The Hindu Business Line : Why insist on minimum capital?

Why should every private limited company have a minimum capital of Rs 1 lakh and public limited company at least Rs 5 lakh? What is the rationale behind the minimum capital requirement?

Kirtana Subramaniam, Chennai

These requirements were ushered in by the Amendment Act of 2000. Before this amendment, there were many non-serious companies, if one may say so, which existed on paper but without anyone being wiser as to their activities. In the event, the Registrar of Companies' records got clogged with lakhs of companies, many of them private, with the Registrar having no clue about their activities. The Department of Company Affairs (DCA) was driven to launching schemes to weed out such companies. To discourage non-serious companies, the Government rightly thought of the minimum capital requirement.

Income from house property

Why income from house property alone is taxed on presumptive basis?

Binodini Chattopadyaya, Kolkata

It is rooted in the fear that black money plays a big role in property transactions. That is why while computing income from house property, the norm is actual rent or the fair rent, whichever is greater. The same concern underpins the discarding of actual consideration in favour of the value fixed by stamp duty authorities while imposing capital gains tax when a property is transferred.

It is another matter that fixation of these artificial values is often bedevilled by difficulties. There are other areas of presumptive taxation like the one applicable to the retail trade. A retailer with a turnover of less than Rs 40 lakh is presumed to have made a profit of 5 per cent of his turnover. But the scheme is nothing to write home about. The retail trade has largely looked askance at it. A strict enforcement would however bring in the moolah to the exchequer from such schemes.

Margin trading

I do margin trading in the stock market by squaring off the buy transaction with a sell transaction during the same day and vice-versa. Is this my business income? Am I liable to get my accounts tax-audited?

T. K. Mani, email

One swallow does not make a summer. Therefore, whether you are a dealer or an investor would depend upon the frequency of trade among others. If you do day trading regularly your income would definitely be assessed as business income. And in case the value of sales effected by you during the financial year exceeds Rs 40 lakh you will have to get your accounts tax-audited.

Educational loan

I want to take educational loan for my son's higher studies. What tax benefit would I get?

S. Muthukaruppan, Chennai

Unfortunately, your noble thoughts on the issue are not shared by the Finance Minister. He has got two schemes. Under Section 80C, you get deduction up to Rs 1 lakh for tuition fee paid for your child. This section will not be useful to you because you would not be paying the tuition fee out of the taxable income but out of the borrowings and, therefore, you would not be eligible for the tax benefit offered by this section. Section 80E allows deduction of the entire interest from the year the loan repayment, including the interest, starts. And this can go on for eight years reckoned from the initial year of first instalment of repayment. But to be eligible, the higher education should be pursued by the individual himself. Therefore, this section is not helpful either. Your son, of course, can claim the benefit under this section if he takes the loan in his own name and starts repaying after the moratorium period. I wish the Finance Minister had a scheme for people like you who want to educate their wards without putting any burden on the latter.

A question of returns

My only source of income during the last financial year was Rs 20,000, being short-term capital gains from stock exchange. Do I have to file return or pay tax?

Neelam Singh, Noida

No, you don't have to pay any tax as you are also entitled to a tax-free income of Rs 1.35 lakh, even though, as per Section 111A, the rate of tax on short-term capital gains is 10 per cent provided the related transactions were subjected to securities transactions tax. You don't have to file any return either because your gross total income is below the tax-free threshold. You don't even have to file return under the economic criteria scheme as the scheme itself has been abolished.

TDS on hire charges

We have taken one welding machine on hire from XYZ. Can we can deduct TDS on such hire charges under Section 194C, for that matter can we deduct TDS under section any other section. Please enlighten us.

C. M. Patnaik, email

You don't have to. There is no provision either in Section 194C or any other warranting deduction of tax from hire charges.

(ASK! Send in your querieson accounting, auditing, corporate law and taxation to ask@thehindu.co.in. Blog at: http://MentorQA.blogspot.com)

S. Murlidharan

More Stories on : Income Tax | For the Asking | Company Law

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