I am 70, and my total income from all sources in an economic year is much less than Rs 5 lakh. I earn an interest of Rs 15,000 for 12 years from an NBFC FD. Do I need to pay profits tax on this interest? Homi Mistry, Partner, Deloitte Haskins & Sells replies: As a resident senior citizen, you are eligible for a basic exemption of Rs three lakh plus a tax rebate below Section 87A on taxable earnings as much as Rs five lakh for the monetary 12 months 2019-20. Considering you qualify to be a resident for tax functions, you may not be liable to pay earnings tax as your taxable income from all assets, which include interest on FDs, is below Rs five lakh.
I purchased a DDA flat in August 2016 for Rs 21 lakh. I took a home mortgage of Rs 17.7 lakh and availed tax breaks between Sept 2016 and March 2019. In April 2019, I paid as you go the loan. I sold this flattom someone who offered it from DDA for Rs 12 lakh in 2012. If I promote my flat these days for Rs 21 lakh, what will be my tax burden? How can I lessen my tax burden?
Shubham Agrawal, Senior Taxation Advisor, TaxFile.In replies: The flat will qualify as a long-term capital asset as you’ve held it for more than two years. If you promote the asset at the acquisition fee even after 3 years, this transaction will bring about long-term capital loss as the acquisition rate may be linked to the fee inflation index. The home loan benefit claimed under Section 80C could be reversed in the 12 months of sale and added to your profits if the flat is bought earlier than 5 years after purchase. The cost to an authentic client is immaterial in this transaction.
Since your transaction will result in a long-term capital loss if bought at the buy price, there will be no taxability. Hence, there is no need to study investment avenues. If you manipulate to promote the assets at a higher price and create a capital advantage, you could invest the equal in avenues prescribed under Section 54 of the Income Tax Act.
Tax query: How is the hobby income paid on borrowings taxed?
I am in the enterprise of manufacturing readymade garments. I also often invest in IPOs in addition to indexed securities. My source of funds includes my very own funds, borrowing from business banks, NBFCs, and private parties. The finances borrowed are used for making an investment that earns dividend income and capital profits. The borrowed budget is also used for the cause of enterprise. Will the interest paid on borrowings be allowed as a deduction in computing taxable enterprise earnings and capital gains?
-Satish Shah
You can claim a deduction of hobby fee on borrowings as in step with u.S.A.36(1)(iii) of the I.T. Act 1961, even as computing business earnings, provided you show that the borrowing is used to motive business. The hobby paid on borrowing, which is used for making direct investments in IPO or purchase of indexed stocks on inventory trade, will now not be allowed as a deduction in opposition to capital profits united section of america36(1)(iii) ofthe I.T. Act 1961. In computing capital gains, the deduction of the price of acquisition and expenditure incurred on a switch of property is allowed in America forty-eight of the I.T. Act 1961.
Interest paid will now not qualify under any of the above gadgets. Section 36(1)(iii) lets in deduction simply while loans are used for enterprise and profession, and no longer at the same time as computing capital gains. Dividend profits might be exempt united states10 of the I.T. Act 1961. Section 14A of the I.T. Act 1961 states that no deduction will be allowed for any expenditure incurred for earnings that aren’t always chargeable to tax.
On this ground, interest paid on borrowing cannot even be allowed as a deduction. In the case of the combined supply of price range, depending upon the case, the interest paid on an apportioned portion of borrowing will not be allowed as a deduction against dividend earnings and capital profits.
The difficulty as to whether the hobby paid on borrowing can be capitalized to the cost of acquisition of indexed shares bought at the exchange. The said hobby will not qualify as part of the value of the acquisition in admiration of listed stocks bought on the stock market because the stocks are illiquid, and the borrowing is used to accumulate existing stocks.
Regarding investment made in IPO, there’s an opening between the date of borrowing and making software and the date of allotment. Shares come into existence only on the date of allotment, and throughout the intervening duration, stocks are not in existence, from the investor’s point of view. It is viable to argue that the hobby paid from the date of making the application till the date of allotment is to carry the asset into existence and may be allowed to be brought to the fee of acquisition.
This view isn’t alwaysfreee from doubt as the provision of Section 36(1)(iii) isn’t relevant to investment pastime. There is a distinction between the cost of acquisition and the acquisition price. If the interest is capitalized and dealt with as a fee of acquisition, it will result in litigation with the tax branch.
