N.R.Kuralkar & Co.
CHARTERED ACCOUNTANTS
FAQ Categories
General
Income from Salary
Income from House Property
Income from Capital Gains
PAN
GENERAL
 
What is a Financial year?
Financial year means a year which starts on 1st April of every year & ends on 31st March of next year.
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What is a "previous year"?
For any Tax calculations the Financial Year in which the income is earned is known as the previous year . Lets assume that you have earned salary or business income during last financial year i.e. between 1st April 2003 to 31st March 2004. So This financial year beginning on 1st of April 2003 and ending on 31st March 2004 is the previous year.
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What is an 'assessment year'?
The next financial year in which income of previous year is assessed i.e. calculated for tax payment is known as the assessment year .For example for the previous year from 1st April 2003 to 31st March 2004, the assessment year shall be the next financial year i.e. 1st April 2004 to 31st March 2005.
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What is meant by an assessee?
Assessee means a “person”
- by whom any tax or any other sum of money is payable under the Income Tax Act, and includes every person who is deemed to be an assessee under any provision of this Act & every person who is deemed to be an assessee in default under any provision of this Act.
Section 2(31) of the Income Tax Act defines a person. The definition includes
1. An individual
2. A Hindu Undivided Family
3. A Company
4. A Firm
5. An Association of Persons or a Body of Individuals whether incorporated or not.
6. A Local Authority &
7. Every artificial juridical person not falling within any of the preceding categories.
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Who is an Assessing Officer (A.O.)?
The Assessing Officer makes the assessment and collects taxes under the Act. A.O. is an abbreviation for Assessing Office. It is defined in section 2(7A) of the Income Tax Act. Assessing Officer means the Income Tax Officer, or the Assistant Commissioner of Income Tax, or the Dy. Commissioner of Income Tax, or the Jt. Commissioner of Income Tax , having jurisdiction over an assessee
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What are 'heads of income'?
Under Indian Income Tax Law income or loss assessable is the aggregation of all heads of income, The head of income' are :
1. Salaries
2. Income from House Property
3. Profits and Gains of Business or Profession.
4. Capital Gains
5. Income from Other Sources.
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INCOME FROM SALARY
 
What is the maximum amount not chargeable to tax for leave salary whether on Superannuation or otherwise as specified by the Government?
The maximum amount not chargeable to tax beginning from July 1, 1995 is Rs. 1,35,360/- as specified by the Government.
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What is the maximum limit of compensation received at the time of voluntary retirement, that is not taxable?
U/s 10(10C) of the Income Tax Act, a sum upto Rs. 5,00,000/- received at the time of voluntary retirement is not taxable provided the voluntary retirement scheme is approved or framed as per the Rules. For details please see the module on Income from Salaries.
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Whether any TDS has to be deducted on the amount received under an approved voluntary retirement scheme?
If all the specified conditions are satisfied the employer need not deduct TDS on the amounts paid under the Voluntary Retirement Scheme. However, tax at source shall have to be deducted on amounts exceeding the prescribed monetary limit of Rs. 5 Lakhs paid under the Scheme.
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INCOME FROM HOUSE PROPERTY
 
Is income from Superstructure built on leased land taxable as House Property Income?
Yes. As the assessee is the owner of the superstructure the income from such property is taxable as income from house property.
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Is the interest payable outside India allowed as a deduction u/s 24(1) while computing the income from house property?
No the interest paid or payable outside India is not deductible.
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What are the deductions we can make from house property income?
1] land revenue or any other tax levied by State Government in respect of the property whose income is computed under the head income from house property is deductible only if it is paid during that previous year.
2] Insurance premium paid to insure the property
3] Interest paid on housing loan taken for construction of that house
4] If rented property, then rent of vacant period can be deducted subject to various conditions.
5] Repairs & maintenance expenses can be claimed on assumption basis @ 30 % of net rent i.e. gross rent – corporation tax paid = net rent
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INCOME FROM CAPITAL GAINS
 
What are Capital Gains?
Any profits or gains arising from a transfer of a capital asset effected in the previous year, subject to certain exception, are chargeable to income tax under the head Capital Gains . Such profits or gains are deemed to be the income of the previous year in which the transfer takes place.
