Tax Column

Tax Column

Tax Queries by Jayesh Dadia Chartered Accountant

In the current financial year I have signed one sale agreement as a power of attorney holder on behalf of the property owner. The sale consideration was received in my name and was credited to my bank account which subsequently I have transferred to the account of the owner. The agreement was registered and my PAN is mentioned. Is there any tax implication since the sale deed was registered and disclosed my name? If the owner does not disclose capital gain in his hand, will the Income Tax Department make me liable to pay tax?

As a power of attorney holder you cannot be treated as the rightful owner of the income which has arisen on sale of property. Your action was only in representative capacity. The sale deed must clearly disclose the fact that you are a power of attorney holder for a limited purpose and it must also disclose the details of the owner including his PAN, address, etc. Therefore, under the provision of the Income Tax Act, you cannot be made liable for Capital Gain Tax. Further, you have also transferred the sale consideration received in your bank account to the account of the legal owner. Therefore, you are not a beneficiary of any part of the sale consideration. However, initially you may receive an inquiry from the IT Department regarding the sale transaction but if you respond with the correct facts, I am sure there shall be no further proceedings.

I am an individual and in employment with a UAE company situated in Dubai. I have been a non-resident up to the financial year 2019-20. I was told that an amendment has been brought to the definition of resident or deemed resident in the Income Tax Act. Can you explain what that amendment is and what would be my status if I am a resident of Dubai where there is no tax liability on income? My Indian income on account of interest, capital gain and rental is approximately Rs 20 lakhs.

The amendment in the form of Sub- Section 1 A to Section 6 of the Income Tax Act was introduced in the Finance Act with effect from April 1, 2021 where an individual, being a citizen of India, with total Indian income exceeding Rs 15 lakhs during the previous year shall be deemed to be resident in India in that previous year if he is not liable to tax in any other country or territory by reason of his domicile or resident criteria. Since there is no tax liability for a person residing and earning in Dubai, by virtue of the new Sub-Section 6 (1 A) read with Section 6 (6) (d) of the Income Tax Act, your tax status would be ‘resident but not ordinary resident’ (RNOR). However, your foreign income will not be taxed in India even if you ceased to be non-resident as RNOR status also enjoys this exemption. In case you stay in India for more than 182 days, your status becomes ‘resident’ and your foreign income will be taxed.

I am an individual and have sold a listed company’s shares for a total consideration of Rs 5 crore. After considering the indexation cost, the long-term capital gain works out to Rs 3 crore. I want to invest in new house as I don’t have any house in my name. Thus, can I invest in a new house with Rs 3 crore being net capital gain?

Yes, since you don’t have any house in your name, you can certainly invest in a residential house and enjoy exemption from Capital Gain Tax under Section 54 F of the Income Tax Act. However, if you want full exemption, you have to invest the entire sale consideration of Rs 5 crore in a residential house and not the capital gain of Rs 3 crore. If you invest a lesser amount, you will get proportionate exemption and the balance amount will be taxable. For your information, if you sell the residential house and buy a new residential house by investing the capital gain, you are entitled to full deduction under Section 54 of the Income Tax Act. The option of investing capital gain is not available under Section 54 F of the Income Tax Act.

The Government of India has extended the due date for filing IT returns for the current financial year i.e. assessment year 2021-22. Does this mean that the due date of payment of self assessment tax has also been extended? What about interest and penalty chargeable on late filing of return?

Vide Circular No. 17 dated September 9, 2021, the government has extended the due date for filing IT return on account of difficulties being reported by taxpayers in the electronic filing of tax return on account of technical glitches on the tax portal. From the language of the circular it is very clear that the Central Board of Direct Taxes (CBDT) has extended only the due date of filing the return but not extended the due date of making payment of self assessment tax. In other words, self assessment tax shall will still be required to be paid on or before the original due date of filing the return to avoid any levy of interest at 1 per cent per month under Section 234 A of the Income Tax Act. However, if self assessment tax payable does not exceed Rs 1 lakh, there is no interest under Section 234 A of the Income Tax Act.

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