Tax
My father has been using the ITR 1 form to file his income-tax returns, but has been claiming deduction for home loan interest. Does he need to use a different ITR form? Will it be a problem if he has been using the incorrect form in the previous years?
—Mahesh Chandika, Machilipatnam
Your father needs to use the ITR 2 form to file his returns as he is claiming deduction for home loan interest. Though there is no penalty for using an incorrect form, the Income Tax Department may not accept the return if it is filed on an incorrect form.
The return can be revised at any time up to one year from the end of the relevant assessment year or before the completion of assessment by the income-tax office, whichever is earlier. However, returns can be revised if they are filed on or before the due date, that is, 31 July. If the return for the assessment year 2009-10 was filed before 31 July 2009, you can revise the return either up to 31 March 2011 or before the completion of assessment.
If the new car cost Rs 5 lakh, and the old one was sold for Rs 2 lakh then, Closing WDV = Opening WDV (Nil) + Cost of new car (Rs 5 lakh) — Money received for old car (Rs 2 lakh) Hence, Closing WDV = Rs 3 lakh
However, there are exceptions to claiming depreciation.
No depreciation is admissible if the WDV of the block of assets is reduced to zero, that is, the sale price of the old car is more than the cost of the new one.
If all the assets forming part of the block are transferred and the block ceases to exist, that is, if the old car was sold in the first year and the new car bought in the second year, you cannot claim depreciation. So, any gain/loss on the sale of the old car will be considered a short-term capital gain/loss.
I have received salary arrears for the past three years under the Sixth Pay Commission. Can I calculate my tax by staggering this income over the previous years or will I have to pay tax in the year that the arrears were received? Can I avail of any relief?
—Herpal, Chandigarh
According to a clarification issued by the Central Board of Direct Taxes, you need to pay tax only in the year in which the arrears are received. Your employer too will deduct tax on the arrears when they are paid. You can claim relief under Section 89 (see Arrears and Advances, 10 July 2008).
I have sold ancestral agricultural property for Rs 58 lakh. How much capital gain tax do I need to pay? Can I save this tax or avail of any exemption?
—Prakash Thosar, Valsad
The term ‘capital asset’ means property of any kind. Agricultural land is not considered a capital asset and so there is no tax on the sale of such land. However, the land that is in an area within the territorial jurisdiction of a municipality or cantonment board, having a population of 10,000 or more, or in any notified area, is not considered agricultural land. So you will have to pay capital gains tax if you sell this land. For this, you shall need to calculate the indexed cost of acquisition, which is computed as follows:
Cost of acquisition x Cost inflation index of the year in which the land is transferred/CII of the year in which the land was acquired.
Long-term capital gains = Sale amount - Indexed cost of acquisition.
Long-term capital gains are taxed at 20.6 per cent. The CII is listed in various newspapers and on Websites such as www.incometaxindia.gov.in/general/computation.asp.
You can claim exemption under Section 54F by investing the sale proceeds in a residential property either a year before selling the land or two years after the sale. If you are constructing a house, the period can be extended to three years. Also, you should not own any other residential property. The amount of exemption will be computed as follows: Cost of new house x Capital gains/Net sale.
Insurance
I broke my leg while playing and was hospitalised for three days in February this year. A metal rod had to be placed in the leg and it will be removed either in August or September. My medical insurance plan comes up for renewal in May. Will I be eligible to make another claim for the follow-up surgery required six months from now?
—Ashim Sengupta, Kolkata
Assuming that you will opt to renew your policy in May, the in-patient hospitalisation claims should be admissible. This means you would be eligible to make a claim for a follow-up surgery. Hopefully, you are covered by an insurance company that will not re-rate your coverage at the time of renewal. It is always advisable to choose a health insurance company that underwrites (asks questions on medical history) at the time of joining, rather than while making a claim or during renewal.
I have a medical insurance policy with individual covers of Rs 1.5 lakh each for myself, my wife and two children. I have been paying the premium regularly for the past six years without making any claim. Now I want to switch to a floater plan. Should I take one from the existing insurer or consider another company? If I switch to another insurer, will all the benefits be transferred to the new plan or will the new insurer exclude pre-existing diseases and insist on a cooling-off period?
—Rajiv Sabharwal, Noida
Every policy is unique, so you will have to discuss this in detail with the prospective insurer. Usually, all the benefits are not transferred to the new plan. Some health insurance schemes come with a portability benefit, where the waiting period is waived and the pre-existing condition exclusion applies for one year. If you increase the cover from the existing level, it is customary that all limitations apply on the amount that is more than your previous cover. For example, if you choose a Rs 5 lakh policy, the entire waiting period would normally apply on the amount above Rs 1.5 lakh, that is on Rs 3.5 lakh. Please call the insurer you are considering and clarify this before making any commitment.
According to the Finance Bill 2010, the construction of a complex will be treated as a service on which tax is applicable. This will be levied only if the builder receives any consideration from the prospective buyer before obtaining the completion certificate. However, this provision is not applicable as yet and will only happen once a date is notified after the enactment of the Bill. So you may need to pay service tax only on the instalments you pay after the notified date.
