Q. I have invested Rs 1 lakh in tax-saving instruments but was unable to provide proof to my employer. He will be deducting money from my March salary to pay income tax.What can I do?
—Rajendra Prasad
A. If you do not provide proof of tax-saving investments, your employer has no option but to deduct tax from your salary and deposit it with the tax authorities. You will get a certificate of tax deducted at source (TDS) from your employer. You will need to mention the TDS while filing your return of income. If the TDS amount is more than the tax due, you will be eligible for a refund.
You must give your bank account details in your return, so that the refund is credited directly to your bank account through ECS. Perhaps, you are in this situation because you left tax planning for the months of January-March. Had you started planning your taxes earlier, you could have given the required documents in time to avoid TDS and then waiting for your refund. That way you also avoid constricting your cash flow at the end of the year.
Q. Is income earned from trading in futures and options taxable under business income or capital gains?
—Rajesh Sharma
A. Trading in derivatives is not a speculative transaction according to Section 43(5) of the Income Tax Act. However, the income from futures will be short-term gains. If you are an investor you will have to pay 10% short-term capital gains tax. But if you are a dealer, your income would be taxable as business income at the applicable slab rates. Similarly, the income from options would be defined as short-term capital gains, whether it is from buying or selling or from exercising the option. Again, if you are a dealer in shares, the income would be treated as business income.
Q. I recently changed my job. I have closed the provident fund account with my previous organisation and withdrawn the money. Is that amount taxable?
—Ashok Manvani
A. No, you will not have to pay tax on the amount withdrawn from your provident fund account. Any payment received from a recognised provident fund scheme, which is set up under the provisions of the Provident Funds Act, 1925, or from any other provident fund set up by the Central Government, is exempt from income tax.
Q. I am a full-time employee and have hired a driver. I pay him out of my salary because my employer does not give me driver allowance. Can I deduct the driver’s salary from mine and accordingly reduce my tax liability?
—Ram Prasad
A. No, you cannot claim tax deduction for the salary paid to your driver even if you are paying him out of your income. Only self-employed professionals and consultants are eligible to claim deduction of the salaries they pay to drivers, peons, sweepers, etc. As a salaried employee, if you get a conveyance allowance of up to Rs 800 a month from your employer, it is exempt from tax.
Q. My wife and I are retired.We have rented out a portion of our house. Do we need to add the rental income to our income for the year?
—Jasmeet Sethi
A. Yes, you need to add the rental income to your total income for the year. It has to be declared under income from house property in your tax return form. There is a standard deduction of 30% on the rent received. The balance amount is taxed at the applicable rate along with other incomes from savings and pension.
Q. I took a home loan to buy a house and have now rented it out. I know that I can claim a deduction on the interest component of the equated monthly instalments (EMIs) of the home loan. Can I also claim deduction under Section 80C for the principal component of the EMIs?
—Ravi Sant
A. The repayment of principal amount of loan qualifies for deduction under Section 80C only if the house is self-occupied. Since your house has been rented out, this deduction will not be available to you. However, you can offset the rental income against the interest paid on the home loan. The exemption limit of Rs 1.5 lakh a year is not applicable here.
Q. Last year, I earned Rs 1.37 lakh and paid Rs 224 as income tax. For the current financial year, my income will be only Rs 1 lakh plus a short-term capital gain of Rs 30,000 from trading in shares. Do I need to file my income tax return?
—Chitra S
A. For the current year, you don’t have to pay any tax because your total income is going to be below Rs 1.45 lakh, the tax-free limit for women. For the same reason, you don’t have to file your income tax return either. However, do keep in mind that you also need to include interest earned on your savings bank deposits in your total income for the year.
Q. I have been investing in my minor son’s name for the past three years. Should I file tax in his name? He will turn 18 in two years from now.
—Prakash Bir
A. According to Section 64, the income from investments in the name of a minor is clubbed with the income of the parent who earns more and taxed at the applicable rate. If you earn more than your spouse, the income from the investments will be treated as your income. After your son turns 18, any income earned from the investments will be treated as his income and he will have to pay tax on it.
Q. My daughter gives me Rs 10,000 a month.Will I need to pay tax on this amount?
—Kulpreet Singh
A. No, the amount received by you from your daughter will not be treated as your income for the purpose of income tax. Any amount received as a gift from specified relatives is not taxable in the hands of the recipient of the money.
Q. I have received Rs 1.8 lakh as rent from my tenant. His books are not required to be audited under Section 44 AB of the Income Tax Act, 1961. Can he deduct tax at source on the rent?
—Ritesh Pathak
A. If the accounts of your tenant concerning his turnover or gross receipts are not subject to tax audit under Section 44AB, then he is not liable to deduct tax at source from his rent payment.
Are matters of tax taxing your brain? Singh & Gupta, chartered accountants, will answer your queries on taxation.
