TAX GURU: 'Is my employment compensation tax-free?'

'I've lost my job in 2020, and continued job at a lesser salary as a consultant. Also, I received 3 months' salary as compensation.
Is this compensation exempt from tax?'

Anil Rego, CEO, Right Horizons, answers your personal income tax queries.

Suryaprasad Raval: Sir, My wife is 70 years old housewife. She earned 380000 rs by selling mutual fund (ltcg) and she have no other income. She never submitted IT return. Is it compulsory to submit IT return for this income?

Anil Rego: Yes, you need to file returns using ITR 2. The long term capital gain is subjected to income tax @ rate of 10%+Surcharge/Cess, post 1 lakh of gain and considering grandfathering rule.  One can also claim the basic exemption.

Kumar: I've lost my job in 2020, and continued job at a lesser salary as a consultant. Also, I received 3 months' salary as a compensation.

Is this compensation exempt from tax, if so on what head I need to file. The salary received as consultant how to calculate my tax exemption?

Anil Rego: Any kind of compensation received as part of your employment will be taxable as salary income. This should be filed under the head of salary income.

The consultancy income is taxable under the head of Business or Profession.  This head allows you to reduce expenses linked to business or profession like rent of office, telephone, conveyance expense, repair and maintenance, depreciation of vehicle for business use, depreciation on compute, photocopies, printers etc. If you use these provisions, it will be more tax efficient than salary income.

K Amroliwalla: I read your reply to one of the queries whether capital gains can be set off against purchase of property. As you have explained, the exemption/setoff is permitted u/s. 54F. I have a similar query, but my question is:

Can the exemption u/s. 54F be claimed only on purchase of an ownership flat? Will I be permitted to claim set off u/s. 54F against purchase of rental/tenanted property? There would be a proper agreement with payment of stamp duty and registration fees, etc., completely legal transaction with full payment by cheque.

Please let me know.

Anil Rego: Benefit u/s 54F can be claimed for any Long Term Capital Gains that accrues to you other than from sale of house property.  (In case of Long Term Capital Gains from house property, one can claim benefit u/s 54).

In both cases, the reinvestment needs to happen in a house that is already built or under construction.

John James: I am filling ITR2 for the first time. How do I show the value of my flat and car? Purchase value or market value?

Anil Rego: You need to show the purchase value.

Raiyan Alam: Subject: TDS on purchasing property from US citizen. I am based out of Telangana and I am purchasing a residential flat in Telangana from a USA citizen who held an Indian passport until 5 years back. What all TDS do I need to deduct while making transaction?

Anil Rego: The Indian Resident purchasing a property from NRI is required to deduct TDS as follows:

1. TDS is to be deducted by the buyer as per provisions of section 195

2. In case the property is held for more than two years, then there would be Long Term capital gain and TDS would be deducted at the rate of 20% +surcharge/cess.

3. In the case of Short Term capital gain, TDS would be deducted at the applicable Income tax rates slab (based on total income of seller (i.e. NRI) in India).

4.  If you search online, you will get various tables with the effective tax rates (including surcharge and cess) to deduct TDS depending on whether it is Long Term / Short Term; and other factors.

Do you have any personal income tax query? Please mail us at getahead@rediff.co.in with the subject line 'Ask Anil' and Anil Rego will answer all your tax queries.

Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.

You can find more of Mr Rego's answers here.