There is an option available to offer interest income for tax on accrual basis or receipt basis, at the discretion of the assessee. In case you are following the accrual basis of accounting, the interest income is to be reported at the end of every financial year.
I have been depositing Rs 20,000 per month in RDs since September 2019. The maturity amount will be Rs 5,16,396 after two years. Accrued interest statements are given for the financial year. Is income tax payable for each financial year on accrued interest or once on getting the maturity amount?
Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP replies: Whether the interest is to be reported every year or upon maturity, depends on the method of accounting chosen by the assessee. There is an option available to offer interest income for tax on accrual basis or receipt basis, at the discretion of the assessee. In case you are following the accrual basis of accounting, the interest income is to be reported at the end of every financial year. In case the cash system of accounting is being followed, the entire interest income can be reported upon maturity of RD. It is always advisable to report accrued interest income every year to avoid mismatch of TDS. With the accrual system, the overall income offered to tax shall be in the lower slab rates compared to cash system whereby the entire interest income might push the total income to higher slab rates.
I am an NRI. I want to transfer a gift of Rs 10 lakh to my son’s bank account. He is a resident Indian. What will be the tax implications for him? Can he subsequently use the money to invest in stocks and funds?
Shubham Agrawal Senior Taxation Advisor, Taxfile.in replies: Gifts to your children are exempt from tax in India. There will be no tax liability on your son for this amount. This exemption is clearly laid out in section 56(2) of Income Tax Act, 1961. It would be ideal to execute a gift deed for this transaction. He can invest the amount towards purchase of mutual funds and investment in stocks.
I co-own a debt-free home in Mumbai with my wife, where we live currently. We are now planning to buy another home in Navi Mumbai as co-owners and will be applying jointly for a home loan. What will be the income tax benefits for this home loan considering we will still be residing in our old house?
Shubham Agrawal Senior Taxation Advisor, TaxFile.in, replies If the second house property is let out then you will have to offer the rent proceeds to tax, otherwise it will be deemed to be let out and you will need to offer a notional rental value to tax. From this, you and your wife will be able to claim the entire interest paid on the home loan in the relevant year. If the home loan interest paid is more than the rental value and standard deduction of 30% thereof, you can claim the set-off of balance from other heads of income up to Rs 2 lakh. Any unadjusted loss can be carried forward for eight assessment years. Over and above this, the stamp duty, other registration charges and principal portion of home loan instalment can be claimed under the overall limit of Rs 1.5 lakh under 80C by both you and your wife.