Tax Column

Can you throw light on the various benefits available to senior citizens under the Income Tax Act?

Senior citizens above 60 years of age and very senior citizens above 80 years of age are entitled for various benefits under the Income Tax Act. A senior citizen is granted higher exemption limit compared to a non-senior citizen. The exemption limit for the current financial year is Rs3,00,000 while a very senior citizen is entitled for exemption limit up to Rs5,00,000. A senior citizen not having any income from business or profession is not liable to pay advance tax irrespective of income beyond the exemption limit. 

Deduction of Rs50,000 earned by a senior citizen as interest on deposit with bank, post office, cooperative bank is available. Further, no tax shall be deducted at source from payment of interest by bank, post office or cooperative bank to a senior citizen up to Rs50,000. Senior citizens are also entitled deduction of expenses incurred on account of medical treatment of specified disease under Section 80DDB as well as entitled for higher medical insurance premium under Section 80D. Also, a very senior citizen can file return of income in paper mode instead of e-filing.

I am an individual and make payment for all my personal expenses such as shopping, travelling, food, etc. through credit cards. Various online shopping, credit card companies, e-wallet companies offer lucrative reward schemes, including cash back. I have earned substantial reward points which I could convert as cash back or purchase goods including jewellery, paintings, etc. I would like to know whether such cash back or reward points are taxable under the Income Tax Act.

Under Section 56(2)(x) of the Income Tax Act, if a person receives any monetary benefit by way of gift or cash from a non-relative he could be subject to Income Tax under the heading Income from Other Sources. This section provides for a levy of tax if any sum of money is received without consideration if the aggregate value of this sum exceeds Rs50,000 during a financial year. Therefore, in my opinion, if rewards are not in the form of cash back but in the form of accessories such as bag, earphone, etc. then there will be no tax implication. However, if the rewards are in the form of any monetary benefit by way of credit in the bank account, e-wallet or on the credit card then in that case if the monetary amount exceeds Rs50,000 in any financial year, the amount is taxable under Section 56(2)(x) of the Income Tax Act. However, if you receive jewellery and its market value is more than Rs50,000, the amount is taxable.

I am a lady occupying a residential flat as a tenant for the past many years. Recently, there was a dispute with the landlord as he wants me to evict the place and has filed a legal case in the court for eviction. A consent decree was passed where I have agreed to purchase the flat for Rs1 crore. During registration the stamp duty was paid as per the ready reckoner rate of property which was at Rs3 crore. Now I was told that since the ready reckoner value is higher than the actual consideration, I am liable to pay tax on the difference i.e. on Rs2 crore. Can you clarify whether I am liable to pay tax and what would be my defence to save tax?

Under Section 56(2)(x) of the Income Tax Act if a person acquires any immovable property at a consideration which is less than the ready reckoner rate on which stamp duty was actually paid, then in that case the difference between the actual consideration and stamp duty valuation is taxable under the heading Income from Other Sources. In your case, it is clear that the actual consideration paid is less than the stamp duty valuation and therefore the assessing officer can invoke provisions of Section 56(2)(x) of the Income Tax Act and can tax the difference i.e. Rs2 crore as income from other sources which is taxable at 30 per cent plus applicable surcharge.

You can take defence that Rs1 crore was paid in view of the court order which was settled after a long dispute. According to you, you cannot pay more than Rs1 crore as it would amount to contempt of court. Further, you can also take a plea that stamp duty valuation may be reduced by certain percentage in case the tenant is acquiring the premises. These all are solid defence points but the assessing officer may not agree and you may have to fight a long process of litigation which you may win at the appellate stage.

I am an individual occupying a premise as tenant paying Rs25,000 rent per month. I have sublet the same premise and earn a rental income of Rs50,000 per month. Can I claim 30 per cent notional deduction by claiming this rent as income from house property?

Rental income in the hands of the owner of the property is charged to tax under the heading Income from House Property. The rental income of a person, other than the owner, cannot be charged to tax under the heading Income from House Property. In your case, you are not the owner of the property. You have received the rental income as tenant from subletting the rented premises. Therefore, the rental income of Rs50,000 per month in your hand cannot be taxed as Income from House Property but it will be taxed as Income from Other Sources. Accordingly, you will not be entitled notional deduction of 30 per cent. However, you can claim deduction of Rs25,000 under Section 57(iii) of the Income Tax Act as expenses incurred in earning the rental income of Rs50,000 as there is a direct nexus between the rental income earned and rent paid. However, this claim may involve litigation.