The Hindu Business Line : The business of `true and fair'

An auditor of a company is not as much concerned with the accuracy of accounts as he is with its truth and fairness. Accuracy is something that is taken for granted especially in a computer environment. The emphasis has naturally shifted to truth and fairness of accounts. Generally, compliance with accounting standards ensures truth and fairness what with the Accounting Standards Board of the ICAI having come up with standards for almost all important areas. If the accounts do not give a true and fair picture, the auditor is bound to say so. This would be an indictment of the management which would then be answerable to the shareholders.

Adding cover

WHAT are the adds-on clauses in an insurance policy?

Neethi Ravindran, Quilon

This is unique to life insurance policies. Add on insurance means the person covered by insurance would get additional benefit(s) for payment of a small additional premium. For example, a person might have taken an endowment policy for Rs 10 lakh and may be paying an annual premium of, say, Rs 6,000. Now for a small additional annual premium of Rs 500, he may be able to wangle a hospitalisation cover for, say, Rs 2 lakh. This is beneficial for both the insurer and the insured. The insurer is able to bag the main insurance contract with a sweetener of the add-on. And the insured get a hospitalisation cover for a pittance when he would have to pay may be four or five times more to get the same cover had he gone for a separate medi-claim policy.

Marginal relief

IF one's non-agricultural income is Rs 1.05 lakh and agricultural income Rs 2 lakh, will there be any marginal relief?

Rakesh Ramchandra Didwania, Malegaon

There is no marginal relief. The non-agricultural income in excess of Rs 1 lakh, being the tax-free limit, will bear tax at the rates applicable to the combined income — agricultural as well as non-agricultural. In other words, the tax on the combined income of Rs 3.05 lakh works out to Rs 41,500. From this tax on the agricultural income as increased by the tax-free amount of Rs 1 lakh — which works out to Rs 40,000 — will have to be reduced. The tax payable therefore is Rs 1,500.

What the Government has succeeded in is it has got Rs 1,000 more as tax because had the system of aggregation not been in vogue, it would have got only Rs 500 being 10 per cent of Rs 5,000.

Your question is presumably with reference to the assessment year 2006-07. While the scheme of aggregation for this year would be notified in the Finance Act, 2006, there is no reason to believe it will be any different from the one envisioned in this answer.

Hassled homemaker

I AM a housewife and I do not have income of my own. Out of the monthly home savings I am planning to buy and sell shares through Stock Holding Corporation of India Ltd (SHCIL) and accordingly I have opened a demat account with SHCIL. The securities transaction tax (STT) is paid by Motilal Oswal.

Will I be liable to pay short-term capital gains tax? Since I do not have any income I have never paid tax or filed returns. Please advise.

Sumathy M, email

The STT that is paid by the broker to the stock exchange which, in turn, pays to the government treasury would eventually be recovered from clients like you.

In other words, it would be added to your purchase bill or deducted from sale proceeds depending on whether you have bought or sold.

In case the shares are sold within a year of purchase, short-term capital gains tax of 10 per cent will have to be paid. But if you have no other source of income or your other incomes fall short of the tax-free limit of Rs 1 lakh, you do not have to pay tax on short-term capital gains to that extent.

For example, if you have only short-term capital gain of Rs 1.1 lakh, then the 10 per cent tax will be only on Rs 10,000.

Similarly, if you have a short-term capital gain of Rs 50,000 and a salary income of Rs 80,000, then you will have to pay the 10 per cent tax on short-term capital gains only on Rs 30,000 because your salary income does not fully exhaust your tax-free quota of Rs 1 lakh by Rs 20,000 which unused quota is used to reduce your taxable short-term capital gains.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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