Tax Column

Jayesh Dadia
Chartered Accountant 

I am a resident of Bangalore. I owned two residential houses at different locations but in Bangalore itself. I have sold both the houses and invested the entire sale consideration in purchase of a new residential house. Will my entire capital gain on the sale of two residential houses be exempted? I was told that against sale of one house investment in only one house is permissible. Is this true? 
Since you have sold residential houses, you can avail benefit of the provision of Section 54 of the Income Tax Act i.e. residence to residence. Section 54 restricts investment in one residential house. There is no such restriction as far as sale is concerned. The only requirement is that whatever you sell has to be a residential house. In the present case, what you have sold are residential houses. To avail the exemption under Section 54, reinvestment should be made in one residential house. Section 54 nowhere restricts that the assessee should have sold only one property and claim exemption under Section 54 only for one property. In your case, you have satisfied the main condition of availing relief under Section 54 i.e. reinvestment of capital gain was made only in one residential property. You will be entitled to full exemption under that section. Therefore, there will be no tax implication.

I am a professional singer. The community to which I belong has recognised my achievement by way of prize money of Rs 5 lakhs. It is from an organisation which is registered under Section 12 AA of the Income Tax Act. Will this prize be taxable under Section 56 (2) (x) of the Income Tax Act?

Rs 5 lakhs received as prize money will not be taxable in your hand under Section 56 (2) (x) of the Income Tax Act since the amount was received from an entity which is approved under Section 12 AA of the Income Tax Act. Any money received from a trust, institution or foundation which is approved under Section 12 AA enjoys tax exemption in the hands of the recipient. However, you must obtain a letter from the foundation along with a copy of Section 12 AA certificate and disclose very clearly in the return of income when you file online.

I am an Indian citizen and in employment with a Dubai-based company. I was non-resident for almost seven years up to the financial year March 31, 2020. During the financial year 2020-21, due to the pandemic I was in India for more than 120 days but less than 182 days. My Indian income is around Rs 20 lakhs and my foreign income earned outside India would be approximately Rs  25 lakhs. What would be my status under the Income Tax Act for the financial year 2020-21 and what would be the tax implication in respect of my foreign source of income?

The Finance Act 2020 has inserted a new Clause 1A in Section 6 to provide that any Indian citizen shall be deemed to be resident in India in any previous year, if in that year is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature. Further Sub-Clause (D) to Section 6 (6) clarifies that in such a case an individual would be ‘resident but not ordinary resident’. From your question it is very clear that you are s resident of Dubai where you are not liable to tax as there is no Income Tax liability in Dubai.

Therefore, you fall within the provision of the new section known as ‘deemed resident’. Your status will be, therefore, deemed resident for the financial year 2020-21. However, for the purpose of calculating tax liability you will be treated as resident but not ordinary resident. As such, your foreign income of Rs 25 lakhs will be not be taxed in India. Your Indian income of Rs 20 lakhs is taxable in India. Therefore, your Income Tax status for the financial year 2020-21 would be resident but not ordinary resident and your foreign income willl enjoy exemption.

I was in employment with a limited company, non-government. During the current financial year my job was terminated. However, I was paid gratuity of Rs 21 lakhs and retrenchment compensation of Rs 4 lakhs. Could you guide me about the tax implications?

Since you have completed more than five years, you qualify for exemption under Section 10 (10) of the Income Tax Act. The exemption is least of the following: 1) 15 days salary for every completed year or part thereof in excess of six months, or Rs 20,00,000 and 2) gratuity actually received. Apparently you received gratuity of Rs 21 lakhs. Therefore, Rs 1 lakh is certainly taxable but if the gratuity amount works out as per (a) above to Rs 15 lakhs, then the excess gratuity amount of Rs 6 lakhs would be taxable. As far as the retrenchment compensation is concerned, the maximum exemption limit is Rs 5 lakhs. You have to calculate the amount of compensation in accordance with Section 25F (b) of the Industrial Dispute Act and if the amount determined is less than Rs 5 lakhs, the entire compensation is tax-free.