Professionals cannot claim Sec 32 tax benefit

NEW DELHI: The Supreme Court said on Tuesday professionals cannot claim depreciation under Section 32 of the Income Tax Act. The Section is applicable to an assessee carrying on business and not to a professional, the apex court said, dismissing an appeal of a chartered accountants firm which had sought deduction under this provision. The appellant, GK Choksi & Company, an Ahmedabad-based chartered accountants firm, had claimed depreciation for the assessment year 1984-85. During the year, the appellant constructed a residential building for its low-paid employees and claimed initial depreciation of 40% under Section 32(1)(iv) of the Act, amounting to Rs 43,505, on the actual cost of the building that stood at Rs 1,08,757. The I-T department, on January 15, 1985, rejected the claim on the ground that the said provision was applicable to an assessee carrying on business and it was not available to a professional. On the plea of the assessee, the commissioner of income tax (appeals) reversed the order of the income tax officer dealing with the case. The revenue department then filed an appeal before the Income Tax Appellate Tribunal which overturned CIT (A) order and restored the order passed by the ITO. The matter then came to Gujarat high court which upheld the tribunal order. The assessee then appealed at the apex court. An SC bench comprising Justices Ashok Bhan, HS Bedi and VS Sirpurkar said: The word ˜business occurring in clause (iv) of Section 32(1), by no stretch of imagination, can be said to include ˜profession’ as well. There is nothing in Section 32(1)(iv) which envisages the scope of word business to include in it ˜profession as well.

ONE PERSON COMPANY MAY APPEAR SOON

The draft Companies Bill, 2007, has proposed a new entity called a one-person company (OPC) as a measure to provide start-up entrepreneurs and professionals the much- needed flexibility in setting up a business in India. The onerous compliance requirements that apply to large widely-held companies will not be imposed on such entities. Officials told Business Standard that a proposal to this effect has been included in the Bill, which has been sent for inter-ministerial consultation. The ministry of corporate affairs had said the Bill may be put up for legislative approval in the winter session of Parliament, but officials now say it is unlikely. “We are waiting for comments from other ministries. After that we will have to seek Cabinet approval and then take it to Parliament,” the official said. The move to permit OPCs in India was recommended by the J J Irani expert committee on revising India's company laws in May 2005. Various countries permit this kind of a corporate entity (China introduced it in October 2005) in which the promoting individual is both the director and the shareholder. The principal forms of business organisations permitted in India are sole proprietorship firms (in which only one person runs the business), partnerships (between two or more people) and companies (both private and public where it is possible for many individuals to own the business by subscribing to its shares). The fundamental difference between a sole proprietorship and an OPC is the way liability is treated in the latter. A one-person company is different from a sole proprietorship because it is a separate legal entity that distinguishes between the promoter and his company, said Rajiv Luthra, founder and managing partner, Luthra & Luthra. Luthra added that the promoter’s liability is limited in an OPC in the event of a default or legal issues. On the other hand, in sole proprietorships, the liability is not restricted and extends to the individual and his or her entire assets. For instance, if a sole proprietorship firm is sued, the promoter also gets sued automatically. In the case of companies, liability is restricted to the shares of a company, except for criminal matters. “It is a good and highly desirable move, especially as it reduces the level of compliance for OPC's vis-à-vis companies,” he said. The move is expected to ease start-up formalities for prospective entrepreneurs. Similarly, small entrepreneurs who are running their businesses under the proprietorship model could convert to OPCs, with the benefit of limited liability and none of the cumbersome compliance requirements, said corporate law expert Naveen Goel.

SAVE TAX ON LOSS FROM SHARE

By reading the title of the post you will be thinking that there is no tax on long term capital gain on shares then what is the relation between tax saving and long term capital loss?

But after reading the next few lines you will definitely understand the trick(tax planning tip).The trick is legitimate method to save the tax.


Brief Provision of Tax on LTCG on shares

To understand this tip first of all I would like to discuss the taxabilty provisions on Long term capital Gain/Loss From shares and securities

From 1.10.2004 onwards sale of a long term security (means where holding period is more than 12 month) ,on which STT paid (Securities Transaction Tax) is not liable for tax and fully exempted from Income Tax.
As the long term capital gain from the sale of securities is exempted from tax ,loss from such deals can not be adjusted from the other capital gain and can not be carry forward either.
Securities Transaction tax (stt) is payable for transaction made through stock exchanges.

what is the trick/tip

if you are planning to sell the shares on which you will have long term capital loss ,then sell them out of the exchange without paying STT and save tax .lets study with a example.

