Business Daily from THE HINDU group of publications
Monday, Nov 06, 2006
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Business Daily from THE HINDU group of publications Monday, Nov 06, 2006 ePaper |
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Income Tax Industry & Economy - Taxation Columns - For the Asking A case of serious disability?
About two years ago I had a major stroke and I lost my voice completely and lost sight in one eye. My question is: a) How about deduction under Section 80U for me? When I retired in 2001, the experienced Army doctors diagnosed the falling standards in me and gave a permanent disability pension to me. b) Who will issue a certificate to me so that I can get Rs 50,000 exemption? c) I understand there is some form the IT people want? Cdr K. Parthasarathy, Chennai The certificate given in 2001 is no longer valid. You must get a fresh certificate of your disability or, as the case may be, serious disability. The deduction available for disability is Rs 50,000 and for serious disability it is Rs 75,000. You are required to enclose the certificate of disability with your income-tax return. The prescribed authority empowered to give this certificate is the medical board duly constituted by the Central or State government. You can obtain a permanent disability certificate if the authorities are convinced that you deserve one in which case you would be obviated of this drill every now and then.
Share warrant
A private company has converted the equity shares into share warrants with an option to reconvert them into equity shares after one year with government permission. After one year some of the warrant holders do not want conversion into shares and want the refund amount by a demat draft. Can the company do so? Gopal Sharma, email The share warrant contemplated by Section 114 is an option available only to public companies. Therefore a private company cannot do so.
Money to private company
As per Section 3(1)(iii)(d) of the Companies Act, a private limited company shall not accept deposits from persons other than members, directors or their relatives. My query in this regard is whether the relatives of directors as well as those of the members are exempted? My views on this, when I read Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975, are that relatives of directors only and not relatives of members, are exempted. Second, in Rule 2(b)(ix) of the said rules, it is written that the declaration money is not given out of borrowed funds. This declaration is to be received from directors and members and there is no mention about relatives. Ramesh Aggarwal, email Yes, relatives of the members are not in the loop. Hence a private company can accept deposits from relatives of members if and only if such members do not happen to be the directors of the company. Curiously, a relative of director is not required to give declaration as to the source of funds deposited. This clearly seems to be an omission. But then the legal position is such relatives of directors are not required to give such a declaration.
Brothers' dilemma
My father purchased a house 35 years back in Mumbai in a cooperative housing society. He died recently without any will and without a nominee in the share certificate of the society. We are three brothers (me included) and our mother has also expired. I am currently staying in the flat. The cost of the flat in the society books is Rs 32,000. We would like to sell this flat. What steps do we take to minimise the capital gain tax? I visualise two options. Pleases advice whether both are legally correct and which one is more beneficial. Or is there any other better option. Option 1: I am planning to buy a new flat (the cost will be more than the LTCG of old flat) with the help of a bank loan. So can we draft a deed whereby my brothers grant me the entire ownership rights of the old flat by relinquishing their ownership rights? Then I sell the old flat and gift amount equal to my brother's share to them respectively. In this option: (i) relinquishing the ownership rights by my brothers would not be transfer, hence, no capital gain; (ii) since I would be buying a new flat where the flat cost would be greater than LTCG of old flat, LTCG would be exempt for me, as I would be buying a new flat with the help of a bank loan. Is it necessary to invest the whole of capital gains received in new flat? and (iii) Since gift received from relatives (i.e., brother) is exempt from `income from other sources', my brothers need not pay tax on the distribution amount received by them from me. Option 2: Calculate LTCG normally and divide by three: (i) From where do I get the fair market value of the property as on April 1, 1981? (ii) Can we get indexation benefit from 1981 or is it available from the year when we got the property, i.e., FY 2006-07; (iii) Can you compute the capital gains (share of each of us) assuming the sales price received is Rs 25 lakh being the stamp duty value; and (iv) If I am claiming cost of improvement, is it necessary to submit the repairs bill with the tax return? S. Subramaniam, Mumbai In the case of inheritance, the cost to the previous owner is the cost to the present owner. And such cost can be substituted by the market value of the property on April 1, 1981, which can be easily ascertained from stamp duty authorities, after which it can be further inflated suitably by the cost inflation index to arrive at the indexed cost of acquisition. The profit thus ascertained would be the long-term capital gain. You are required to invest at least the long-term capital gain in the new house. If you bankroll the new acquisition with a loan, it will not do — at least to the extent of long-term capital gains, the financing should come out of the sale proceeds of the old house. When your brothers make a relinquishment, they would effectively be making a transfer of their interest in the property in your favour and they would thus become liable to tax on such relinquishment, the consideration being the amount paid by you to them for agreeing to stay away. The first option is dangerous in the sense that it would deny your brothers of the first tax shelter — Section 54 which contemplates rolling over of capital gains in another house — because what they would have transferred is their interest in the house and not the house itself. The second tax shelter, which is available to you all, irrespective of the option adopted, is investment in bonds under Section 54EC with a lock-in period of just three years.
(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in.)
S. Murlidharan
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