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Taxation Q&A

You cannot save income tax by transferring money to your wife even by way of a gift. Know more about taxation.

Print Edition: March 8, 2007

Q. I am a pensioner and pay tax on the pension and the interest income from bank deposits. To reduce my tax liability, I wish to gift some of the money held by me in bank deposits to my wife. What will be the tax implication?

A.
No, unfortunately you cannot save income tax by transferring money to your wife even by way of a gift. Such a transfer of money will attract the provisions of Section 64 of the Income Tax Act, 1961 which says that while computing the total income of any individual, all income arising directly or indirectly to the spouse from asset transfer is to be clubbed with his income. Since you are the absolute owner of the interest-bearing deposits, if you transfer the deposits in the name of your wife without receiving adequate consideration, the income from such deposits will still be considered as yours and taxed accordingly.

JOINT HOME LOANS
If you and your spouse jointly take a loan for buying a house, both of you will be entitled to claim income tax benefits on the repayment of the principal and the interest paid on the loan.
However, if you gift the deposits to any of your major children, the income subsequent to the date of the gift from such deposits will be taxed in their hands.

Q. I have started receiving an annuity from November 2006.Will this be treated as my income? I am already drawing a retainer fee of Rs 5 lakh a year.

A.
Income earned from annuities is fully taxable. Therefore, the annuity received by you from November 2006 onwards will be included while computing your gross total income for the current financial year. The net income from retainership (gross receipt of Rs 5 lakh less expenses directly related to the retainership job) will be taxed as business income. Annuity income, profit from profession and any other income will form your gross income. Tax is payable on gross total income.

Q. My earnings from share trading is above Rs 5 lakh this year; which is more than the salary I draw. How will my tax be assessed and what will be my maxim um tax outlay?

A.
First of all you will have to segregate your income from share trading into short-term and long-term capital gains (if you held the shares for more than a year, the gain will be long-term; otherwise the gain will be short-term). If you have paid securities transaction tax on all shares, long-term capital gains are exempt from tax and short-term gains are taxed at a flat rate of 10%. Your gross tax outlay will depend on your salary income, income from capital gains, income from other sources such as bank interest and the deductions to which you are entitled.

Q. My wife and I plan to take a Rs 30 lakh home loan and pay a proportionate amount for the EMI. Can we both claim tax benefits towards repayment of the loan?

A.
It is a good idea to jointly take a home loan so that the income tax benefits can be availed by both husband and wife. If you and your wife take a loan for buying a house for the purpose of living in it, both of you will be entitled to claim benefits under Section 80C for the repayment of the loan. Further, you will also get a deduction on the interest paid on the loan to the extent of Rs 1.5 lakh every year for you and your wife separately. However, both of you must be co-owners of the house.

Q. My son stays with me in my house.To reduce his tax liability, he shows that he is paying house rent to me.Will this arrangement increase my tax liability and the property tax benefit that I get for self-occupied premise?

A.
Your son can claim exemption under section 10 (13A) for the rent paid only if he is actually paying rent to you. If he is paying rent, it will be included in your income under the head income from house property and taxed according to the provisions of the Income Tax Act 1961. You can still enjoy the property tax rebate based on the fact that you are self-occupying it, as partly letting your premises does not disqualify you from such a rebate.

MEDICAL INSURANCE
The proceeds from your medical insurance are not taxable, since the claim received under the policy is only a reimbursement of medical expenditure incurred by you
Q. My income tax refund reached me with the wrong account details. Repeated attem pts to resolve the issue have failed. How can I get the refund?

A.
Usually the income tax refunds carry the same bank account details as those mentioned in the income returns you had filed. In case there is an error in the mention of the account details by the income tax office (ITO), the matter can be resolved if you personally visit your ITO with a copy of the acknowledgement of your return and a copy of your bank statement where your account is mentioned.

However, if there was an error in mentioning the account number at your end, the ITO, in addition to the above documents may ask you to furnish a letter of indemnity before making the endorsement. In either case, the ITO will endorse the correct account details on the cheque.

Q. I lost my PAN card but have a photocopy o f the same a nd know the PAN number; what should I do to obtain a duplicate PAN card?

A.
You can get a duplicate PAN card. All you have to do is to fill up the prescribed form and deposit it through either UTI or NSDL. You need to attach the photocopy of your old PAN card, your photograph, proof of address and an identity proof.

Q. I made a health insurance claim in January 2006 but received the payment only in April 2006.Will this amount be treated as income for the assessment year 2007-8? I have discontinued the policy now.

A.
The claim received under any medical insurance policy is only a reimbursement of medical expenditure already incurred by you. Since there is no profit involved in this transaction, the proceeds from the medical insurance are not taxable. Therefore, you don’t have to include the receipt in the income for the assessment year 2007-8.

Q. I have two sons and a daughter. My father bequeathed his house to me; I plan to divide the house into four parts for my children and myself.What are the tax implications of such a move?

A.
On inheriting the property bequeathed to you by your parent, you became its absolute owner. As an owner of a property or a house, you can gift it to your children without attracting any tax liability. The gift received by your children is also exempt in their hands.

Q. What is form 15G and what is its purpose? How can it help in saving the tax on interest on bank deposits?

A.
Form 15G is the composite form that has replaced forms 15G, 15H and 15I that were previously used. In case your annual income is below the taxable limit (Rs 1 lakh for men, Rs 1.35 lakh for women and Rs 1.85 lakh for senior citizens), you can fill up form 15G to declare that you do not have a taxable income and therefore no tax should be deducted at source, whether it be a bank deposit or tax-saving bonds.

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