Tax Column

Income Tax Queries by Jayesh Dadia, CA

I am an individual. I own four residential houses.During the financial year 2021-22 I have sold three residential houses and reinvested the en- tire capital gain arising from the sale of three different residential houses by acquiring three new residential houses. Since I have sold resi- dential houses and purchased new residential houses, my capital gain should be exempted. However, I was told that under Section 54 of the Income Tax Act, I can invest in only one residen- tial house. Let me know your views and what is the correct law?

You have sold multiple houses and against each capital gain you have purchased three new different houses. In other words, three different long-term capital gains arising from the sale of three independent separate new houses have been reinvested in three independent separate new residential houses. Therefore, you have satisfied all the conditions under Section 54 of the Income Tax Act and accordingly you will be enti- tled to exemption of all the three capital gains made during the financial year. Sec- tion 54 of the Income Tax Act speaks about the long-term capital gain arising on sale of residential houses. Therefore, if you sell one house and the corresponding capital gain you invest in another new house, then you are entitled to deduction under Section 54 of the Income Tax Act.

The concept of one residential house re- cently introduced in provision of Section 54 of the Income Tax Act refers to one long-term capital gain reinvested in multi- ple houses. If an assesse make one long- term capital gain, he cannot buy more than one residential house. In your case, you are buying one residential house independent- ly. Therefore, the concept of more than one house is not applicable in your case. The intention of Legislature in Section 54 of the Income Tax Act is very clear about sale of residential house and purchase of new resi- dential house i.e. ‘house for house’. This has clearly happened in your case. Therefore, you will be entitled for relief under Section 54 of the Income Tax Act.

I am an individual. I was tested positive for corona virus in the second wave in the month of April 2021. I was very serious and hospitalized. I received substantial financial assistance from my employer and my well-wishers. This is to inquire whether the financial assistance which exceeds ₹25 lakhs is taxable in my hands.
The government has issued a press release dated June 25, 2021 providing that taxpay- ers receiving financial help from their em- ployers and well-wishers for meeting the expenses incurred on treatment of corona virus are entitled to exemption under the Income Tax Act. Therefore, any amount re- ceived from your employer or any other person for such treatment would be tax- free. In your case, whatever financial assis- tance received from the employer is tax- free in your hands. However, where the financial assistance is received from any other person other than employer, such as well-wishers, the exemption amount shall be limited to ₹10 lakhs in aggregate.

I am an employee with a listed company. During the current financial year I fell sick and was hos- pitalized and was also operated. My employer has borne or reimbursed all the expenses. Is the amount of medical treatment borne or reim- bursed by the employer taxable perquisite in my hand?
Certain medical expenditures borne or re- imbursed by the employer are not consid- ered to be perquisite and are specifically exempted under Section 17(2) of the In- come Tax Act. Under this section, medical treatment provided to an employee or any member of his family, in any hospital ap- proved by the government and expenditure on medical treatment will not be consid- ered as perquisite in the hand of employees. Therefore, in your case, if the medical treat- ment was given to you in a hospital ap- proved by the central government, the en- tire medical expenditure borne or reimbursed by your employer will not be taxed in your hand.

I own land. I have given the said land on lease on an annual rental of ₹30 lakhs. Can I offer this rental income as income from house property? I have also given one residential flat on rent and earned rental income against which I pay the society maintenance charges which are substantially high. Can I get deduction of maintenance charges while calculating the rental income?
Under Section 22 of the Income Tax Act, only income from letting out the building or land appurtenant shall be taxable under the head ‘Income from House Property’. In your case, letting out is only of vacant land and therefore rent received from such let- ting out land is not taxable under the head income from house property and therefore will not get notional deduction of 30 per cent. The rental income on letting out the land will be taxed as ‘Income from Other Sources’ under Section 23 of the Income Tax Act; taxes levied by any local authori- ties in respect of property shall be deducted from the gross rental income. The mainte- nance charges paid to the society cannot be equated with taxes levied by any local au- thorities. Therefore, you will not be entitled to deduction of society maintenance charg- es from rental income from flat. However,if the society bifurcates the maintenance charges and discloses particularly the amount of property tax or local taxes, then such amount could be claimed as deduc- tion.

I am in the share trading business. I also invest in units of mutual funds. Some of the investment I hold as stock on which I earn dividend income. Is the dividend income business income and can it be set off against business loss?
Dividend declared by the domestic compa- nies on or after April 1, 2020 is taxable in the hands of recipients, irrespective of the status of the assesse. Dividend income is chargeable to tax under the head ‘Income from Other Sources’ under Section 56 of the Income Tax Act at the rate applicable to the assesse. Since there is specific provision for taxing dividend income, in my opinion even if you hold shares as stock-in-trade then also the dividend income cannot be treated as business income and will be taxed under the head ‘Income from Other Sources’. However, the current year busi- ness loss can be set off against the current year’s income from other sources. Similarly, dividend received from mutual funds shall be taxed in the hands of recipients under the head ‘Income from Other Sources’.