Interest income should be added to salary income to arrive at tax slab

I was filling up form ITR-2. To my utter surprise I find that there is no provision in the form to show deduction of ‘Tax on Employment” i.e., Profession Tax paid. The deduction is, I think, permissible under Section 16 (iii).

Please let me know whether I am wrong or the form is erroneous. If the form is erroneous, please let me know where else on the form I can show this amount and claim deduction.

— Mohan

You are right, there is no separate space provided in the forms for Profession Tax. Therefore what you have to do is to take the net figure of income from Salary after reducing Profession Tax.

My income comprises of salary and bank interest. However, since my bank interest has crossed Rs 10,000, the bank has deducted TDS at the rate of 10.3%. If I fill ITR-1, then my interest income is added to my salary income for which the tax slab is higher at 20%. Can I file my return in ITR-1 or should I file ITR-2 to get the benefit of the tax already paid on interest income.

— T Antao

If you have only salary and interest income, you may file ITR-1. However, please note that your interest income should be added to your salary income to arrive at your tax slab. This is the way it is supposed to be done. Arrive at the tax that you are liable to pay and from that you should deduct the TDS. Balance tax if any is payable.

I have booked a house under construction in 2006 and had taken a housing loan for the same. The agreement doesn’t contain any clause about possession date. The builder claims he will give possession in this financial year, but I am not sure. The building is almost complete and the tiling, etc is going on.

Since the building is under construction, I have not claimed any tax rebate on the loan amount. The builder is ready to give me a letter stating that the house is ready and the interiors are going on. Will such a letter help me claim the tax benefit or do I need the actual possession letter itself?

—Bindu

Such a letter from the builder may not be sufficient. You are considered to have taken possession of the house, only when the income from house property becomes chargeable to tax. In other words, the construction should be complete, the flat should be ready for occupation and the municipal annual value should be known. If the construction gets delayed even by one day, the assessee gets penalised and the penalty is very heavy.

Luckily, in the case of 152CTR227(NB) 1999, Shashi Verma v CIT, the learned judge observed that the construction of the house should be completed as far as possible within the stipulated time. In modern days it is not easy to construct a house within this stipulated period and under government schemes construction takes many years. Therefore, if substantial investment is made in the construction of the house, then it should be deemed that sufficient steps have been taken and this would satisfy the requirements of Sec 54.

I have a query regarding income tax treatment on notice period salary, which has been reimbursed as per the case below.

I had resigned from my previous company and I had paid them 30 days salary in-lieu of serving the 30-days notice period.

The amount was reimbursed by my current employer after I joined here. But the same was included in my taxable salary and TDS deducted on that.

Please let me know whether this amount payable by my current employer is taxable and if so under which head? Alternatively, is there is any provision whereby we can claim deduction for this amount?

— Venkatesh Hegde

The amount reimbursed by your current employer flows out of your relation of employer-employee with him. It has to be considered as part of your salary and TDS has to be applied thereon.

Though you have not posed the query, let us take up the deductibility of the penalty you paid to your ex-employer for tax purpose.

This amount represents application of your income and therefore, it is not deductible. You have merely applied this income to discharge a liability.

We personally strongly feel that the salary earned flows out of the contract between employee and employer and so does the penalty. Therefore, it can be viewed as a negative salary. We pray for an amendment in the rules to fall in line with jurisprudence.

The authors may be contacted at wonderlandconsultants@yahoo.com