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Frequently asked tax queries by individuals
February, 12th 2009

1) Query: I have a family comprising of five people, including my wife, two daughters and son. I wish to know whether I can form a HUF or not? Also, how can I create capital in the HUF?

Response: The HUF can be formed comprising of yourself, your wife, two daughters and a son. The capital/wealth of the HUF can be created by way of gift proceeds (money) or through ancestral property.

Please note that as per the provisions of the Income Tax Act (the Act), any money received as a gift by a HUF from any person in excess of Rs 50,000 in a financial year (01 April to 31 March) is taxable in the hands of recipient as income from other sources.

However, if the money is received from a specified person (like a relative, as specified under the Act), or under specified situations, the amount so received is not taxable.

2) Query: I trade both in cash and Futures & Options. How will my income be taxable?

Response: The actual facts of the case should be examined in detail in respect of the different tests as to volume, continuity of business/transactions etc. to evaluate whether the income would be taxable as business income or capital gain.

3) Query: I am a non-resident Indian. I would like to invest money with the maximum amount of the tax benefits. Please advice.

Response: Broadly, a deduction under Section 80C of the Income Tax Act, 1961, is available for specified investments/ expenditure incurred in a life insurance policy, specified mutual funds, national savings certificates, public provident fund or fixed deposits for five years or more etc.

However, total deduction under the said section cannot exceed Rs 1 lakh per financial year (April to March). Further, interest earned in specified non-resident bank accounts, dividends received from an Indian company on which security transaction tax (STT) is paid and long term capital gains on sale/transfer of shares on which STT is paid is also exempt from tax. Therefore, evaluate your investment objectives and the associated risks before making your investments.

4) Query: What is the maximum limit of claiming a tax benefit in respect of medical insurance premium?

Response: As per section 80D of the Act, a deduction can be claimed by an individual in respect of the medical insurance premium paid up to Rs 15,000 for himself and his spouse and dependent children.

Additionally, he can also claim deduction for the medical insurance premium up to Rs 15,000 for his parent(s). Further, the aforesaid deductions are increased up to Rs 20,000 in case the premium is paid for senior citizen (65 years or more).

5) Query: I have two minor kids, 6 years and 8 years, and have made certain fixed deposits/recurring deposits in their name for long-term savings to meet their education expenses. Please let me know how the interest income would be taxable?

Response: Interest income earned on fixed deposits/ recurring deposits is taxable under the head Income from other sources. In the instant case, as per the provisions of the Income Tax Act, 1961, the interest income would be included/ clubbed in your taxable income and not taxed separately in the hands of your minor children.

6) Query: If a person owns two houses and both are self occupied and on loan, how should one calculate the house property income? Similarly, in case if one house is self occupied and the second is let out, how should one calculate the house property income?

Response: Broadly speaking, the income under the head House property is determined as follows:

First, the gross annual value of the property is to be computed as explained below. Second, the municipal taxes actually paid are allowed as deduction from the above to arrive at net annual value of the house property. Thereafter, the following deductions are allowed:

a) A fixed deduction of 30% of the net annual value (to meet the costs of repair and maintenance etc.) and

b) Interest paid on the housing loan taken to acquire/construct the house property as explained below.

If both the houses are self occupied, then one house as per the choice of the tax payer is treated as self occupied, while the other house is treated as deemed to be let out.

In respect of the second house, it would be treated as deemed to be let out. Hence, its gross annual value will be determined on a notional basis i.e. municipal valuation or fair rent, whichever is higher subject to standard rent (under the Rent Control Act). In this case, a fixed deduction of 30% of the annual value as well as interest deduction (actual interest without any upper limit) on housing loan could be claimed.

If one house is self-occupied and the other is let out, then calculation would be as follows:

In respect of self-occupied house, the income would be computed as stated above. In respect of the second house that is let out, the annual value would be determined on the basis of actual rent received/receivable from letting out of the property.

7) Query: Can you please let me know who is required to file the income tax return electronically. How is a return filed electronically?

Response: Corporate taxpayers and partnership firms are compulsorily required to file their income tax return electronically, while it is optional for other taxpayers (including individuals), subject to certain conditions.

For electronic filing of return, the taxpayer has to visit the Income Tax department website and upload/transmit the information of income and taxes in the prescribed form.

In case, the taxpayer has a digital signature, the same shall be appended in the form. In case there is no digital signature, the taxpayer is required to file a verification form with the tax authorities quoting the provisional acknowledgement number received on electronically uploading the information.

8) Query: I am a salaried individual having an annual income of Rs 6.5 lakh. I have observed that I have quoted an incorrect PAN number in my return filed on 25 July 2008 for the financial year 2007-08. Am I permitted to file a corrected return? What are timelines to do so?

Response: In this case, you can file a revised tax return to rectify the mistake made in the original return. The revised return can be filed before the expiry of one year from the end of relevant assessment year or before completion of assessment, whichever is earlier. For the financial year 2007-08 (year ended 31 March 2008), you can file a revised return up to 31 March 2010.

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