Tax Column

Jayesh Dadia Chartered Accountant 



I am an individual drawing an annual salary of Rs.5 lakh. What are the deductions and exemptions available to a salaried employee for the financial year 2018-19? Since my salary income is not exceeding Rs.5 lakh,am I liable to pay any tax?

From the financial year 2018-19 (assessment year 2019-20), all salaried employees (including pensioners) will now be allowed a Standard Deduction of Rs.40,000 while computing their salary income. The amount of deduction will be Rs.40,000 or amount of salary whichever is less. However, the exemption given to employees in respect of reimbursement of medical expenses and conveyance allowance has been withdrawn.

The tax exemption of income up to Rs.5 lakh is applicable for the assessment year 2020-21 and not the assessment year 2019-20. For the next year, if your total income is less than Rs.5 lakh, then you need not pay any tax as the entire income is below the taxable limit.


During the financial year, I have made a long term capital gain (LTCG) of Rs.40 lakh on sale of shares and units of mutual funds. Can I invest the entire capital gain in bonds notified by the Central Government for this purpose?

I believe the lock-in period is three years from the date of investment in bonds. Kindly clarify. From the financial year 2018-19, i.e. assessment year 2019-20, Section 54EC of the Income Tax Act is amended, which provides that only long term capital gain (LTCG) arisen from transfer of land and building is eligible for Tax Column investment in bonds. In your case, you have not sold land and building and, therefore, you will not get exemption if you invest in bonds. Hence, capital gain earned by you would be subject to capital gain tax either at 10% or 20%.

Moreover, investment in bonds under the amended provision carries lock-in period of 5 years instead of 3 years.

I am a non-resident Indian working in UAE. As I understand thatthe Return of Income for the assessment year 2019-20 is due for filing before July 31, 2019. Is it mandatory for me to disclose my foreign earned income and assets in the Return of Income? If you are a non-resident Indian satisfying the conditions given in section 6 of the Income Tax Act, then your foreign income is not taxable in India as it has accrued and arisen outside India. Since the income is not taxable in India, you need not disclose your foreign income in the Return of Income. In case of foreign assets, it is advisable to show the details of one bank account abroad so that if refund is determined, the same could be transferred to your bank account. However, if you have a bank account in India, then you can mention the Indian bank account and youneed not disclose even the foreign bank account. The other foreign assets need not be disclosed if you are a non-resident Indian.

I am an individual and I met with a road accident while travelling in a bus. I received a compensation of Rs.4 lakh from the company operating the bus and also from the insurance company. Whether the compensation received by meis taxable in my hand as income?

The amount received as compensation on road accident is a capital receipt in your hand as the same has been paid in compliance of legal obligation of the bus operator as well as the insurance company. The capital receipt is not taxable as income in your hand. Further, the compensation is also not chargeable to tax as deemed income under section 56(2)(x) of the Income Tax Act as the amount received as compensation is not the money received without considerationbecausethe same has been received in compliance of legal obligation. Therefore, the compensation of Rs.4 lakh is not taxable in your hand.

I have received a loan without interest from my distant cousin. Is such interest-free loan taxable in my hand?Further, I have received a gift of Rs.5 lakh from my uncle’s (mother’s brother) daughter. Is such a gift taxable in my hand as the same was received from a relative?

If you take loan even without interest, the same cannot be considered as an income as there is liability on your part to repay the same. Evensuch interest-free amount of loan will not be considered as deemed income under section 56(2)(x) of the Income Tax Act. However, you have to justify the genuineness of loan by obtaining confirmation letter from the lender to prove his identity and capability of giving such a loan. In case the loan has been taken and has not been repaid even after three years and the lender has not taken any action for recovery of the same, then it could be a ground for considering the amount of loan as deemed income. But if you establish further that the loan amount is still repayable, then the department cannot tax.

Your uncle’s (mother’s brother) daughter is not a relative as per Section 56(2)(x) of the Income Tax Act. Therefore, the gift received by you from your uncle’s daughter is taxable under the Act as deemed income under Section 56(2)(x) of the Income Tax Act. Jayesh Dadia Chartered Accountant

"The tax exemption of income up to Rs.5 lakh is applicable for the assessment year 2020-21 and not the assessment year 2019-20. For the next year, if your total income is less than Rs.5 lakh, then you need not pay any tax as the entire income is below the taxable limit"