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What is a 'transfer' for the purposes of capital gains?
Section 2(47) of the Income Tax Act, defines transfer in relation to a capital asset, and it includes
- the sale, exchange or relinquishment of the asset; or
- the extinguishment of any rights therein ; or
- in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ;
any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882(4 of 1882) ; or
any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation - For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA]
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Which transactions are not deemed to be transfer for the purposes of capital gains?
The Income Tax Act also exempts certain transactions from being covered under the definition of transfer. These are more specifically contained in section 46 & 47 of the Income Tax Act. In brief the transactions not regarded as transfer are as under :-
a) where the assets of a company are distributed to its share holders upon its liquidation, the distribution is not regarded as transfer. However where a share holder receives any money or other assets on the date of distribution which exceeds the amount of dividend within the meaning of section 2(22)(c), the excess is chargeable under the head capital gains.
b) any distribution of capital assets on the total or partial partition of a huf is not regarded as transfer
c) where a capital asset is transferred under the gift or will or an irrevocable trust, the transaction is not of the nature of transfer as per the Income Tax Act.
d) the transfer of a capital asset to an Indian subsidiary company by a parent company or its nominees who hold the entire share capital of the Indian subsidiary company is not regarded as transfer.
e) any transfer of a capital asset by a wholly owned subsidiary company to its Indian holding company is also not regarded as transfer for the purposes of capital gains. However in respect of (d) & (e) above the transfer of a capital asset as stock in trade is covered by the provisions of capital gains.
f) any transfer in a scheme of amalgamation of a capital asset by the amalgamating company to an Indian amalgamated company is also not a transfer for the purposes of capital gains.
g) in the case where the amalgamating and the amalgamated companies are both foreign companies, the transfer of shares held in the Indian company by the foreign amalgamating company to the foreign amalgamated company is not regarded as a transfer for the purposes of capital gains if at least 25% of the share holders of the amalgamating foreign company continue to remain share holders of the amalgamated foreign company and if such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated.
h) any transfer by a share holder, in a scheme of amalgamation, of share or shares held by him in the amalgamating company in consideration of the allotment of any share or shares in the amalgamated Indian company is not regarded as a transfer for the purposes of capital gains.
i) where a non resident transfers any bond or shares of an Indian company which were issued in accordance with any scheme notified by the Central Government for the purposes of section 115AC or where the non resident transfer any bonds or shares of a public sector company sold by the government and purchased by the non resident in foreign currency is not regarded as a transfer for the purposes of capital gains . However this is so only when the transfer of the capital asset is made outside India by the non resident to another non resident.
j) where any assessee transfers any work of art, archaeological or art collection, book, manuscript, drawing , painting, photograph or print to a University, the National Museum, the National Art Gallery, the National Archives, to the Government or any other notified institution of national importance is not considered as transfer for the purposes of capital gains.
k) any transfer by way of conversion of a company's bonds or debentures, debenture-stock or deposit certificates in any form into shares and debentures of that company is not regarded as transfer for the purpose of capital gains.
l) where a non corporate person transfers its membership of a recognised stock exchange in India to a company in exchange of shares allotted by that company is not regarded as a transfer for the purposes of capital gains provided that such transfer was made on or before 31st day of December, 1998.
m) any transfer of a land of a sick industrial company which is being managed by it s Worker's Cooperative is not regarded as transfer for the purposes of capital gain if the transfer is made under a scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985. This exemption is operative only in the period commencing from the previous year in which the said company became a sick industrial company under section 17(1) of that act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. The net worth is defined in the Sick Industrial Companies Act.
n) with effect from 1-4-99 the process of sale or transfer of any capital or intangible asset of a firm is not regarded as a transfer for the purposes of capital gains where it is on account of the succession of the firm by a company in the business carried on by it. This exemption is dependent on the following conditions :-
1. all the assets and liabilities of the firm before the succession and relating to the business should become the assets and liabilities of the company.
2. all the partners of the firm before the succession should become share holders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession.
3. the partners of the firm should not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by allotment of shares in the company.
