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Senior citizens do not have to pay advance tax on salary and interest income
October, 10th 2016

Resident senior citizens who do not have any income from business or profession are exempted from payment of advance tax, irrespective of tax liability quantum

Advance tax is payable by an individual as per the prescribed instalments, if the total tax liability (after tax deducted at source) on the estimated income is likely to be Rs10,000 or more during the relevant FY. But resident senior citizens who do not have any income from business or profession are exempted from payment of advance tax, irrespective of tax liability quantum. As you would attain 60 years in November 2016, you will qualify as a senior citizen for FY17 for tax purposes.

Presently, since your source of income only comprises salary and interest income, you will not be required to pay advance tax instalments. If in the future you earn income from business or profession, you would be required to pay advance tax on that income.

I hold some government bonds. I want to transfer these to my son. What will be the tax liability?

—Rensil M.

If an individual receives any property (other than immovable property) from any person during any FY without a consideration, the fair market value (FMV) of which exceeds Rs50,000 during the FY, then the entire FMV of such property shall be taxable under the head ‘income from other sources’. The FMV will have to be calculated as per the specified method prescribed in Rule 11UA of the Income-tax Rules, 1962. However, an exemption is available if the same is received from specified relatives, including parents of the individual. As the bonds would be received by your son as gift, there should not be any tax implications in his or your hands at the time of receiving or gifting the government bonds.

Also keep appropriate documentation in place to substantiate the gift transaction.

Further, if your son is a major (18 years or above) the clubbing provisions will not be applicable. Accordingly, any subsequent income from the bonds arising at a later point in time shall be taxed in his hands only. However, if your son is a minor, any subsequent income from the bonds shall be taxed in your hands or your spouse’s hands (whoever’s total income during the relevant FY is higher).

Let’s say a couple has two joint properties: first one as Mr A and Mrs B and second one (bought later) as Mrs B and Mr A. Both properties are either in use and under occupation by the couple and/or their children; or are empty but with constructive possession with the owners. No rent accrues from them. How would the income tax department treat these for tax or income accrual purposes?

—Madan

Ownership from tax perspective is ascertained on the basis of funding towards cost of the property. We have assumed that Mr A and Mrs B have jointly funded both the houses. Under the domestic tax law, if an individual owns more than one property, then any one property, at the discretion of the individual, can be treated as a self-occupied property (SOP) and the other is considered as deemed to be let out property (DLOP).

Since Mr A and Mrs B jointly own more than one property, any one property at their discretion—to the extent of their share of ownership—can be considered as SOP by each of them. Further, the other property, to the extent of the respective share of ownership, is considered as DLOP.

Accordingly, for DLOP, a notional rental income would be required to be offered to tax. This is determined based on the rent a similar property may earn. Further, actual municipal taxes paid and a flat deduction of 30% of notional rent offered for tax would be available. If any housing loan is availed against the aforesaid house properties, the quantum of deduction towards repayment of principal portion of the housing loan (if any) would be subject to overall cap of Rs1.5 lakh under section 80C of the Income-tax Act, 1961, irrespective of whether the property is SOP or DLOP.

The quantum of deduction for interest paid would depend upon whether the residential property against which the home loan is availed is an SOP or DLOP. For SOP, the deduction towards interest paid is subject to the cap of Rs2 lakh per FY. For DLOP, the entire interest paid can be claimed as deduction against deemed rental value offered to tax.

For sake of completeness, the loss incurred from house properties (SOP or DLOP), if any, during the relevant FY can be set off against any other income earned during the FY.

The balance, loss if any, which cannot be set off as aforesaid, can be carried forward up to 8 FYs (i.e., immediately succeeding the FY in which the house property loss was firstly computed) and set off only against income from house property.

Additionally, Mr A and Mrs B would be required to disclose their share of both house properties at cost in the Schedule AL (forming part of the income tax return form) to be compliant from disclosure perspective.

 
 
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