Living allowance is fully exempted from tax net
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Q) In my income-tax return for 2009-10, I have claimed for an exemption from the payment of capital gains tax under Section 54. In order to claim exemption under Section 54, I was told that the properties in question have to be residential in nature and the property involved in sale, has to be held for a minimum of three years from the date of acquisition.
Otherwise, either the new property has to be purchased within 24 months of sale of the original property or the original property has to be sold within 12 months of purchase of the new property.
I comply with all requirements mentioned in the section.
The properties involved in the sale and purchase are for residential purposes only. The original property is held for more than three years before sale as it was purchased in June 2005 and sold in January 2009. The original property is sold (January 2009) within twelve months from the date of purchase of the new property (April 2008).
I would like to know if I am eligible to claim exemption from capital gains tax.
Subramanyam, Via e-mail
A) Your overall view on the applicability of Section 54 for investment of long-term capital gain towards the purchase of a residential house is correct. It may be mentioned here for the benefit of the readers that the construction of a residential house within a period of three years from the date of sale of old property is also permissible.
Q) My cousin was working in India for an Indian company. The company sent him to Germany in 2008 to execute a project for a foreign client. He stayed there from June 5, 2008, to March 1, 2009.
He received living allowance and house rent allowance (in euros) during his stay in Germany. The company credited his Indian salary in rupees to his Indian bank account during the entire financial year. At the end of the financial year, the company provided him the Form 16. It considered only his salary as his total income. There was no mention about allowances given to him in Germany in the Form 16.
He has filed his IT returns with this Form16. Does he have to add living and house rent allowa-nces, which he received in Germany to his total income and then calculate his taxes?. If yes, then is there any way to submit revised returns now.
Joydeep Bhar, Via e-mail
A) Any allowances granted to an employee, other than those as specifed under Section 17(2) of the Income Tax Act, to meet his personal expenses at the place where duties of office or employement for profit are ordinarily performed by him or at a place where he resides or to compensate for increased cost of living is totally exempted under Section 10(14)(ii) of the Income Tax Act. Hence, it is not necessary for you to submit a revised return due to the above allowances.
(Kamal Rathi is a chartered accountant, representing Rathi & Malani, a Hyderabadbased accounting firm. Readers can mail their queries on income tax to kamalrathi.ca@gmail.com)
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