Your Taxes

I will be 80 on October 19, 2016. For the last three years, I have shown taxable income of ₹4.5 to ₹4.75 lakh in my IT returns and have been assessed.

Should I file a return for assessment year 2016-17?

Does the ₹5 lakh exemption limit refer to gross total income or taxable income after 80C and 80G benefits?

Should I formally intimate about my having completed 80 years?

Cholemari Raman

According to the provisions of the Income Tax Act, 1961, for an individual resident in India who is 80 years or more at any time during the relevant previous year, the maximum amount not chargeable to tax is ₹500,000. This limit is applicable for the previous year 2015-16 (April 1, 2015 to March 31, 2016).

In your case, as you complete 80 years in October 2016, that is, after the end of previous year 2015-16, you cannot get the higher slab benefit (basic exemption limit up to ₹500,000) for assessment year 2016-17. It is likely that this exemption available to very senior citizens will continue.

This depends on the amendments to be made by the Finance Bill, 2016. Please note that the basic exemption limit applies to the taxable income after allowing necessary deductions under chapter VI A, such as Sections 80C and 80G.

There is no need to intimate the tax officer about completion of 80 years of age.

Is there any stipulation that a certain minimum percentage is to be allocated towards cost of land and construction of a residential house within three years of earning capital gains?

Somabhaskaram

As per the provisions of Indian income tax law, a residential house is considered a long-term capital asset (LTCA) if it is held for more than 36 months.

The long-term capital gain (LTCG) arising from the transfer of this residential house shall not be chargeable to tax, where the assessee has purchased a residential house within a period of one year before or two years after the date on which the transfer took place, or has, within a period of three years after the transfer date, constructed a residential house.

The amount of the LTCG should be equal to or less than the cost of the new house; else the exemption will be reduced proportionately.

It has been clarified by the tax authorities that the cost of the land is an integral part of the cost of the residential house — whether purchased or built.

Accordingly, if the capital gain is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction, provided that the acquisition of the plot and the construction thereon, are completed within the time period specified.

There is no percentage prescribed under the law to be allocated between the cost of land and the construction of the house.

The writer is a practising Chartered Accountant. Send your queries to taxtalk@thehindu.co.in

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