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'Is PF taxed if withdrawn?'

The amount withdrawn does not attract income tax if you are a member of a recognised provident fund.

Print Edition: June 28, 2007

Q. I have recently changed jobs. I intend to withdraw my provident fund from my previous employer as I need the money for some personal use. Would it be taxed as normal income?

A. We presume that your previous employer maintained a recognised provident fund (RPF). If you are a member of an RPF, the amount withdrawn by you will not attract any income tax provided you have been in continuous service for a period of five years or more. This time span will also include the period of service rendered to a former employer who also maintained an RPF account. If the service is less than five years due to reasons beyond your control (ill health or if your employer closed down his business), you will still be eligible for exemption. However, you need to have at least a month’s break between PF contributions. If your last PF contribution was for March and then you quit, there has to be a month’s gap before you start the PF from your next employer, which means the PF will kick in from the month of May. You can withdraw this money in part or in total.

Q. I am a resident Indian and am migrating to Australia. I will be leaving India in July. Should I file IT return for the year 2006-7 before I leave? What tax related issues should I be aware of to manage it from Australia and maintain in India? I do not plan to come back for the next three years at least.

A. The last date of filing of income tax return for an individual assessee for the income taxed in financial year 2006-7, is 31 July 2007. In case you have income under the head business or profession the last date of filing of return would be 31 October 2007. In either case, it would be best if you file your return before you leave for Australia.

A person’s residential status determines the total income on which an assessee will have to pay the tax. A person who is a non-resident, according to Section 5 of the Income Tax Act, has to pay tax on the Indian income earned by him which means any income which is received in India. This includes income received from business, any rent received from house property or interests received from deposits in India. As per your plan, if you leave India in July 2007, for income tax purpose you would be a non-resident for the financial year 2007-8. As a nonresident your income which accrues in India will be taxable in India. Therefore, you have to maintain a complete record of your total income which is earned in India and file your returns accordingly. Since you will be in Australia, you can file your return through a power of attorney in India.

Q. We are four friends who have entered into a partnership to start a small business. While only three brought in money, the fourth one was taken into the group for his technical expertise. How do we decide our percentage stake in the business and divide the profits? Should be based on the money invested?

A. The arrangement of profit sharing in a partnership can be based on many factors. Pooling of investment, technical skill, the devotion of time to the business, and so on are the most common basis of sharing of profits. Based on the weightage of each factor, the profit sharing ratios can be drawn and incorporated in the partnership deed of your company.

Q. My wife takes tuitions at home and makes Rs 25,000 a month. As this is all in cash, how can we get this money into the system? Should I reflect it in her tax return? Please advise.

A. For a woman income up to Rs 1.45 lakh is exempt from tax. Since the income of your wife exceeds the limit, she must file her income tax return. She should maintain a complete record of her receipts from tuitions. The best way to do this is to deposit all receipts in a bank account. This will automatically ensure that all receipts are accounted. Simultaneously she should apply for her PAN. To reduce her tax burden your wife can make investments in tax-saving instruments.

Q. I’m a salaried person. Last year I had started a demat account and bought some shares and sold them. Some earned profit and others not. Overall I am in a loss.Which ITR form do I have to submit? Do I have to pay the capital gains tax for the sale which gave me profit? Can I show the total loss and get back the IT that I paid for my salary?

A. For the assessment year 2007-8, you will have to file your income tax return in form ITR 2 which is applicable for individuals and HUFs not having income from business or profession. If you have retained the shares for a period of one year or more then the profit or loss from sale or transfer of such shares shall be termed as long term. And for all shares which are retained for less than one year, profit or loss shall be termed as short term.

In case the securities transaction tax is paid on the transaction, short-term capital gains is taxed at the rate of 10% whereas the long-term capital gains is exempt from tax. According to Section 70 of the Income Tax Act, the short-term capital loss can only be set off against long-term and short-term capital gains. This means that short-term capital loss cannot be set off against any income from other sources such as salary income or income from house property. In case the loss is not wholly set off in a year, it can be carried forward for the next eight years. Finally, if any tax is required to be paid, it can be deposited with the designated branch of a bank by filling a self-assessment challan.

Q. I am an independent consultant working with a number of companies either on retainership or job-to-job basis.All companies deduct my income tax at source and issue me a certificate at the end of the financial year. Do I still need to file my income tax return? Will I get allowance for the expenditure I incur with regard to the consultancy?

A. Tax deduction at source (TDS) is an ad hoc deduction of income tax which is calculated at prescribed rates. The company or individual making the payment deducts the tax at the rates prescribed in the Income Tax Act and deposits the amount with the government on behalf of the payee. The payee, however, is still required to file his income tax return based on his actual income. On actual calculation, if the TDS works out to be less than the amount of tax, the assessee has to pay further self assessment tax or if the TDS is more than the actual calculation of tax, the assessee gets a refund of tax. You will therefore, have to file your income tax return including your income from all other sources, if any. You will have to maintain the books of accounts with respect to your professional income and at the end of a period you will have to draw up a profit and loss account. You can claim deduction for any expenditure which you incurred for the purpose of earning your professional income. You are also eligible to claim certain non-cash charges such as depreciation of your vehicle and other equipment used for the purpose of your business.

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.

 

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