Tax Column

Our building is going for redevelopment. All the members are going to receive hardship allowance and transit rent for alternate accommodation. We are presently using the property as residential. What would be the tax implications in the members’ hands when they receive hardship allowance, transit rent, reimbursement of expenses and brokerage, etc.? [EasyDNNnews:PaidContentStart]

Hardship allowance and transit rent for alternate accommodation are not taxable in the hands of the recipients, i.e., members of the society in your case. Both these payments do not fall under the definition of income as per Section 2(24) of the Income Tax Act. The Hon’ble ITAT, Mumbai, in the case of Kunnama Balakrishan Vs ITO, held that hardship compensation received by the flat owner during redevelopment is a capital receipt and not a revenue receipt and hence not taxable under the Income Tax Act. The Hon’ble Tribunal has also held even to the extent that rent for alternate accommodation is not taxable in the hands of the flat owners even if they do not spend the full amount. The Hon’ble Bombay High Court in the case of Sarfaraz Furniturewala held that transit rent and hardship allowance cannot be considered as revenue receipts and therefore not taxable, and accordingly, the builder/developer need not deduct withholding tax. Similarly, payment to members towards reimbursement of expenses/brokerage, etc., is not subject to tax in the hands of the members. 

I am an individual and actively engaged in the purchase and sale of shares both on a delivery basis and on F&O. In the last financial year, I have suffered losses on F&O transactions but earned substantial capital gain on the sale of shares both short term and long term. Can I get a set-off of derivative loss against the capital gains? 

Derivative loss on a contract for purchase and sale of shares is considered as deemed business activity and therefore loss arisen on derivative activity is deemed business loss in view of Section 43(5) of the Income Tax Act. Hence, under the Income Tax Provision, derivative loss is a business loss. Under Sections 70 and 71 of the Income Tax Act, business loss can be set-off against income under any head of the same year. Therefore, your long-term and short-term capital gain can be set-off against derivative loss. Even after setting-off, if there still remains derivative loss, then the same can be carried forward or can be set-off in the same year against other income taxable under the head income from other sources. 

I am an individual and working with one listed company. Due to liquidity problems, I have not been paid salary for five months, i.e., from November 2024 to March 2025. Return for assessment year 2025-26 is due for filing by 15th September 2025. Whether salary income, although not received, would still be taxable? What about withholding tax? 

Under the Income Tax Act, salary income is taxed on the basis of ‘due or receipt whichever is earlier’. This is clearly mentioned in Section 15 of the Income Tax Act. Salary becomes taxable as soon as it is due to the employee even if it has not been received yet. Accordingly, salary for the months from November 2024 to March 2025, although not received by you, is still taxable on a ‘due’ basis. Therefore, while filing the Return of Income for assessment year 2025-26, you have to offer unpaid salary for taxation purposes. You need not pay tax payable on salary amount and claim likely withholding tax on unpaid salary amount as TDS. While processing the Return under Section 143(1) of the Under the Income Tax Act, salary income is taxed on the basis of ‘due or receipt whichever is earlier’. This is clearly mentioned in Section 15 of the Income Tax Act. Salary becomes taxable as soon as it is due to the employee even if it has not been received yet. Accordingly, salary for the months from November 2024 to March 2025, although not received by you, is still taxable on a ‘due’ basis. Therefore, while filing the Return of Income for assessment year 2025-26, you have to offer unpaid salary for taxation purposes. You need not pay tax payable on salary amount and claim likely withholding tax on unpaid salary amount as TDS. While processing the Return under Section 143(1) of theUnder the Income Tax Act, salary income is taxed on the basis of ‘due or receipt whichever is earlier’. This is clearly mentioned in Section 15 of the Income Tax Act. Salary becomes taxable as soon as it is due to the employee even if it has not been received yet. Accordingly, salary for the months from November 2024 to March 2025, although not received by you, is still taxable on a ‘due’ basis. Therefore, while filing the Return of Income for assessment year 2025-26, you have to offer unpaid salary for taxation purposes. You need not pay tax payable on salary amount and claim likely withholding tax on unpaid salary amount as TDS. While processing the Return under Section 143(1) of the Income Tax Act, the CPC may determine tax payable by you. If the employer has not paid withholding tax and paid subsequently, then you may get further time of two years under Section 155(14) of the Income Tax Act for claim of withholding tax. Even after two years, if the employer does not pay the withholding tax, then you may have to pay the tax from your pocket. Therefore, it is advisable to request the employer to at least pay the TDS on accrued salary. For your information, if salary is received in advance before it becomes due, then it is taxable in the year of receipt. 

I am an individual and an Indian resident. I am likely to buy one residential premises from a Non-Resident Indian for a total consideration of `2 crore. What procedure should I follow under the Income Tax Act such as withholding of any tax, etc.? 

Under Section 195 of the Income Tax Act, if an Indian Resident makes any payment to a Non-Resident, then the Indian Resident must deduct withholding tax at the applicable rate. Therefore, in your case, assuming the property is long-term, you are liable to deduct tax at 12.5 per cent plus applicable surcharge on the amount of ₹2 crore as withholding tax. However, an option has been given to the seller to approach the concerned Assessing Officer for a lower rate of deduction. The seller can file the relevant documents before the Assessing Officer that the likely capital gain is ₹1 crore only and therefore withholding tax is applicable only on ₹1 crore and not on the entire ₹2 crore. 

If the seller obtains a lower rate of deduction certificate, then you deduct tax accordingly and deposit with the concerned government authorities. The Indian Resident, i.e., you being a buyer in this case, should obtain TAN and provide it to the seller, which he will mention in the application for a lower rate of deduction. If the seller fails to obtain the lower rate of deduction certificate, then you have to deduct tax on the entire consideration of ₹2 crore.

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