Q. I bought a new personal digital assistant (PDA). Can I write off the price I paid for it as expense for my business and thus reduce my income tax liability?
—Vikram Saluja
A. PDA is an electronic item that is usually used for official or business purposes and therefore can be treated as a business asset. You may not be able to write it off in one year but you can certainly claim depreciation on it which is a chargeable expense . For income tax purposes such assets are classified under the head of computers and are eligible for depreciation at the rate of 60% if used for more than six months in the financial year and 30% depreciation if used for less than six months. You can claim depreciation in the following years as well till the asset gets fully depreciated. As was listed in the MONEY TODAY issue dated 25 January, gadget ranging from iPod to digital cameras can be written off as business expense, depending on the kind of profession you belong to.
Q. I believe interest of up to Rs 10,000 from fixed deposits is not taxable from June 2007. Is this non-taxable interest amount per annum? What happens if we invest for six months and collect the interest?
—Bobby
A. Your information is wrong. The amount of Rs 10,000 received as interest on fixed deposits is not exempt from tax. This amount is only for the purpose of calculation of TDS to be deducted by banks. This limit is for the financial year and does not depend on the tenure of the time deposit. This means that if you made a fixed deposit for six months and earned interest of Rs 8,000 and again you placed the same amount in an FD and earned another Rs 5,000 during the same financial year, the bank will deduct tax on the entire Rs 13,000 interest earned by you during that financial year.
Q. Last year I purchased and then redeemed some mutual fund units. Suppose I invested Rs 5,000 and after a year got back Rs 6,000.Where should I add the extra income of Rs 1,000? What is the tax implication if the units are held for less than a year. Do I need to pay tax or the company pays it for me?
—Anand
A. As a holder of the units of the mutual fund, you have to account for the profit earned by you on sale of units in your income tax return under the head capital gain. If you have retained the mutual fund for more than one year and also paid securities transaction tax, the profit of Rs 1,000 shall be treated as a longterm capital gain and will be exempt from income tax. In case you sell the mutual funds within a year of acquiring them, the capital gain generated will be termed as short-term capital gain and will be taxed at a flat rate of 10% of the net profit made by you. The obligation of payment of tax as well as filing of return will be yours.
Q. Does the interest relief of Rs 1.5 lakh on housing loan apply individually to coowners of a house or are they entitled to it together?
—Abhishek Basu
A. The interest on housing loan up to Rs 1.5 lakh is allowed as a deduction from income in case the house is self-occupied by the owner. If the house is owned by more than one person and is also selfoccupied by both the owners, then both are entitled to the deduction of up to Rs 1.5 lakh individually on account of actual payment of interest on borrowed money.
Q. I plan to buy a used car, and the seller is asking for money in cheque as well as cash. What is the tax implication if I withdraw Rs 75,000 in cash?
—Ravi Kant
A. In case of an individual there is no tax implication if you pay Rs 75,000 in cash for the purchase of a second-hand car. All you need to do is show the movement of funds in your statement of affairs prepared by you at the time of filing your return (banking cash withdrawal tax is not applicable on withdrawals from savings account). You can ask the seller to give you a receipt for the money received by him in cash and cheque as payment for the sale of the car. In case of any enquiry from the income tax department, you can produce the receipt and the copy of your bank passbook.
Q. I earn Rs 70,000 as salary, Rs 70,000 as a mutual fund agent and Rs 20,000 as interest.Which income tax form is applicable for me?
—Amit Madan
A. Individuals having income from proprietorship or profession are required to file their income tax return in form ITR-4. Since your income falls under three heads of income including income from business or profession, you should file your return in form ITR-4.
Q. My family is into agriculture and farming. I am employed with a private bank in Maharashtra.What will be my tax implication, if we have an annual income from farming that is close to Rs 70 lakh between three brothers and my father?
—S M Joshi
A. Section 10(1) of the Income Tax Act exempts agricultural income from income tax. However, in some cases it also considers a part of the agriculture income as business income making it taxable. You have to first satisfy the following three clauses: a) The person is an individual, HUF or a body of individuals, b) the person has non-agricultural income (i.e. income from salary, capital gains, house property, other sources) exceeding his exemption limit and c) the agricultural income is more than Rs.5,000 In your case we assume all the three conditions are satisfied. Lets say your share of income from agriculture is Rs 15 lakh and your salary income is Rs 5 lakh. Both the incomes needs to be aggregated and income tax needs to be calculated on the total income (Rs 15 lakh + Rs 5 lakh = Rs 20 lakh. Your tax liability is Rs 5.49 lakh), The agriculture income is increased by the exemption limit and the income tax is calculated on the income so increased (Rs 15 lakh + Rs 1.1 lakh = Rs 16.10 lakh. Your tax liability is Rs 4.32 lakh). Difference of the above two amounts is calculated (Rs 5.49 lakh – Rs 4.32 lakh = Rs 1.17 lakh). The total tax payable is Rs 1.17 lakh (before surcharge and cess) as against Rs 99,000 which would have been paid if only Rs 5 lakh was the taxable income.
Q. I have been lending money to friends in cash to tide over cash-flow problems they face. Most of the times this is returned by cheque. Will the tax authorities treat this as an income?
—Ashok Kumar
A.The money received by you by way of cheque from your friends whom you had lent cash can be treated as an income in your hands by the tax authorities. It is not advisable to enter into such transactions the source of which cannot be explained by you. It would be better if you issue cheques while lending the money, so that you can explain the movement of funds in your bank account by receiving back the same amount in cheque.
Are matters of tax taxing your brain?
Sood, Sharma and Associates, a Gurgaon-based accounting firm, will answer your queries on taxation. Log on to www.moneytoday.in and click on Tax Quer ies to submit your questions.
