Tax Column

I am an individual and an interior designer. I have just started my practice. My gross income or fees during the financial year is ₹4,200,000. I was told that there is a scheme under the Income Tax Act where tax can be paid at a lesser rate. Could you explain and clarify?

Yes, under Section 44 ABA of the Income Tax Act, an individual or a partnership firm engaged in a profession defined under the Income Tax Act and whose total gross receipts do not exceed ₹50,00,000 in the previous financial year on account of such a profession can offer income at 50 per cent of the gross income. For example, in your case, your income amount is ₹42,00,000 which is less than ₹50,00,000 and therefore you will get a deduction of 50 per cent i.e. ₹21,00,000- and you will pay tax only on the balance amount. The law thus gives you a 50 per cent deemed deduction without marinating books of accounts, vouchers, invoices, etc. However, the upper limit is only ₹50,00,000 if the fees include cash receipts of more than 5 per cent. If your fees do not exceed cash fees of 5 per cent, the upper limit is ₹75,00,000. [EasyDNNnews:PaidContentStart]

I am an individual in employment with a listed company. My gross salary is ₹5,00,000 per month. Due to a liquidity problem with the employer, I could not get a substantial part of my salary for the financial year 2023-24. What will be the tax liability in such a case? 

Under the provision of the Income Tax Act, salary income is taxable in the hands of individuals on an accrual basis, which means it is applicable whether you receive a salary or not. As long as you are entitled to salary, the same is taxable in your hands for every financial year, particularly when your employment contract is not terminated. Therefore, while filing the Income Tax Return of AY 2024-25, the entire salary income, whether received or not and due as per the employment contract, would be taxable. If your employer pays the salary later after deducting the withholding tax, you can approach the concerned assessing officer with a request for passing a rectification order to give credit for TDS as there is a specific provision in the Income Tax Act. 

I have been bequeathed a residential flat and ₹1 crore as fixed deposits on the death of my guru as per his will. Since I am not a close relative of my guru, what would be the tax implication?

There will be no tax implication in your hands as you have received a flat and ₹1 crore in fixed deposits under a will. You have received these assets as an inheritance and not as a gift. A relationship is required in the case of a gift and not in the case of inheritance. Strangers can also receive assets as inheritance provided there are documents such as a will, probate, letter, etc. which clearly establish that the assets have been received by you on the death of the owner of these assets. Section 56(2) (x) of the Income Tax Act exempts any assets received under a will as inheritance. 

I am a senior citizen and have substantial capital accumulated over a period of years. One of my old and close friends needs some financial assistance in the form of an interest-free loan of ₹25 lakhs from me. Is there any tax implication for giving such a loan in my hands as well as in my friend’s hands? What would be the tax implications if he does not repay the loan and I decide to waive the loan? 

There is no tax implication in your hands if you give an interest-free loan to your friend. As mentioned by you, you have a large amount of capital accumulated over a period of years. Therefore, the source of the loan is established. Further, there is no compulsion, under the Income Tax Act, to charge interest. In the hands of your friend, the same is not taxable as it is a loan repayable in the future. In his books, it is a liability towards you and not an income. 

You may have to issue a confirmation letter to your friend regarding the interest-free loan given by you in case the transaction is picked up for scrutiny. If your friend does not repay the loan and you also decide to waive it, then it could be taxed in the hands of your friend as income from other sources under Section 56(2)(x) of the Income Tax Act. But if the loan amount remains unpaid and not waived by you, then the amount cannot be taxed in the hands of your friend as long as you don’t waive the loan.

I am a non-resident, Indian citizen. I have sold a residential property in FY 2023-24. At the time of the sale, the buyer deducted 22 per cent as withholding tax which amounts to ₹50 lakhs. I have reinvested the entire long-term capital gain in another residential property in India. Can I get a refund of  ₹50 lakhs deducted as withholding tax?

To claim a refund of ₹50 lakhs you have to file a return of income in India where you will disclose long-term capital gain and claim the same as exempt under Section 54 of the Income Tax Act. The entire long-term capital gain will reduce to zero and therefore the withholding tax of ₹50 lakh will become refundable. Please take the help of your tax consultant as a lot of information is to be filled in the ITR. After filing the return, the CPC will process the same very fast and may issue the refund at the earliest.

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