Tax Column

We have one family trust established for the benefit of myself and my other two brothers. The family trust has one residential flat in its name which we are planning to sell. Can the trust reinvest in another residential house and claim exemption under section 54/54F of the Income Tax Act?   [EasyDNNnews:PaidContentStart]

In my opinion, a family trust having individual beneficiaries who are part of one family can avail the benefit of investment in a new residential house within the conditions specified in Section 54 of the Income Tax Act. A family trust is an AOP where the beneficiaries are individuals. If the family trust was not in existence, then the residential property would have been shown in the hands of individual beneficiaries and the beneficiary, being an individual, would be entitled for reinvestment under section 54 of the Income Tax Act. Therefore, the object of the provision of Section 54 of the Income Tax Act is fulfilled, i.e., residential house for individuals. The High Courts and Tribunals have also held similar views. In a latest judgement of the Delhi Tribunal in the case of Merilina Foundation (178 taxmann.com 355), it has been held that a private trust can also avail benefit under section 54 of the Income Tax Act if the individual beneficiaries do not have more than one residential house. The facts in your case are far superior. Therefore, if the trust reinvests the capital gain into a new house, deduction under section 54 of the Income Tax Act can be availed. 

I am a senior citizen resident in India. I worked in the UK in the 1990s and the work pension fund is now available for pay out. According to UK tax laws, up to one-fourth of the work pension kitty can be taken as lump sum without tax. The remaining amount can be set up as a regular pension plan for periodic annuity payments. What will be the tax implication in India? 

It is an admitted fact that you are resident in India. Therefore, under the Indian Income Tax Act, a resident Indian is liable to pay tax on his global income. Pension received by you from the UK is definitely taxable in India irrespective of quantum, but subject to section 10(10A) of the Income Tax Act. As per UK law, the amount is tax free in the UK. However, it can be argued that under section 10(10A) of the Income Tax Act, commuted pension (lump sum) is partially exempt from tax for private sector employees. One-third of the total pension value is exempt. In your case, since you are taking only one-fourth (25 per cent), which is less than one-third provided under the Indian law, the entire lump sum amount should be tax free in India. Therefore, while filing the return, you should disclose in your return and computation of income and claim deduction under section 10(10A) of the Income Tax Act. Kindly also make disclosure in Schedule FA of the balance amount in the pension account in the UK. The Tax Officer may not agree with the above views, but you have a fair chance of succeeding in appeals. 

I have purchased agricultural land which is situated beyond 8 kms from the municipal limits. The agreement value is ₹2 crore while the stamp duty valuation is ₹3 crore. Can the difference of ₹1 crore be taxable, particularly when it is agricultural land? 

Under section 56(2)(x) of the Income Tax Act, if anyone receives or acquires any immovable property for a total consideration which is less than the stamp duty valuation, then the difference between the agreement value and the stamp duty valuation is taxable as income from other sources. Section 56(2)(x) of the Income Tax Act mentions the term ‘any immovable property’. Agricultural land definitely falls within the ambit of ‘immovable property’. The provision does not exempt agricultural land nor does the relevant provision define ‘immovable property’. Therefore, it has to be interpreted in general parlance, which makes agricultural land nothing but immovable property. The agricultural land which is situated beyond 8 kms of municipal limits is not considered as a capital asset for the purpose of Section 2(14) of the Income Tax Act, which defines the capital asset. This section gives exemption from capital gain tax on sale of agricultural land situated beyond 8 kms from the municipal limits. 

Section 56(2)(x) of the Income Tax Act mentions the word ‘any immovable property’ and not ‘capital asset’. Therefore, you will be liable to pay tax on the difference amount, i.e., ₹1 crore as income from other sources. 

During the current financial year, I have earned foreign income from the USA. The fees I received after deduction of withholding tax. Whether I can get credit for tax paid in the USA? If yes, what is the procedure? 

Yes, you are entitled for foreign tax credit under section 90 / 90A of the Income Tax Act. Foreign tax credit is also available in view of the Avoidance of Double Taxation Treaty between India and the USA. 

The procedure is that you disclose your foreign income in your tax return and calculate the tax liability as per the Income Tax Act. Against this tax liability, i.e., on foreign income, you can claim set off of tax paid by you in the USA. Along with the return, you have to file Form 67 before the due date of filing the return. Kindly note that any delay in filing Form 67 may deny foreign tax credit. Kindly ensure that Form 67 is duly filled in with supporting documents and filed before the due date of filing the return.

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

 

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