4. the aggregate share holding in the company by the partners should be more than 50% of the total voting power for a period of 5 years from the date of succession.
o) with effect from 1-4-99 where a sole proprietary concern is succeeded by a company in the business carried on by it and as a result of which the sole proprietary concern sells or transfers any capital asset or intangible asset to the company, such transfer shall not be regarded as transfer for the purposes of capital gains. This exemption is available only if the following conditions are fulfilled:-
1. all the assets and liabilities of the business of the sole proprietary concern should become the assets and liabilities of the company.
2. the share holding of the sole proprietor should be more than 50% of the total voting power in the company for a period of 5 years from the date of succession.
3. the sole proprietor should not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company.
p) with effect from 1-4-99 any transfer in a scheme for lending of any securities under an agreement or arrangement which the assessee enters into with the borrower of such securities subject to the guidelines issued by the Securities and Exchange Board of India is not regarded as a transfer for the purposes of capital gains.
where in the transaction of lending shares of some distinctive numbers and receiving back shares of some other numbers is the result, the same would not be considered as exchange of asset within the definition of capital asset since the meaning of the word exchange necessarily involves exchange of two different assets. Thus where the asset received back is not different from what was lent in the above scheme of lending, no transfer is there for the purposes of capital gain as long as the assets received back represent the same fraction of the ownership of the company.
The exemptions referred above are not final and can be withdrawn under specified circumstances as mentioned in section 47A of the Income Tax Act.
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How many types of Capital Assets are there?
There are two types of Capital Assets. Short term Capital Assets and Long term Capital Assets. A short term Capital Asset held by an assessee could not more than 36 months immediately preceding the date of its transfer. A capital asset which is held by an assessee for more than 36 months is Long term Capital Asset.
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What is the cost of acquisition of bonus shares?
Section 55 of the Income Tax Act has been amended w.e.f. A.Y. 96-97 so that the cost of acquisition of bonus shares or security which is received without payment by the assesseee on the basis of its holding any financial asset is taken to be Nil.
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What is the rate at which the Long term Capital Gains are charged to tax?
Long term Capital Gains are taxable specified in section 112 from the A.Y. 1993-94 onwards. Long term Capital Gains are taxable at a flat rate of 20%. In case of Long term Capital Gains covered by sections 115AB, 115AC or 115AD the applicable rate is 10%. For details on these sections you are requested to see the relevant provisions of Income Tax Act,1961.
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What are the provisons of Section 54EA relating to investment in specified assets?
A long term asset when transferred by an assessee during the previous year results into receipt of consideration. Within six months from the date of transfer, the assessee should invest the whole or any part of the net consideration in specified bonds ,debentures, share of a public company or unit of mutual fund to be notified by the Board. Upon investment in such specified assets , of the entire sale proceeds , the whole of capital gains shall be exempt from tax.
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PAN
 
What is the purpose of Permanent Account Number (PAN) under new series?
Permanent Account Number is your “account number” or say your “file number” with Income Tax department .So PAN helps you in dealing with the Income Tax Department as well as with other Govt. Organisations.
New series PAN represents your identity , location, & income tax office under whom you will be assessed.. So by using this new PAN you can file your return anywhere in India . You must, however, intimate your Assessing Officer for transfer of your PAN and other records to your new Assessing Officer. Ultimately your return will go to your Income tax file with Income Tax Deptt. on the basis of PAN.
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Who is expected to apply for PAN?
Every person who has taxable income must apply for PAN. Such person are :
1. Individuals
2. Hindu Undivided Families
3. Companies
4. Partnership Firms
5. Association of Persons
6. Body of individuals
7. Trusts
8. Artificial Juridical Persons
9. Representative Assessees
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When to apply for PAN?
Income of a particular financial year, is taxed in the subsequent year, called the Assessment Year. For example, income of the financial year 2003-2004 (i.e. 01/04/03 to 31/03/2004) will be taxed in the Assessment Year 2004-2005. You have to apply for a PAN by the 30th June of the relevant Assessment Year.
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How to apply for a PAN?
