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Decoding Tax Complexities

Jayesh Dadia
Chartered Accountant

My brother Mr A owns 10,000 shares in X Pvt Ltd. He wants to sell this entire investment to one Mr. B for a total consideration of Rs.10 lakh. The break-up value of entire 10,000 shares of X Pvt Ltd as per the latest balance sheet comes to Rs.15 lakh where cost of investment to Mr. A is 1 lakh. What would be the capital gain amount in hands of Mr. A ? Whether it is Rs.9 lakh or Rs.14 lakh? Is there any tax implication in the hands of the buyer?

 Under the Income Tax Act as amended by the Finance Act 2017, Mr. A will be paying capital gain tax on Rs.14 lakh in view of Section 50CA of the Income Tax Act i.e. the difference between fair market value and actual cost.

 Simultaneously Mr. B will also pay tax on Rs.5 lakh i.e. the difference between the break value and actual consideration in view of section 56(2)(x) of the Income Tax as income from other sources.

 I am an individual staying in a rented house where I pay annual rent of Rs.2,40,000. Whether I am suppose to deduct tax at source while making rent payment ?

 At present Section 194I provides that an individual or HUF who is liable to get his accounts audited under section 44AB of the Income Tax Act should deduct tax from rent if the amount exceed Rs.1,80,000 per year. If you are not liable to get your accounts audited under section 44AB of the Act, then you are not liable to deduct any TDS. 

The new Section 194-IB has been inserted from 1/6/2017 which provides that any individual or HUF who is not covered by Section 194I will have to deduct tax at source @5% from payment of rent for use of residential house if such rent exceeds Rs.50,000 per month. Since in your case, you monthly rent is less than Rs.50,000, therefore, even under the new provisions of the Act, you are not liable to deduct tax at source. 

I am an individual and engaged in the business of procuring insurance premium from various clients. The insurance company in turn pays me commission / brokerage. My annual brokerage income is around Rs.4,00,000. After getting deductions of PPF and LIC payment, my annual income is below the taxable limit. The insurance company deducts 5% TDS on my commission income as a result I have to file the Income Tax Return for claiming the refund. Is there any provision under the Act where insurance company may be directed not to deduct tax ? 

Answer Yes – there is a provision in the Act. Section 197A is now amended w.e.f. 1/6/2017 to provide that an individual or HUF can file self declaration in form 15G /15H for non-deduction of tax at source in respect of insurance commission referred to in Section 194D. Therefore, since you have no taxable income you can now take advantage of this amendment by filing self declaration in form 15G / 15H with the respective insurance company who will then will not deduct TDS.

 Can you explain me the amended law relating to loss under the head Income from house property ? Section 71 of the Income Tax Act provides that loss under any head of income (other than capital gain) can be set-off against income under any head during the same year. Therefore, loss under the head “Income from House Property” can be set-off against income under any other head of income. However, Section 71 is now amended to provide that any loss under the head “Income from House Property” which is in excess of Rs.2,00,000 in any year will be restricted to Rs.2,00,000. In other words, an assessee can set-off loss under the head “Income from House Property” in assessment year 2018-19 and onwards to the extent of Rs.2,00,000 in the year in which the loss is incurred. The balance loss can be carried forward for 8 assessment years and set off against income from house property as provided in Section 71B of the Income Tax Act. Thus, with this amendment, loss under the head income from house property is restricted to Rs. 2,00,000 per year.

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