My son is 10 years old and very bright. He has earned some money during the year by working in advertisements and regional television plays. Will his income be clubbed with my income or shall I be required to file his return separately?
A Ramaswamy
Under the Income Tax Act, a child below 18 years of age is treated as a minor and his income is clubbed with the income of the parent (parents living together) whose income is higher. However, this relates to income that the child has earned without using his talent or knowledge—such as interest earned from an investment made in the child’s name.
In case where the child has earned income by working or by application of his skills, talent or specialised knowledge and experience then it is not clubbed with parent’s income. In the case of your son too the earnings from advertisements and acting are taxable in his hands. A separate tax return will have to be filed for him under your guardianship.
What is the tax liability on pension received? In addition to regular pension, I also have an LIC pension policy. Can I commute some portion of it? Will it be taxable?
Yogesh Jhurani
Pension received by an employee from his employer after his retirement or voluntary resignation is taxed the same way as salary is. Commuted value of pension is exempted under Section 10(10A) of the Income Tax Act. The exact exemption depends on whether you have received gratuity or not at the time of retirement. In case of receipt of gratuity commuted value of one third of the pension is exempt from tax.
In case of non-receipt of gratuity, commuted value of half (50%) of the pension is exempt and the balance of commuted pension becomes taxable. Yes, you can commute some portion of pension from LIC. Payment received in commutation of pension from an approved insurer is fully exempt from tax. Pension received from LIC is taxable under the head “Income from other sources”.
After working for a company for seven years I received gross provident fund (PF) of Rs 2.5 lakh. Out of that Rs 1.4 lakh was adjusted against various dues to the company. Do I have to pay tax on PF withdrawal? If yes then on which amount (gross or net)?
Manish Shah
The withdrawal of gross amount from a recognised provident fund account is not taxable. The adjustment of dues from your provident fund money is only an application of funds and for income tax purposes only the gross amount of PF paid to you shall be considered.
Also at the time of switching jobs there is an option of withdrawal or transferring the balance in your provident fund account to your new employer. In case you decide to transfer the accumulated balance (gross amount) it shall be exempt from income tax.
Is the school fees of my one-year-old daughter counted in the Rs 1 lakh income tax deduction we get for the purpose of tax benefit?
Nilay Desai
As your daughter is only a year old, I presume she will soon be going to a play school. Unfortunately play schools are not considered as schools for the purpose of claiming this deduction nor are they treated as an educational institution. You may claim deduction once your daughter starts her formal schooling.
Under Section 80C, tuition fees (excluding development fees, donations or other similar payments) paid for education of any two children of an individual will qualify for deduction. This payment of tuition fee should be made to a university, college, school or other educational institutions within India.
I recently sold a house after renovating it. Will the cost of renovation be added to its total cost for calculation of capital gains on its sale?
Mihir Chopra
Yes, only those expenses which have been actually incurred in making additions and improvements (excluding maintenance) to the property shall be taken as cost of house improvement. This cost is added to the total cost for the purpose of calculation of capital gains. The total cost of improvement is also indexed as per the rates for the year in which the renovation work was actually completed.
In case renovation work was carried out in different financial years, the indexation shall be applied accordingly and total cost of improvement shall be derived by adding all of them.
Can I claim both the benefit of a housing loan and house rent allowance (HRA) deduction, if I am living in a rented house in Delhi and working for a company in Gurgaon and purchased a house on loan in Faridabad?
Sanjay Chaubey
Yes, you can claim the benefit of HRA exemption as you are living in a rented accommodation. You need to submit proof of rent receipt to your employer. The repayment of principal amount of loan will qualify for deduction under Section 80C of the Income Tax Act provided the amount has been borrowed from a recognised home loan lender up to a maximum of Rs 1 lakh.
You will not be eligible to get the deduction for payment of interest on the borrowed capital until the house is completed. If you decide to shift to that house, the accumulated balance of interest paid during the construction period can be divided in five equal parts and claimed as deduction in the five years starting with the year of completion of construction.
I am a senior citizen with an annual income below Rs 1.95 lakh. Do I need to file tax return?
Devendra S Bhisikar
As per Income Tax Act, if your age is 65 years and above, annual income up to Rs 1.95 lakh is exempt from income tax for the financial year 2007-8. As your income is below the basic limit it is not mandatory for you to file your return of income. However, as you have been filing your return for the past many years, you may continue to file your return if you wish to.
Also in case you know that your income in the coming year(s) may exceed the basic exemption limit it would be better to keep filing your return and maintain the continuity.
If I gift some money to my children and invest that amount in a fixed deposit (FD) what will be the implication of tax on the income earned from the FD? Is there any upper limit for such amount?
Nageswar YSV
Gift to certain specified relatives including gift to children (major) is exempt from gift tax. Assuming that your children are not dependent on you, the interest on fixed deposits shall be taxable in their hands. There is no upper limit on the amount of gift that can be made to children as they are covered in the definition of close relatives.
There is no specific requirement to mention the gift in your income tax return. However, you can mention the fact in your income tax return for the financial year during which you have made a gift in the form of note in your computation of income sheet. As documentary evidence, it would be best if you draw up a gift deed on a stamp paper and keep it in your records.
