Tax Talk

My retired uncle owns a one-room flat in Mumbai suburbs. He had bought it for 1.75 lakh in 1988 and is now fetching him 30 lakh. The property is in his name. There has been no work done in the house and it has been lying vacant since 1988. His son is an NRI and has bought a bigger place and the deal has been completed with respect to payment / registration/ possession. Although the money has been paid (for bigger place) by taking personal borrowings he will require to dispose off the above property to make ends meet.

Can he gift the proceeds to his son who will pay off his borrowings? Is he liable to pay long term capital gain tax? If yes, how much would that be?

Will his son have to pay gift tax (NRI)?

 — Girish Vyas

Since the flat is a long term asset (held for more than three years), according to the Income-tax law, long term capital gains (LTCG) shall be computed on the sale of the flat 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.

Such LTCG shall be taxable at the special rate of 20 per cent (excluding surcharge and education cess), in your uncle’s hands. Later, your uncle can gift the net amount to his son as gift. The gift shall not be taxable in his son’s hands, as gift received from a relative (including father) is exempt from tax.

If the employer is deducting tax from my salary income, do I still need to pay advance tax?

— Meenakshi Datta

In case the employer is deducting tax from salary income, there should not be any need to pay advance tax. According to the Income-tax Act, 1961, if a person’s tax liability for the financial year (FY) after taking into account the tax deducted at source (say salary) is more than Rs 10,000, then he shall be liable to pay advance tax. The advance tax is required to be paid at appropriate percentage by the specified due dates. However, for FY 2013-14, the advance tax provisions do not apply to resident senior citizens not having income under the head business or profession. Please note that if the advance tax is not paid by the due dates, interest is levied for such non-payment.