Wealth tax on assets

TAXING TIMES

I have inherited jewellery worth Rs 19 lakh from my mother. Do I have to pay wealth tax?

Susmita Chattopadhaya

Filing of wealth tax returns is statutorily required when the value of taxable assets is more than Rs 15 lakh. However, some assets like residential property, shares and money kept in the bank, are excluded.

As you have inherited the jewellery, it is advisable to keep a copy of the will and other documents that will serve as proof. But you will have to file the returns on the inherited wealth. The tax is levied at 1 per cent over and above the threshold amount of Rs 15 lakh (in your case Rs 4 lakh) along with 3 per cent education cess.

My daughter, aged 9, has won Rs 10 lakh in a music contest. How much tax do I have to pay on the prize money? Since my wife earns more than me, will this reward be clubbed with my income or hers?

Dr Narendra Thakker

The money won in games and competitions is taxable. The tax is charged at a rate of 30 per cent with applicable surcharge and 3 per cent education cess, as per Section 115BB of the Income Tax Act, 1961.

Organisers of the competition give the prize money, only after deducting the income tax. But gross prize money needs to be shown in the income tax returns, as the amount that organisers have deducted is also part of the income.

In most cases, a minor's income is clubbed with the parent whose income is higher. But, in cases where the child has earned money from her manual work or by application of her skills, talent, specialised knowledge and experience the reward is not clubbed with the parent's income. Her income tax return, hence, will have to be filed separately under your guardianship.

I have a monthly salary of Rs 12,000. In July last year, I bought a flat for Rs 5 lakh. I sold it in January this year for Rs 10 lakh. I used all the money to buy an office space. Will I need to pay income tax on the surplus from the first sale?

Ami Contractor

As you sold the flat within one year from its purchase, the surplus will be classified under short-term capital gain.

This is calculated by deducting the cost price of Rs 5 lakh from the sale value of Rs 10 lakh. Your capital gains are Rs 5 lakh. This gain will be added to your total income. After taking into account the deductions you are entitled to under various Sections of the Income Tax Act like 80C, the net income will be taxed at the applicable rates.

I took a loan of Rs 50,000 from a finance company to purchase a plot of land in 2003. I have not yet started construction. My employer also did not deduct interest paid on the loan, while calculating my tax liability last financial year. This was done on grounds that interest is eligible for deduction only for two years after the loan is taken. What is the legal position?

Ajay Sharma

The interest amount on a home loan can be claimed as a deduction only after completion of construction of the house. The total amount of interest paid before the completion of the house can, however, be claimed later as deduction. This is done in five equal instalments starting with the year of completion of the house.

This is because while the income-tax department does not allow any compensation for land purchase, it does allow you to claim tax benefits, once you begin the prcess of building a residence.Deduction up to Rs 1.5 lakh per year can be claimed for interest after completion of the house if youmove in it. If you rent it out, deduction on interest paid has no ceiling.

The writer is a chartered accountant