You will have to purchase a application i.e. Form No. 49A, which is available at UTI offices allover India. Then fill up the form & sign on it after that you will have to deposit the same form by paying prescribed fee with required documents at UTI offices itself.
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How will PAN under the new series be communicated?
A letter intimating your PAN under the new series will be sent either by the Officer in-charge of the UTI Computer Centre.
If your application is incomplete or deficient, you will receive a DEFICIENCY LETTER or an INTIMATION CUM DEFICIENCY LETTER stating the shortcomings or defects in your application. PLEASE RESPOND IMMEDIATELY to enable us to allot a PAN to you.
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What will the PAN card contain?
In case of Individuals
PAN
Name
Date of Birth
Father's Name
Photograph and
Signature of PAN holder
In case of Other Taxpayers
PAN
Name and
Date of Incorporation or Formation
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Can a person hold more than one PAN under new series?
NO. A person can have only one PAN under the new series. If you have already been allotted a PAN under the new series, you cannot or shall not again apply for or obtain or possess another PAN. Failure in this regard shall result in imposition of penalty which shall not be less than Rs. 500/- but which may extend to Rs. 10000/- for each such failure or default.
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When is it Mandatory to quote the PAN?
1. Every person to whom a PAN is alloted is required to quote the same in all his returns , correspondence with any Income Tax Authority; all challans for payment of direct taxes.
Besides this you may required to quote PAN while doing following transactions like:
application for opening an account with a Bank
application for installation of a telephone connection (including a cellular telephone)
documents pertaining to sale or purchase of a motor vehicle;
documents pertaining to sale or purchase of immovable property valued at Rs. 5 lakhs or more;
documents pertaining to a time deposit exceeding Rs. 50,000/- with a Bank;
documents pertaining to deposits exceeding Rs. 50,000 in any account with a Post Office Savings Bank;
documents pertaining to a contract of a value exceeding Rs. 10 lakhs for sale or purchase of securities (shares, debentures etc.)
payment to hotels & restaurants against their bills for an amount exceeding Rs. 25,000/- at any one time;
Every person receiving any document relating to above transactions referred to at (3) to (10) above shall ensure that Permanent Account Number has been duly quoted in the documents.
If tax is being deducted at source on payment of salary, rent, interest etc., it will be in your interest to give your PAN under the new series to the tax deductor so that the same could be mentioned in the TDS Certificate and Annual Return of TDS. This will help you in getting credit for taxes deducted at source.
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What if PAN under new series has not been allotted?
A person can quote his General Index Register Number (GIR No.) till PAN under the new series is allotted to him.
Any person who has not been allotted a Permanent Account Number or who does not have GIR No. and who makes payment in cash or otherwise than by crossed cheque drawn on a Bank or through a credit card issued by a Bank, is required to file a declaration in Form No. 60.
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Who are those persons who are not required to obtain or quote Permanent Account Number?
Persons having agricultural income and not having any other taxable income. They should, however, file a declaration in Form No. 61 in respect of transactions referred to at (3) to (10) above. Non-residents Central Govt., State Govts. and Consular Offices in transactions in which they are the payers.
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When is it mandatory to inform your Assessing Officer regarding your PAN?
When there is change of :-
NAME on the basis of which the Permanent Account Number (PAN) was allotted
ADDRESS
NATURE OF THE BUSINESS
You need not apply for a new PAN if your name is changed. However, you must apply for change of name along with documentary proof of such change.
When in case of :-
DEATH of a PAN holder
DISCONTINUATION OF BUSINESS DISSOLUTION of a firm
PARTITION of a Hindu Undivided Family (HUF)
LIQUIDATION or WINDING UP of a company.
MERGER or AMALGAMATION or ACQUISITION etc. of companies.
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When must you apply for a fresh PAN under the new series?
In case of :-
PARTITION of a bigger Hindu Undivided Family (HUF) into one or more new Hindu Undivided Families (HUF's)
Coming into being of a new HINDU UNDIVIDED FAMILY (HUF).
CHANGE IN CONSTITUTION of a firm (entailing change of partners)
SPLITTING UP or DEMERGER of an existing company into two or more companiesTOP
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