Reader's corner: Taxation

I have sold a house recently. I am not planning to buy a new property with the proceeds. Can you help me understand how the capital gains bonds under Section 54EC would help me save tax? 

Investment of capital gains into capital gains bonds under Section 54EC of the Income-Tax Act, 1961 (I-T Act), will help you to save tax. You need not to invest the whole of sale consideration. Further, you would also need to make such investment within six months from the date of sale. However, such bonds are subject to a lock-in period of three years and the exemption allowed under Section 54EC is capped at Rs 5 million per tax year. Please note that the recent Budget has proposed to raise the lock-in period from three years to five years and exemption will also be limited only to the invested gains as arising on sale of land and building. This proposal would be effective from April 1, 2018. Therefore, if you have to invest, you may consider investing it before March 31, 2018, before this proposal becomes law.

I have been working for a multinational company for the past eight years. The company deducts all the relevant tax. But I have been irregular with my filing. I have only filed returns twice in this period. I understand that I can file returns for just two financial years. What are my options and what can be the consequences of being irregular with filing?

You are required to file the return, where your taxable income exceeds the basic threshold of Rs 250,000.  From April 1, 2017, if you had any exempt capital gains from sale of listed securities (under Section 10(38)), the same would need to be counted in order to determine your tax filing obligations and also without giving any effect to the deductions which may be available to you under Chapter VIA (that is, Section 80C, etc). Also, if you being ordinarily resident of India, have any overseas asset/income,  you are required to file a return even if your taxable income is below the threshold of Rs 250,000.

Keeping in view the limitation provisions as contained in the I-T Act, a belated return can be filed before March 31, 2018, in respect of financial years, 2015-16 and 2016-17. There is no option to file a tax return for the previous years. However, you can run your tax calculation and compute the liability due and deposit the same with the tax authorities, if there be any. Besides the penal interest, there is also exposure to penalty if there are any unpaid taxes. Non-filing of income tax return may attract a penalty of Rs 5,000. Tax authorities can also initiate the prosecution provisions where unpaid/assessed tax exceeds Rs 3,000 and there was a willful default.
 

 I own two houses, one of which is self-occupied while the other is rented out. I am already paying a home loan for the self-occupied house and availing a tax deduction. If I move to a rented property now and put both the houses on rent, will I stop getting home loan benefit?

If you move to a rented property, you can avail the deduction in relation to the rent paid provided you are in receipt of house rent allowance (HRA) from your employer (if you are employed). Regarding your queries, concerning the home loan interest deduction, you will continue to get the deduction for the interest on home loan against the said property even if it is rented out. However, where the net result of income from house property (considering both houses) is a loss, the same would get capped up to  Rs 200,000 and the balance you may carry forward for next eight years to adjust against future loss, if any,  from house property. In case there is income from house property after claiming the interest deduction, the same needs to be paid under the advance tax mechanism in four prescribed instalments if your total tax on other personal income exceeds Rs 10,000.

The writer is partner and leader, personal tax, PwC India. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in