Example:Rajiv has sold a shares for 300000 which he has purchased for 500000 ,13 months back.similarly he has also sold a land for 600000 which he has purchased for 100000 four year ago.Rajiv has also salary income for Financial year 2008-09.

calculate tax in two situations

shares has been sold through stock exchange means stt paid.
shares has been sold to friend out of exchange.
Ans:Case -1:Calculation of tax Case one(through stock exchange)
income from salary =300000

Income from capital gain on capital gain =400000

(600000-100000)

tax liability=on 150000-300000 @ 10%=15000

20% on 400000 LTCG =80000

Net tax liability=15000+80000=95000

long term loss from shares sold through exchange being exempted income can not be adjusted from LTCG on land,and not not be carry forward either.

Case-2:(shares sold to friend out of stock exchange ) no stt paid

Income from salary =300000

Income from Long term capital gain

LTCG from land =400000

Less:LTCL from Shares=200000

net LTCG =200000

tax liability

salary=10% on 300000-150000=15000

Ltcg=20% on 200000 =40000

net tax liabilty =55000

so in First case Tax Liability is 95000 where as in second case the tax liability is 55000 means saving of 40000 tax by not selling shares through exchange !!!

Further if we have sold share out of exchange this year and made a loss and have no other long term capital gain then we can carry forward the loss for next eight years and adjust the loss from other long term gain,means the benefit is definite if we adjust it in this year or next eight year.

Note:


1. To avoid complication in calculation Indexation on cost of capital assets has not been done.
2. Shares and securities word has been used interchangeable though differently defined under the act.so read accordingly.
3. Sucharge and Cess on tax has also not shown to avoid complications.
4. You can also save tax from short term capital loss from same trick.



please comment

Under section 10 (13A) of the Income Tax Act, you can claim a deduction on the rent you pay

Aam aurat and aam aadmi just moved into the city of dreams. Aam aurat managed to get a good job with a big multinational company. Aam aadmi, never the one to discourage his wife, moved with her, hoping to find a better job in the city of dreams.
They managed to rent a one-room-kitchen house at Rs 15,000 per month from Boodhi Tai, affectionately called BT, who lived in the same building.
Aam aurat had just returned from her first day in the new office and told her husband over a cup of tea he made for her, "You know, one of my colleagues in office today told me I could take a tax deduction on the rent I pay."
"Ah, really?" replied aam aadmi.
"Yes. But he didn't explain everything. There are so many people who live in this building. Can you just ask around and find out?"
"Sure, I'll do that."
With that, aam aadmi stepped into the common passage and went looking for BT. "Can you tell me about the tax deductions allowed for rent?" he asked her as soon as he found her. "Beta. I don't understand any of these things. Why don't you ask Sri Sri Sri Baba Taxdev. He lives next to you. Baba handles all these things for me," she replied.
Aam aadmi went and knocked on Baba's door. "Hi. I am aam aadmi. Just moved into the next room. BT told me you could help me with some details I need," he said when Baba opened the door.
Baba twirled his long beard and replied, "Tell me. How can I help you?"
Aam aadmi parroted what his wife told him.
"The first thing I need to know is how much rent you are paying," Baba asked.
"Rs 15,000 per month."
The reply sent Baba into peals of laughter. "You know how much I pay? Rs 100. Rent Control Act, you see. Been staying here for ages. So somebody's got to bear the cost," he guffawed.
Immediately, aam aadmi regretted his parents' decision to buy a house in the capital and not in the city of dreams.
"Anyway, how much house rent allowance (HRA) do you get?" Baba asked.
"I am the house husband right now. Looking for a job. My wife is working. She gets Rs 16,000 per month as HRA. Her basic plus dearness allowance comes to around Rs 40,000 per month. I guess you would need to know that as well," aam aadmi said.
"So you want to know how much deduction your wife can get."
"Yes."
"The deduction is allowed under section 10 (13A) of the Income Tax Act. I like to discuss sections when talking about the Income Tax Act. The deduction is restricted to a minimum of:
a) The actual HRA that she gets
b) The actual rent paid less 10% of her salary, where salary includes the basic salary plus the dearness allowance
c) 50% of her salary if the rented house is in Mumbai, Chennai, Kolkata and Delhi and 40% of the salary in any other case," Baba explained. "The HRA that an individual receives over and above this is included in taxable income," he continued.
Looking confused, aam aadmi whined, "That went over my head...."
With his calm intact, Baba replied, "Ok, let me explain. Your wife gets an HRA of Rs 16,000 per month and pays a rent of Rs 15,000 per month. Her basic plus dearness allowance is Rs 40,000 per month. So the actual rent paid, less 10% of the salary, would equal Rs 11,000 per month (Rs 15,000 - 10% of Rs 40,000). Since she lives in the city of dreams, a k a Mumbai, for calculating her deduction, we would be considering 50% of her salary. This comes to Rs 20,000 (50% of Rs 40,000)."
In the same vein, he continued, "As we can see from the calculation, the minimum amount from the three specified conditions is Rs 11,000. And so, she would be allowed a total deduction of Rs 1.32 lakh (Rs 11,000 x 12) from her taxable income per year. For the remaining amount of HRA-Rs 4,000 per month or Rs 48,000 for the year-tax will have to be paid."
At that point, Baba's cell phone started ringing. "Arre Netaji. How much black to white will you do? Thoda to apni janta par reham karo," he loudly laughed into the phone. After a few minutes of conversation, he hung up.
"Sorry, that was Netaji calling. To claim this deduction, she would have to submit a rent receipt issued by the landlady or a copy of the house lease agreement to the company she works for. A proof of rent paid is required only if the rent being paid is higher than Rs 3,000 per month," Baba explained.
The explanation wasn't to aam aadmi's liking. "That's funny. Why can't we claim the entire rent paid as deduction?" he asked.
"Well, the Income Tax Act is funny sometimes. Come to one of my pravachan whenever you get some time. I will give you more examples of how funny the Income Tax Act can be," Baba said.
He ran a hand over his beard and then smiled cattily, "Don't forgot to bring some dakshina. You can get a deduction on donations made for an approved charitable cause under section 80G of the Income Tax Act." Aam aadmi smiled despite his disappointment with the HRA deduction allowed and thanked the Baba, then walked out the door.

