I have come back to India after 14 years. I don’t have a regular source of income. Will my income from investments be taxed?
— S. Saldhana
Since your status was that of a non-resident for the past 14 years, the money brought by you into India will not attract any tax as such. However, any income from savings invested will be taxed. Your income will be either in the form of interest, dividend or capital gain. As of now, dividend income is exempt from tax. Interest from fixed deposits and gains from sale of shares and mutual funds are taxable in the short term and not in the long term, provided the securities transaction tax has been paid. Tax will be deducted at source from the interest income.
You need to estimate your income for the entire financial year and compute the total tax payable. If this is more than the tax deducted at source, you will have to pay tax. From this financial year, 2008-09, the basic exemption limit for males is Rs1.5 lakh. So, if your total income is below this limit, you are not required to file your return. However, tax deductions are available for investments in tax-saving instruments.
I pay Rs5 lakh annually to my wife as child maintenance. As this money is not utilized by me, is there any income-tax exemption available?
— Umesh Bhat
The maintenance money that you pay will continue to be taxable. As per the Income-tax Act, when income is received by an individual and then passed to a third person to discharge his (the assessee’s) obligation, it is a case of application of income by him and not of diversion of income by overriding title. The right to receive child maintenance from the father comes into play after the father has earned the income and, hence, it is taxable in the hands of the father only and not the family.
My HUF has earned Rs2 lakh this year. I deposited Rs60,000 in the PPF accounts of each of my two children. Do I get tax benefits?
— Rishab Singh
A Hindu undivided family (HUF) gets tax benefits under section 80C of the Income-tax Act. However, the maximum limit of investment in PPF which qualifies for deduction is Rs70,000. Therefore, only Rs70,000 out of Rs1.2 lakh will qualify for deduction. Your net taxable income is Rs2 lakh minus Rs70,000, which is Rs1.3 lakh. This is Rs20,000 above the exemption limit of Rs1.1 lakh for financial year 2007-08. Tax must be paid on that.
I get house rent allowance (HRA) from my employers. How is HRA deduction calculated and what documents do I need to claim it?
HRA deduction is made only if a person lives in a rented accommodation, actually paying rent. The payment can be substantiated by rent receipts that you get from your landlord. As per section 10(13A) of the Income-tax Act, you can get a deduction equal to the least of the following amounts: (a) amount of HRA actually received during the relevant financial year, (b) amount of actual rent paid in excess of 10% of salary, or, (c) in case the assessee is a resident of any of the metropolitan cities (Delhi, Mumbai, Kolkata or Chennai), 50% of the salary, or 40% if the assessee is a resident of any other city in India. If you satisfy any of these criteria, you can submit proof of payment of rent to your employers, who will pass on the benefit of HRA deduction to you and deduct tax at source, accordingly. Otherwise, rent receipts must be enclosed with your returns.
I want to invest Rs25,000 in diversified equity funds, namely Reliance and Kotak Opportunity Fund. Is it a wise decision?
Your selection of Kotak Opportunity Fund is fine. You have not mentioned which scheme in Reliance mutual funds you want to invest in. Either opt for Reliance Vision Fund (RVF)—a large-cap oriented fund—or Birla Sun Life Equity fund (BSEF). While RVF invests around 65% of its corpus in large-cap stocks and the rest in mid-level and small companies, BSEF is more opportunistic in its approach and invests in scrips across market capitalization.
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