The Hindu Business Line : Double trouble for the software engineer

My daughter is working in a software company in India. From April 2005 to June 2005 and December 2005 to March 2006 she was paid salary in India. For the period from July 2005 to November 2005 she worked in the US. Tax was withheld on the salary paid in the US. She has filed returns in the US showing the tax withheld in the US as paid there. Will the salary for the period July 2005 to November 2005 on which tax has been paid in US be taxable in India? Sampangi Ramiah

Your daughter has been working in an Indian company even while rendering the service in the US. She has been out of the country for only five months during the previous year.

This would mean that under Section 6 of the Income-Tax Act, that she would be resident and ordinarily resident in India. Therefore, under the provisions of the Act, her salary received in US would also be taxable in India.

Section 90(2) of the Act, however, provides that if the Double Taxation Avoidance Agreement between India and any other country is more favourable than the Income- Tax Act the same could be applied in computing the income.

Under the DTAA between India and US, the salary received by your daughter would be taxable in the US as per Article 16. It would also be taxable in India. Your daughter can, however, claim a relief from double taxation in India on the income doubly taxed which will be the lower of taxes leviable by India or US on the doubly taxed income.

I am 21 years old. I have been trading in shares since I was 18. Initially, the amounts involved were small, but in the last one year the value of portfolio has grown substantially. I have borrowed money from my parents and also from the bank and an NBFC (non-banking financial company). I am required to pay interest on the money borrowed from my parents, the bank and the NBFC. I have invested the borrowed funds in shares. What deductions can I claim in computing the income? I have incurred expenditure on the Internet, the mobile phone, purchase of magazines relating to shares, a laptop, fuel and maintenance of a motor bike and interest on the borrowed funds. Mandar Sherbet

It appears that the gain or loss from dealing in shares will be assessable in your hands as income under the head `profits and gains of business or profession.' Under this head you can claim as deduction the interest on the capital borrowed for the purpose of business or profession and also all other expenses incurred wholly and exclusively for the purpose of the business or profession. This would mean that you can claim the expenses incurred by way of charges for use of the Internet, mobile phone and all other expenses, including purchase of magazines relating to shares, as a deduction.

You can claim depreciation on the laptop and the motor bike at 15 per cent computed on the WDV (written-down value) method.

The expenditure on repairs and maintenance, including the cost of fuel of the motor bike, will also be an allowable deduction so long as all of this expenditure is incurred wholly and exclusively for the purpose of the business.

Interest on the borrowing can also be claimed as deduction.

My late father's HUF consists of my mother, my two elder brothers and I, as also the two daughters of each of my brothers' and my daughters. My eldest brother is now the karta of this HUF. Is it possible for this HUF to be divided?

S. Jaichand

You can partition this HUF. In that case, each of the brothers will receive the partitioned amount in his capacity as the karta of the respective HUFs comprising themselves, their wives and children. Your mother will also be entitled to a share in the HUF on partition.

I have invested in a portfolio management service (PMS) of a company . Will the profits earned through investment in the PMS be treated as capital gains or as business income? Where a person is involved in margin trading in shares, will the profit derived be treated as short-term capital gains or speculative business income? R. Govindarajulu

The profit earned from investment in the PMS should normally be treated as capital gains, and depending on the period of holding it will be classified as short- and long-term capital gains. Margin trading will normally be treated as business income and where there is no delivery the same will be treated as speculative income or loss.

I have invested in the post office monthly income scheme, wherein 10 per cent is received as bonus at the time of maturity.

What will be the tax implication of this bonus? Will it be eligible for deduction under Section 80L if the same is taxable? Sharad Hatekar

The sum received as bonus on maturity of the post office monthly income scheme will have the same character as interest and be assessable as income from other sources. No deduction under Section 80L will be available in respect of the same from assessment year 2006-07.

The deduction under this Section was available up to the assessment year 2005-06.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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