TAX HOLIDAY FOR INDUSTRIAL UNITS IN FREE TRADE ZONES ETC. [SECTION

Section 10A of the Income-tax Act relates to special provision in respect of newly established
industrial undertakings in free trade zones, export processing zones, electronic hardware
technology parks, software technology parks or special economic zones notified by the Central
Government. The section exempts the profits and gains of such undertakings derived from
the export of articles or things or computer software.


(1) Assessees who are eligible to claim exemption

The benefit of exemption under this section is available to all categories of assessees who
derive any profits or gains from an undertaking engaged in export of articles or things or
computer software. The profits and gains derived from on-site development of computer
software (including services for development of software) outside India shall be deemed to be
the profits and gains derived from the export of computer software outside India.

(2) Conditions to be satisfied for claiming exemption

This section applies to any undertaking which fulfills the following conditions:

(i) It has begun manufacture or production (include the cutting and polishing of precious and
semi-precious stones) of articles, things or computer software during the previous year
relevant to the:
(a) A.Y.1981-82 or thereafter in any FTZ; or
(b) A.Y.1994-95 or thereafter in any electronic hardware technology park (EHTP) or
software technology park (STP); or
(c) A.Y.2001-2002 or thereafter in any SEZ.

(ii) It is not formed by the splitting up, or reconstruction, of a business already in existence.
However, this condition shall not apply to an undertaking which is formed as a result of
re-establishment, reconstruction or revival of the business of any undertaking falling
under section 33B.

(iii) It is not formed by the transfer of machinery or plant previously used for any purpose. For
the purposes of this clause, any machinery or plant used outside India by any person
other than the assessee shall not be regarded as machinery or plant previously used for
any purpose, if the following conditions are fulfilled:
(a) such machinery or plant was not, at any time previous to the date of installation by
the assessee, used in India;
(b) such machinery or plant is imported into India from any country outside India; and
(c) no deduction on account of depreciation in respect of such machinery or plant has
been allowed or is allowable under the provisions of this Act in computing the total
income of any person prior to the date of installation of the machinery or plant by
the assessee.
(d) Further, where in the case of an industrial undertaking, any machinery or plant or
any part thereof previously used for any purpose is transferred to a new business,
and the total value of the machinery, etc. transferred does not exceed 20% of the
total value of the machinery and plant used for the business.


(iv) The sale proceeds of articles, things or computer software exported out of India must be
brought into India in convertible foreign exchange within six months from the end of the
previous year, or such further period as the competent authority may allow. For this
purpose, "competent authority" means the RBI or such other authority as is authorised for
regulating payments and dealings in foreign exchange.
Further, where the sale proceeds are credited to a separate account maintained by the
assessee with any bank outside India with the approval of the RBI, such sale proceeds
shall be deemed to have been received in India.


(v) In order to claim deduction under this section, the assessee should furnish an audit
report from a chartered accountant in Form No.56F, along with the return of income,
certifying that the deduction has been correctly claimed. However, no deduction u/s 10A
shall be allowed to an assessee who does not furnish a return of his income on or before
the due date specified under section 139(1).