in Section 54GB of the Act) to the sales proceeds received on sale of residential property.

• There will also be further conditions to be complied with in order to claim this reinvestment exemption.

Yes, it will change as far as Point 1 and 2 of the FAQ is concerned. Though the timelines to reinvest in the new residential house will be the same, NRI will get exemption of capital gains in the same proportion as the proportion of amount reinvested in the new residential house bears to the sales proceeds received on sale of the old capital asset

Amount of Exemption = Capital Gains on Old Asset X Amount reinvested / Sale Consideration

One more difference is that he should not hold more than one residential property (other than the new residential house) on the date of transfer of the original asset.

Yes, the assessee has to file the return of income by prescribed due date for claiming the exemptions.

Amount which is not invested in the new property would be subject to the Long Term Capital Gain tax in the year in which the period of 3 years is completed.

At the time of inheritance:

There shall be no capital gains tax in the hands of NRI or his son at the time of inheritance, i.e. on the death of NRI.

At the time of Sale by son:

At the time of sale of the inherited house, the son shall be subject to capital gains tax on such sale. The details for the purpose of Capital Gains calculation shall be as follows:

• Cost: The son shall be allowed to adopt the cost paid by his father for acquiring the asset as his cost of acquisition

• Period of Holding: The period of holding the asset shall be computed from the year 2002

• Practical Issue: Computation of indexed cost of acquisition is litigative in India. There is a debate regarding whether the son will be allowed to index the cost from the year in which the father bought the property or the year of death of the father.

Gifts received on the occasion of marriage are generally exempt from tax as per the provisions of the Act. In view of the same, there shall be no tax liability on the residential house received as a gift by Mr. P on the occasion of his marriage.

In case NRI receives the residential house as a gift from his friend other than on the occasion of his marriage, the gift received shall be taxable under the head ‘Income from Other Sources’ as per the provisions of the Act.

Advance money/ earnest money retained by NRI shall be taxable under the head Income from Other Sources. NRI shall be required to pay appropriate taxes on the said income.

Compulsory acquisition of the property is regarded as ‘transfer’ within the meaning of Section 2(47) of the Act. Any gains arising will be subject to tax in the FY in which the property was compulsorily acquired.

If let out property and other assets are inseparable:

Where composite rent is received from letting out of building and other assets (like furniture) and the two lettings are not separable i.e. the other party does not accept letting out of buildings without other assets, then the rent is taxable either as business income or income from other sources, the case may be.

This is applicable even if sum receivable for the two lettings is fixed separately.

If let out property and other assets are separable:

Where composite rent is received from letting out of buildings and other assets and the two lettings are separable i.e. letting out of one is acceptable to the other party without letting out of the other, then

1. income from letting out of building is taxable under “Income from house property”

2. Income from letting out of other assets is taxable under the head “Profits and gains from business or profession” or “Income from other sources”, as the case may be.

This is applicable even if a composite rent is received by the assessee from his tenant for the two lettings.

In case of a resident in India (resident and ordinarily resident in case of individuals and HUF), income from property situated outside India is taxable, whether such income is brought into India or not.

In case of a non-resident or resident but not ordinarily resident in India, income from a property situated outside India is taxable only if it is received in India.

For more information on Residential Status, click here.

For more information on what income is taxable in India, click here.

Where the assessee owns more than two properties for self-occupation, then the income from any two such properties, at the option of the assessee, shall be computed under the self-occupied property category and their annual value will be nil.

The other self-occupied/ unoccupied properties shall be treated as “deemed let out properties”.

All provisions relating to a leased property apply mutatis mutandis to the deemed let out property.

Note: The option can be changed year after year in a manner beneficial to the assessee.

Actual rent received should not include any amount of rent which is not capable of being realised.

However, certain conditions are to be fulfilled for claiming such deduction. These are:

1. the tenancy is bona fide

2. the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property

3. the defaulting tenant is not in occupation of any other property of the assessee

4. the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

A NRI / PIO resident outside India can contribute to the capital of a firm or a proprietary concern in India on non-repatriation basis subject to certain restrictions. The amount is invested by inward remittance or out of an a/c maintained with an AD Bank by NRI/ PIO in accordance with the relevant Regulations.

A NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or engaged in Print Media.

Yes, NRI is permitted to make FDI in an Indian LLP subject to certain conditions as prescribed by FDI policy.

A person resident outside India or an entity incorporated outside India shall be eligible investor for the purpose of FDI in LLPs. However, the following persons shall not be eligible to invest in LLPs:

• A citizen/ entity of Pakistan and Bangladesh or

• FII or

• FVCI or

• QFI or

• RFPI

FDI is permitted under the automatic route in LLPs operating in sectors/ activities where 100% FDI is allowed, through the automatic route and there are no FDI linked performance conditions.

FDI in LLP is subject to the compliance of LLP Act, 2008

Downstream investments by an Indian Company or LLP having foreign investment will be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under automatic route and there are no FDI- linked performance conditions. Onus shall be on the Indian Company/ LLP accepting downstream investment to ensure compliance with the above conditions.

A person resident outside India other than NRIs/ PIO may make an application and seek prior approval of RBI for making investment in partnership firm/ proprietary concern in India. The application will be decided in consultation with the Government of India.

NRIs / PIO may seek prior permission of RBI for investment in sole proprietorship concerns / partnership firms with repatriation benefits.

A firm or proprietary concern in India may make payment to or for the credit of a NRI or PIO the sum invested by such person in that firm or the proprietary concern or the income accruing to such person by way of profit on such investment.

Yes, a RI can lend money by way of crossed cheque /electronic transfer within the overall limit of USD 2,50,000/- per FY under LRS. The loan should be interest free and have a maturity of minimum 1 year and cannot be remitted outside India. Repayment of loan shall be made by way of inward remittances from outside India or debit to NRE/NRO/FCNR a/c of the borrower or out of the sale proceeds of shares/securities/immovable property against which such loan was granted.

The loan shall be utilised for meeting the borrower’s personal requirements or for hisown business purposes in India. It shall not be utilised for any of the activities in which investment by persons resident outside India is prohibited, namely in;

• the business of chit fund, or

• Nidhi Company, or

• agricultural or plantation activities or in real estate business, or construction of farm houses, or

• trading in Transferable Development Rights.