This is an article published in Financial
Express with very useful information on retaining Income Tax Exemption and
deductions availed by an income tax assessee. The following Income Tax
exemptions and deductions are availed in common by salaried employees. However,
non-fulfilment of conditions imposed under Income Tax Act with respect to these
exemptions by which the tax payer would become ineligible for such Income Tax
Exemptions.
PF withdrawals within 5 years.
An employee’s contribution to PF is eligible
for deduction up to R1.5 lakh per tax year. However, if the amount is withdrawn
before five years of continuous service (except when service is terminated due
to employee’s ill health or by contraction or discontinuance of employer’s
business or for reasons beyond the employee’s control), the deduction claimed
stands withdrawn. In such a case, the contribution would become taxable in the
year of withdrawal. Even employer’s contribution, together with the accrued
interest thereon, which was exempt earlier, would become taxable as ‘profits in
lieu of salary’ and the interest on the employee’s contribution would get taxed
as ‘Income from other sources’.
Selling a house bought on loan within five years.
If an individual sells a house acquired with a
home loan within five years from the end of the tax year in which the
possession is obtained then, upon such sale, the deduction under Section 80C
towards principal repayment of the house property (to the extent claimed in
earlier years) would be taxable in the year of sale. However, the deduction for
interest claimed on the housing loan would not be withdrawn.
Discontinuance of a life cover within two years.
The premiums paid towards a life insurance
policy are eligible for deduction under Section 80C. However, if the policy is
discontinued within two years, the deductions claimed in earlier tax years
would become taxable in the year in which the policy is discontinued.
Non-fulfilment of conditions for Long Term Capital Gains Exemption
Under the Act, gains on sale of certain
long-term capital assets may be claimed as exempt by investing them towards
acquisition of another prescribed asset. The asset(s) needs to be acquired
within the time prescribed. The amount unutilised towards the acquisition of
the prescribed asset(s) needs to be deposited in a Capital Gains Account Scheme
within the due date of filing the return or the date of filing the return,
whichever is earlier. If the amount so parked in the aforementioned scheme is
not utilised within the prescribed time towards acquisition of the prescribed asset,
the unutilised amount would become liable to capital gains tax at the end of
the specified period.
Further, if the asset so acquired is sold
within three years from the date of purchase, then, for the purpose of
computing capital gains in respect of the new asset, the cost of the asset will
be reduced to the extent of capital gains claimed as exempt.
The non-fulfilment of conditions for claiming
deduction/exemption need to be reported in the return for the tax year, and tax
thereon needs to be paid. The taxpayer could invite penalty if the same is not
disclosed in the return.
Source: The
Financial Express
