CGAS Eliminates Tax Hardships

Updated: Oct 20 2002, 05:30am hrs
I am planning to dispose of a flat which I bought about 16 years ago. With the sale proceeds, I intend to have an independent house constructed. But, the process of acquiring a plot and commencing the construction is expected to begin only after a gap of 10-12 months from the date of sale of the flat. Please let me know whether I have to keep the sale proceeds in any specified form of investment in order to avoid capital gains tax. If so, I would like to know which of these investments are and whether after parking the funds in these investments, I can withdraw them at will. GGD Menon, ggdmenon@eth.net

Sec 54 gives exemption from tax on capital gains arising out of sale (or transfer) of a residential house, self-occupied or not, provided the assessee has purchased within 1 year before or 2 years after the date of sale or has constructed within 3 years after that date, a residential house. If only a part of the amount required is used, the exemption would be pro-rata and the excess will be chargeable to tax.

Whenever a taxpayer acquired new asset before the stipulated dates as required u/ss 54, 54B, 54D, 54F or 54G, it was necessary to reopen original assessments for rectification. These hardships have been eliminated through a special account with banks called Capital Gains Accounts Scheme (CGAS).

The amount deposited in such an account before the last date of furnishing returns of income (or actual date, if earlier) along with the amount already utilised as required is deemed to be the amount utilised for the purpose.

Withdrawals can be effected from this account only for the purpose of purchase or construction of a residential house. If the amount is not utilised wholly or partly for the stipulated purpose, then the amount of capital gain related with the unutilised portion of the deposit in CGAS shall be charged as the capital gains of the year in which the period expires.

I understand that under the Wealth Tax Act, "Cash on Hand" in excess of Rs 50,000 with such an individual is includable under assets for determining the net wealth for wealth tax.

However, I am not sure what may be considered as "Cash on Hand" in this context. Is this only "currency" in ones possession (doesnt seem likely), or does it include balances in bank accounts - savings a/c, FDs etc How about uninvested credit balances in brokerage accounts

Secondly, are investments in any form of bonds (like ICICI Bonds) included under assets for wealth tax purposes

If not, why is it that only the GOI Relief Bond features highlight their exemption from wealth tax, while others like ICICI Bonds do not mention any such exemption Krishnamurthy Balasubramanian, kbalasubramanian@worldbank.org

Cash on Hand means precisely that; hard currency in ones possession. Please understand that any investment in productive asset is exempt from wealth tax. The bank accounts, FDs, ICICI bonds are treated as productive assets.

I am a lecturer in a local college. This year I have a lot of doubt regarding my income tax computation. Hence I request you to inform me the relevant laws on following points.

1. Standard deduction limits.
2. Rates of income tax.
3. Limit of investment u/s 88 and rebate available.
4. Limit of investment in Infrastructure Bonds etc
Shriram M Chauthaiwale, atharva86@yahoo.com

1. Standard Deduction: An ad-hoc deduction of 33 1/3 per cent of the salary is available with a ceiling dependent on salary slabs as follows:

2. Income Tax Rates - Individuals & HUFs: Surcharge @5 per cent on tax computed after deductions of rebates is levied only if the net total income is over Rs 60,000.

The tax payable along with the surcharge, on excess income over Rs 60,000 is limited to the excess over Rs 60,000. Surcharge is payable by both Residents and NRIs. Surcharge has been increased from 2 per cent to 5 per cent by the recent FA02 and is applicable to i) normal tax ii) advance tax iii) tax on long-term capital gains and iv) TDS.

3. The rebate on investments u/s 88 is: A. 30 per cent for employees whose salary i) does not exceed Rs 1 lakh before deductions u/s 16 (standard deduction and professional tax) and ii) is not less than 90 per cent of his gross total income (before deduction under Chapter-VIA) from all sources. This change was effected by FA01.

B. 20 per cent for those with gross total income of Rs 1.5 lakh or less.

C. 15 per cent for those whose gross total income is more than Rs 1.5 lakh but does not exceed Rs 5 lakh and

D. Nil; yes, nil for those with more than Rs 5 lakh gross total income. Most harsh indeed.

The aggregate contribution to all these schemes qualifying for deduction is subject to a ceiling of Rs 70,000. A higher qualifying limit of Rs 1,00,000 is applicable to infrastructure-related instruments.

The tax-saving bonds of ICICI/IDBI with a lock-in of as low as 3 years serve the best. The individual limits for PPF and ELSS schemes are Rs 60,000 and Rs 10,000 respectively only within the overall limit of Rs 70,000 u/s 88. Any repayment made by an individual or HUF towards loan availed for purchase or construction of a residential house, (not necessarily self-occupied) qualifies for the deduction with a ceiling of Rs 20,000 subject to the overall monetary limit of Rs 70,000.

4. An assessee can invest the entire Rs 1 lakh in Infrastructure Bonds to claim the maximum rebate u/s 88.

(The author may be contacted at anshanbhag@yahoo.com)