Tax Column

In the current financial year 2025-26, I have earned long-term capital gain of ₹10 lakh and short-term capital gain of ₹1.50 lakh, aggregating to ₹11.50 lakh, which is below the limit of ₹12 lakh. No other income earned. Whether the entire income of ₹11.50 lakh is Tax free for assesSMEnt year 2026-27?  [EasyDNNnews:PaidContentStart]

For your information, ₹12 lakh tax free limit under the new tax regime applies only to regular income like salary income, business income, interest income, etc. It does not apply to special rate income such as capital gains. All capital gain tax is taxed separately at a special rate and is not eligible for rebate under section 87A of the Income Tax Act. Therefore, ₹11.50 lakh, your capital gain, would be taxed at special rate. 

I am an Indian citizen and was a Non-Resident Indian during the financial year 2014-15 till 2023-24. During that period, I acquired one immovable property at UAE. For the current financial year, I am a resident in India both under the Income Tax Act and FEMA. If I sell the property now, whether gain arisen will be subject to tax in India? As per DTA, any gain arisen on sale of property located in UAE is taxable in UAE only? Kindly clarify this. 

Yes, you are right that as per DTA between India and UAE, gain derived from sale of immovable property is to be subject to tax in the state in which the property is situated. In your case, it is UAE, where there are no tax implications as on today. However, DTA’s purpose is to prevent double taxation. Since you are a resident in India, you are subject to provisions of the Income Tax Act, which states that in case of resident individual, the global income is taxable. The surplus arising on sale of immovable property, although not taxable in UAE, is part of your global income and therefore it is taxable in India. Therefore, you are liable to pay Long-Term Capital Gain in India at the rate of 12.5 per cent plus surcharge in the current financial year. For your information, the advantage of DTA is that if you have paid tax in UAE as per UAE’s laws, then while calculating tax liability in India, you will be entitled to set-off that tax paid in UAE. In the present case, since there is no tax paid in UAE, therefore, foreign tax credit is nil. 

What is Presumptive Taxation Scheme and who is eligible for it? 

Presumptive Taxation Scheme is a simplified method of tax computation introduced by the Income Tax Act to reduce compliance burden for small taxpayers. Under this scheme, instead of maintaining detailed books of accounts and proving expenses, taxpayer simply declares a fixed percentage of their turnover or gross receipts as their taxable income. For example, business whose annual turnover or gross receipts do not exceed `2 crore can opt for this scheme by declaring income at a fixed percentage of turnover or gross receipts. If all receipts are through proper Banking channels, then the percentage applicable is 6 per cent, while in other cases it is 8 per cent of the total turnover or gross receipts. 

Similarly, specified professionals (doctors, engineers, chartered accountants, etc.) whose annual gross receipts do not exceed `75 lakh can opt for this scheme under section 44ADA of the Income Tax Act. Here, the specified percentage is 50 per cent of gross receipts. The intention of the legislature is to help small businessmen or professionals to reduce their compliance burden. Interestingly, even if a businessman or professional has not spent any money on expense, then also they can offer their income at the fixed percentage referred above. 

I am an Indian citizen and resident in India. I want to give a gift of 2,00,000 US$ to one of my friends (not relative) settled in Germany, foreign citizen. Whether is it permissible without any tax implication under the Income Tax Act and also under FEMA? 

As a resident Indian, you are allowed to gift money to a foreign citizen even if he is not your relative, subject to certain compliances and conditions. Under the Liberalised Remittance Scheme (LRS), you can remit up to 2,50,000 US$ per financial year for permitted purposes including gift abroad. Therefore, your proposed gift would be within the LRS limit. You can approach your Authorised Dealer Bank and complete the KYC, submit form A2 and remit the fund. However, at the time of remittance, the bank will insist on payment of TCS at 20 per cent. It is mandatory and credit of TCS is available to you for set-off against any other tax liability for the current financial year. If there is no other tax liability, then the entire amount of TCS will be returned to you after you file the Return and the same is processed. There will be additional cash outflow for payment of tax on TCS as discussed above. Further, under section 56(2), gift from non-relative exceeding ₹50,000 in a financial year is taxable in the hands of recipient as income from other sources. In this case, your friend who is a recipient is therefore under obligation to pay tax at 30 per cent plus surcharge in India. There is a possibility that the foreign citizen does not file return and pay tax. Then the Income Tax Department may approach you for recovery. 

I am a salaried employee. How does deduction for House Rent Allowance (HRA) work and what are the conditions of claiming it? 

HRA is an allowance received by employees from their employers towards rent paid for residential accommodation. Deduction is allowed under section 10(13A) of the Income Tax Act. The maximum tax amount is least of three amounts – actual HRA received from employer; actual rent paid minus 10 per cent of the basic salary; and 50 per cent of basic salary (if living in Mumbai, Delhi, Kolkata or Chennai) or 40 per cent of the basic salary if living in other cities. However, there are certain conditions that employee must actually pay the rent for accommodation and house for which rent is paid does not belong to him. Also, if rent paid is more than ₹1,00,000 per annum, then the employee must furnish PAN of landlord to the employer. 

We would be happy to address your tax-related queries. Kindly share them with us at editorial@dsij.in

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