Tax Talk

Vide the referred section (80TTA of the I-T Act), interest income in savings bank account up to Rs 10,000 has been made exempt from income tax.

I request you to let me know what shall be the tax treatment if the interest income goes beyond Rs 10,000 i.e. whether the entire amount or amount in excess of Rs 10,000 shall be taxable.

— Suresh

The Finance Act 2012, introduced a new section 80TTA in the Income-tax Act, 1961. According to this section, the aggregate amount of interest earned on the savings bank account or Rs 10,000, whichever is lower, shall be allowed as a deduction against the total income of an individual or HUF in respect of the interest earned on saving bank account with a bank, post office or cooperative society as specified.

This section provides for a deduction and not an exemption i.e. first of all the total interest income earned will have to be included in the total income of the individual or HUF, and then deduction of a maximum of Rs 10,000 or actual interest earned whichever is lower, will have to be claimed as a deduction against the total income.

Please note that the deduction is not applicable to interest earned on time deposits (i.e. deposits repayable on expiry of fixed periods). The deduction under his section is applicable for AY 2013-14 onwards (i.e. FY 2012-13).

I am a senior citizen having interest income of about Rs 3-3.5 lakh. I have recently sold jewellery worth Rs 10 lakh (@ Rs 3,000 per gram). This was purchased 50 years ago. As I understand, sale proceeds of jewellery attract tax. Whether it will be capital gains tax or according to applicable tax slab.

I also understand that sale proceeds of jewellery will be taxed as index cost. If yes, what will be index as on November/December 2012 and January 2013?

— Ashaben

According to the Income-tax law, Long Term Capital Gains (LTCG) shall be computed by deducting from the gross sale consideration received or accruing on sale of the long term asset, the following amounts, namely:

-The indexed cost of acquisition of the asset and the indexed cost of improvement;

-Expenditure incurred wholly and exclusively in connection with such transfer;

Since the jewellery was purchased 50 years ago, it is a long term capital asset. The cost of acquisition to be considered for the purpose of calculating capital gains can be the fair market value of the asset as on April 1, 1981, or the actual cost of purchase, according to the assesse’s choice. Further, the cost of any improvement incurred prior to April 1, 1981 has to be ignored. The LTCG so calculated, will be subject to tax at rate of 20.6 per cent (inclusive of Education Cess and Secondary and Higher Secondary Education Cess).

According to the notification issued by the income tax authorities, the Cost Inflation Index for the Financial Year 2012-13 is “852” and for Financial Year 1981-82 is “100”.

Mail your queries to >taxtalk@thehindu.co.in

(The author is a practising chartered accountant)