My wife owns a house in Mumbai. We are constructing a new house in Kanpur in my wife’s name. For this, I am issuing cheques in the name of my wife. We plan to sell the Mumbai house and my wife will repay the money as soon as we get a buyer. Will we be able to save long-term capital gains (LTCG) tax?
As per section 54 of the Income-tax Act, LTCG arising to an individual from the sale of a residential house may be exempt, subject to certain conditions. To qualify as LTCG, the asset sold should be held for at least three years prior to sale.
For the purpose of claiming a deduction against taxable LTCG, it is required that the individual either purchases a new residential house within one year before or two years after the date of transfer of the original house or constructs a new residential house within three years after the date of transfer. The completion of construction of the new house should, therefore, not precede the sale of the old house. Judicial precedents have held that deduction should be available even if the construction starts prior to the sale of the old house. The purchase/construction of the new house should be out of the taxable income of the individual to enable him/her to claim deduction.
We understand that you would be transferring funds to your wife in the nature of an interest-free loan for the construction of the new house. It is advisable that such loan is properly documented and duly repaid as per the agreed terms.
Deduction under this section is restricted to the LTCG or cost of new house, whichever is less. Further, the new house should not be sold within three years, else the deduction gets revoked. In case one is unable to make the new investment by the due date of filing tax returns, the money should be deposited in the “Capital Gain Account Scheme” with a prescribed nationalized bank to be able to claim this deduction, subject to conditions.
I joined a company in December 2010 and since then tax was debited from my salary every month till February 2012. I have bought life and health insurance. How and when should I file income-tax return for the tax debited from my salary in the year 2011-2012?
You should disclose payments that are eligible for tax deduction to your employer and the same can be factored for the purpose of tax deduction at source (TDS). The tax year (March 2012) is already over and if you haven’t declared this to your employer, you could do so when filing returns and claim refund of TDS. For salaried employees, the last date for filing tax returns for FY12 is 31 July 2012.
As per the Budget 2012 proposals, if your total income during FY12 exceeds Rs 10 lakh or being an Indian resident you hold assets overseas or you are a signing authority in an account located outside India, you would need to file returns electronically.
Parizad Sirwalla is a partner (tax) with KPMG.
Queries and views at firstname.lastname@example.org.