Department is will not levy penalty in cases of genuine difficulty

Written by AN Shanbhag | Sandeep Shanbhag | Updated: Dec 1 2009, 04:48am hrs
I would be highly obliged if you guide me on the following query. I got into an agreement to purchase a flat on 6 November 2006. I have decided to sell that flat now that the building has just got completed. I havent paid stamp duty or registration charges and neither have I taken possession of the said flat. I am a salaried person and fall in the highest tax bracket. I plan to re invest the amount from sale of flat into buying another property.

In this regard, how will the tax be calculated As three years have passed since the date of agreement will it still be short term capital gain tax If I invest in another property can I avoid paying tax all together


It is our opinion that --- you have earned a right to own a flat when you pay the very first installment. The cost of acquisition of this right is the total cost of the flat at which the agreement with the builder is signed. The fact that you did not pay the entire sum in a lump sum is immaterial and inconsequential.

If you sell the property before the flat is ready for possession, you would be earning capital gains. The cost of the acquisition of this right is the total contracted price less, the balance installments to be paid. The long-term or short-term nature will depend upon whether the period of three years have elapsed from the date of the contract.

The amount paid (although paid in installments) will be indexed from the date of the contract.

After the house is ready and you have taken possession, it becomes a different asset. The clock for long-term or short-term starts once again from the date of your taking possession and the cost of acquisition is the total payments made to the builder. You have to index the total amount from the year of possession of the flat.

Yes, you can claim the benefit of exemption u/s 54F from the tax on long-term capital gains by investing the net sales proceeds in buying another residential property (a house) within 2 years from the date of transfer. If you invest less than the total sales proceeds proportionate exemption will be available.

Recently I have heard and read quite a lot about Exchange Traded Funds (ETFs). Where and how can one buy these ETFs


Exchange Traded Funds are mutual funds that can be bought and sold on the stock exchange. The units will be held in the demat form. For this you will need a demat account and registration with a broker / sub-broker. Then, just the way one buys stocks, one can buy an ETF. ETFs are of various kinds where the underlying could be the stock market index or the banking index or even an asset like gold.

I need a clarification from you regarding the tax implications of REC Bond interest.

On the sale of my property in India, I invested in REC Bonds in January 2007. These will mature in January 2010. According to REC records they issued interest warrants in July 2007 and July 2008. These warrants were not received by me or by my bank even though an ECS code was assigned for my account. Bank statements and Form-16A for TDS for 2007 and 2008 do not show any interest payment from REC and was therefore not reported to Indian Income Tax Dept.

If REC eventually pays the cumulative interest before March 2010 after their investigation and this is reflected in the Bank TDS Form16A for 2010 I will be reporting this income in my income tax returns in 2010.

My question is whether there will be any penalty imposed for not reporting income not received although due in the particular taxation years 2007 and 2008. The IT website does not provide any information on this scenario.

Mohan Rao

You can pay tax on this interest as and when the problem gets solved and you receive the interest. It will be paying tax on a receipt basis instead of accrual basis. The Tax Department is unlikely to levy any penalty on you since you were facing a genuine difficulty. You will have to follow up with REC assiduously since it appears that a wrong ECS code has been supplied to the system and the interest is being possibly credited to some one elses account.

I am a retired CPMF officer. My present age is 63 plus. My gross income for 2009-10 would be around Rs. 3.25 lakh, which includes besides pension, interest on PO MIS, interest on FD in a nationalised Bank, second and final installment of revised pension arrears, bonus amounting to Rs. 50,000 received from PO on maturity of MIS matured in June 09 and SB a/c interest. I spend approximately Rs 3,500 monthly on medicines, lab tests, doctors fee etc on self and my wife (a house wife), while I receive a mere sum of Rs 100 as medical allowance per month. I pay an annual LIC premium of Rs 32,674. After depositing other Rs 67,500 in some tax saving scheme, to make it a total saving of one lakh, I presume I shall still have to pay around Rs 6,000 as income tax. Please advice how I can save the same. Incidentally I am a migrant from Kashmir valley resettled in Jammu after my retirement from active service. I understand GOI has declared tax holiday for Kashmiri migrants, exempting them from payment of any Income tax till further instructions. Please elucidate.

Kanaya Dhar

We are not aware of any exemption extended to migrants from Kashmir valley. Yes, there is a benefit u/s 10(26) but it is available if both of the following conditions must be satisfied

1. The person must be a member of scheduled tribe as defined by Article 366(25) of the Constitution of India and,

2. He should be residing any area in the state of Nagaland, Manipur, Tripura, Arunachal Pradesh, Mizoram or districts of North Cachar Hills, Mikir Hills, Khasi Hills, Jaintia Hills and Garo Hills or in the Ladakh region of the state of Jammu and Kashmir.

In that case, any income which accrues or arises to him:

(a) from any source in the areas or states aforesaid

(b) by way dividend or interest on securities from all over India does not form of total income

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