VB Prabhu Verlekar
Q. Our housing society has been offered free repairs, painting of the building and tarring of pathways by a local MLA candidate in expectation that members and their families vote for him during the upcoming elections. If the society members unanimously agree to accept the work, could there be any legal or election-related risk to the office bearers or individual members if a complaint is later made by rival candidates or authorities?
Gajanan S Sardessai, Caranzalem.
Accepting such benefits in return for votes may attract provisions relating to “bribery” and “corrupt practices” under the Representation of the People Act, 1951 and election laws. Even if the work is shown as voluntary social service or CSR-type assistance, any direct or indirect understanding linking the benefit to voting can create legal exposure for the candidate and, in some cases, society office bearers who formally negotiate or endorse such arrangements.
However, proving a vote-for-benefit agreement is often difficult unless there is written evidence, recordings, messages, public announcements or witness statements. Mere repair work or donations to a society are not automatically illegal. To reduce risk, the society should avoid passing any resolution asking members to vote for a particular candidate and should not issue political endorsements in official records or notices.
Q. I sold a plot of land for Rs 1 crore, whereas the stamp duty valuation fixed by the registration department is Rs 1.25 crore, which is more than 10% higher than the actual sale consideration. For the purpose of long- term capital gains tax, on which amount will capital gains be calculated? Also clarify the TDS liability of the buyer, considering I am a resident Indian at the time of sale.
Joaquim Salvador Dsouza, Siolim, Bardez.
Under Section 50C of the Income Tax Act, if the stamp duty value exceeds the actual sale price by more than the permitted tolerance limit of 10 per cent, the stamp duty value is deemed to be the full sale consideration for calculating capital gains. Hence, in this case, LTCG will be computed on Rs 1.25 crore and not on Rs one crore. As the seller is a resident Indian, the buyer is required to deduct TDS under Section 194-IA at one per cent on the higher of actual sale consideration or stamp duty value. Therefore, TDS should be deducted on Rs1.25 crore.
Q. My son has been employed in the Middle East for nearly two decades and, being a disciplined saver, regularly remits part of his foreign salary to his NRE account in India. Recently, the IT Department issued a notice asking him to explain the source of credits in the account. Since the deposits are from his overseas earnings and he is an NRI, can Indian tax authorities still question such transactions? What documents and legal provisions should be relied upon while replying to the notice?
Kadir Muzawar- Sanguem.
Yes. The Income Tax Department can seek clarification regarding substantial credits in any bank account, including an NRE account, under sections 142(1), 131 and 133(6) of the Income-tax Act, 1961. However, foreign income earned outside India by a non-resident is generally not taxable in India under Section 5(2). Your son should reply with copies of passport, visa, employment contract, salary slips, foreign bank statements, NRE account statements and proof of remittances. If deposits are genuine overseas earnings routed through banking channels, ordinarily no adverse inference should arise. Prompt and proper compliance with the notice is advisable.
Q. Political parties collect huge donations during elections, sometimes even in cash. Is there any legal ceiling on how much cash a political party can accept? What happens if the party violates these rules? Also, are political parties required to maintain accounts and file IT returns like ordinary taxpayers?
Pandurang Parab, Goa Velha.
Under Section 13A of the Income-tax Act, 1961, political parties registered with the Election Commission of India enjoy exemption from income tax, subject to strict conditions. One important condition is that donations exceeding Rs 2,000 cannot be accepted in cash. Such contributions must be received through account payee cheque, bank draft, electronic transfer or other prescribed banking channels. If a political party violates this condition, it may lose exemption on such income, which can then become taxable at the maximum marginal rate.
Further, political parties must maintain proper books of account, keep records of donations, and compulsorily file Income Tax Returns within the prescribed due date to continue claiming exemption under Section 13A.
Q. On the occasion of, Vocational Service Day, to celebrate 51years, the Rotary Club honoured five distinguished professionals- including a doctor, teacher, lawyer and social worker- for their outstanding contribution to society. Each awardee received a ceremonial purse of Rs 51,000 as a token of appreciation and public recognition. Since the payment was not for any professional assignment or contractual service, but purely as an honour and felicitation, will this amount still be taxable in the hands of the recipients?
Yes. Under Section 56 of the Income-tax Act, cash gifts or awards received from non-relatives exceeding Rs 50,000 are taxable unless specifically exempt. Since the Rotary Club is not a relative and the amount received by each professional exceeds Rs 50,000/- the sum will be taxable as, Income from Other Sources.
Q. I am a life insurance agent and earn around Rs 40 lakh annually as insurance commission. Since almost all my receipts come through bank transfers, can I file my return under the presumptive taxation scheme of Section 44AD by declaring only 6% income? If not, is there any other presumptive provision available for insurance agents like me under the Income Tax Act?
Gokuldas Mednekar, Khorlim, Mapusa.
Commission earned by a life insurance agent is taxable as profits and gains of business or profession. However, Section 44AD is mainly intended for eligible small businesses engaged in trading or similar activities and does apply to insurance commission agents. Further, Section 44ADA applies only to specified professionals such as doctors, lawyers, architects, etc., and insurance agents are not covered there under. Therefore, you may generally have to maintain books of account if your income exceeds prescribed limits. However, you can claim deduction for genuine business expenses such as travel, telephone, office expenses, staff salary, conveyance, and marketing expenses under Sections 30 to 37 of the Income Tax Act.
The writer is well established, senior practicing chartered accountant with wide experience in taxation and finance. He is also a strategist in turn round management of institutions.
