Photo: iStock
Photo: iStock

The interest accruing to your PF account, after your period of service, may be taxed

As per a recent case law, if there is any delay in seeking the withdrawal of the provident fund money, the interest accruing to you after the period of your service may be taxable

I worked for an MNC for 6 years. Instead of transferring my PF account, I wish to withdraw it. Will the withdrawal be exempt from tax?

—Chanda Mahajan

As per the existing employee provident fund (EPF) regulations, you can withdraw your EPF balance after you remain unemployed for 2 months. If you have contributed to PF for a period exceeding 5 years, the amount you receive upon withdrawal ought to be exempt from tax. As per a recent case law, if there is any delay in seeking the withdrawal of the PF, the interest accruing to you after the period of your service may be taxable, even if you have contributed to PF for a period exceeding 5 years.

I recently got my share of an ancestral property and sold my portion to my uncle for Rs45 lakh. How can I deploy this money to save tax?

—Nikesh Ghosh

If this property was held in aggregate by you and your ancestor for more than 24 months from the date of acquisition, the gains are taxable as long-term capital gains (LTCG). If the ancestral land was held for less than 24 months, you would be liable to pay tax at the tax rates applicable to you on normal income, as well as surcharge and applicable cess, on the resultant short-term capital gains (STCG). The LTCG and STCG are computed as the difference between the net sale proceeds and the cost of purchase and improvement. In case the sale proceeds of your share of the ancestral property qualify as LTCG, the cost of acquisition of your share of the property can be indexed for inflation.

The cost at which the original owner (your ancestor who purchased the property, other than by means such as gift or inheritance) acquired the land, as increased by any cost of improvement incurred, would need to be apportioned to the extent of your share, and treated as the cost of acquisition in order to compute the capital gains.

If this property was originally acquired by your ancestor prior to 1 April 2001, you have the option of treating the fair market value of the share of property as on 1 April 2001 as the cost of acquisition. Also, in case of LTCG, the cost of acquisition and improvement, so arrived at should then be adjusted by applying the cost inflation index notified by the tax authorities in the year of purchase or improvement and sale, respectively.

If you re-invest the net sale consideration you receive from the sale of your share in the ancestral property (‘old asset’ for ease of reference) in a residential property (new asset) situated in India, you can claim an exemption from taxes under section 54F on the LTCG arising from the old asset, subject to satisfaction of all other specified conditions. Such re-investment can either be through the purchase of the new asset (within 1 year prior or 2 years after the sale of the old asset) or construction of the new asset (within 3 years from the sale of the old asset).

If you are unable to reinvest the LTCG into the new asset before the due date of filing your tax return for FY 2017-18, the unutilized balance should be deposited into the Capital Gains Account Scheme (CGAS) in order to claim tax exemption. The amount deposited into CGAS can then be utilized to reinvest in the new asset within the aforesaid timelines. In case the amounts deposited are not utilized, you would be liable to pay tax on the unutilized amount.

Alternatively, the LTCG can be re-invested in specified bonds under section 54EC, within 6 months from the sale of the old asset, subject to a cap of Rs50 lakh. Any remaining LTCG will be chargeable to tax in your hands at 20.6% (plus surcharge, if applicable).

I recently got an SMS from the tax department asking me to deposit advance tax. Is it necessary to do so?

—Uday Renjen

An individual taxpayer is liable to pay advance taxes if the net tax liability due on estimated annual income after reducing any taxes deducted at source (TDS) exceeds Rs10,000 per annum. The advance taxes are due in four instalments—15 % of the estimated net tax liability by 15 June; 45% by 15 September; 75% by 15 December; and 100% by 15 March in each financial year.

The income-tax department, in an effort to educate taxpayers of their duties, notifies taxpayers through different media including SMSs.

If you do not pay the advance tax when it is due, interest is payable at 1% for 3 months on any shortfall in remittance of the first three instalments and at 1% for 1 month in respect of any shortfall in the last instalment. In case 90% of your total tax liability is not discharged by way of advance tax or TDS until 31 March of the financial year, an additional interest at 1% per month is payable from 1 April of the next financial year, until such time the tax and interest liabilities are fully paid.

Parizad Sirwalla is partner (tax), KPMG.

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