V B Prabhu Verlekar
Q. A Goa political leader reportedly visited London at the invitation of a Goa-for-Goans Association registered in the UK. The association reportedly collected £10,000 through donations from foreign citizens as well as NRIs to support the forthcoming Goa Assembly elections. Can such funds legally be used for election purposes in Goa under the FCRA?
Joaquim Braganza, Fatorda, Salcete
Under the Foreign Contribution( Regulation )Act, a donation from an Indian citizen residing abroad (NRI) is not treated as foreign contribution merely because it is remitted from abroad. However, a donation from a foreign citizen, including a foreign citizen of Indian origin/OCI, constitutes foreign contribution.
Section 3 of the FCRA prohibits a candidate for election from accepting foreign contribution and also restricts foreign contributions to political parties. Therefore, if the £10,000 contains donations from foreign citizens and that portion is intended to finance an election campaign, its transfer or utilisation for a candidate or political party could raise serious FCRA issues. Section 35 provides for imprisonment up to five years, or fine, or both, for specified violations, while Section 36 provides for additional penalties where foreign contribution liable to confiscation is not available. Mere participation of the political leader at the London event is not, by itself, an FCRA violation.
Q. We returned to Goa from Kuwait during the Iraq war and have settled in our own bungalow at Dona Paula. We are senior citizens and, although we have substantial savings and our own house, the income from bank deposits is no longer sufficient to meet our lifestyle expenses. We do not wish to depend financially on our children. Is there any option to have more income other than by selling our bungalow to supplement our regular income?
Alfred J. Correia, Dona Paula
Yes. A reverse mortgage loan scheme is intended precisely for senior citizens who own a residential property but need additional cash flow during retirement. Generally, a person aged 60 years or above can mortgage a self-occupied house with an eligible lending institution and receive periodic payments, subject to the lender’s terms and valuation of the property.
The biggest attraction is that the borrower can continue living in the house till lifetime of himself and his/her spouse till death, without repaying loan and interest thereon during their lifetime. The loan normally becomes repayable after the death of the borrower(s) and his/her spouse. The legal heirs can settle the outstanding loan with accrued interest and retain the property; otherwise, the lender recovers its dues by selling the property in auction. The surplus if any is given to legal heirs.
There is also an important tax advantage. Amounts received under a reverse mortgage are exempt from income tax under Section 10(43) of the Income-tax Act, 1961. For a senior citizen who is “house-rich but cash-poor,” reverse mortgage can therefore provide financial independence without selling the family home.
Q. Our Ganesh Mandal is organising a lottery in which the first prize is a car. Since the prize is wholly in kind, how should TDS be collected from the winner? What will be the applicable tax rate, surcharge and cess, and can the car be handed over before payment of the tax?
Rohan S Gaonkar, Quepem
Lottery winnings are taxable at the special rate of 30% under section 115BB of the Income Tax Act, irrespective of the winner’s normal income-tax slab. In addition, surcharge, wherever applicable, and 4% health & education cess are payable. For an individual, surcharge is generally 10% where total income exceeds Rs 50 lakh, 15% above Rs 1 crore, and 25% above Rs 2 crore under the applicable regime. Where the prize is wholly in kind, such as a car, the organiser cannot deduct tax from the car. The Mandal must ensure that the tax payable on the winnings is paid before releasing the prize.
For example, on a car valued at Rs 10 lakh, the basic tax at 30% is Rs 3 lakh, plus applicable cess and surcharge, if any. The winner must pay the resulting tax amount before taking delivery. The Mandal should then deposit the tax and provide the appropriate TDS credit. The car value should be declared by the winner under the head, Income from other sources and TDS paid can be claimed as credit against the final tax due.
Q. I have sold a plot for Rs 1.20 crore, whereas its stamp-duty value is Rs 1.30 crore. Since the stamp-duty value is higher than the actual sale price, which amount will be considered for calculating my long-term capital gain? Will the same amount also determine the TDS to be deducted by the buyer, considering that I am a resident of India?
Nagesh M. Prabhu Desai, Pernem
Section 50C of the Income-tax Act deals with situations where the immovable property is sold for less than its stamp-duty value. Normally, the stamp-duty value is substituted for the actual sale consideration for computing capital gains. However, a 10% tolerance limit is available. In this case, the sale consideration is Rs 1.20 crore. Ten per cent above this is Rs 1.32 crore. Since the stamp-duty value of Rs 1.30 crore is within this limit, the actual sale consideration of Rs 1.20 crore will be taken for calculating capital gains. Thus, Section 50C will not increase the sale consideration for the purpose of computing capital gains to Rs 1.30 crore.
TDS is governed separately by Section 194-IA. Since the property value exceeds Rs 50 lakh, the buyer must deduct 1% of the higher of the sale consideration or stamp-duty value. Accordingly, TDS will be 1% of Rs 1.30 crore, i.e. Rs 1.30 lakh.
Q. My bank has deducted TDS on interest earned from my fixed deposits, but the deduction is not appearing in my Form 26AS. How can I claim this TDS while filing my income-tax return?
Avinash Sardesai, Agasaim
If the bank has deducted TDS, you should first obtain Form 16A from the bank and check the TDS details. Form 16A is the prescribed certificate for TDS on income other than salary.
However, for processing of your income-tax return, TDS credit is generally restricted to the amount appearing in Form 26AS. If the TDS is missing, ask the bank to verify its TDS return and file a correction statement so that the credit is properly reported against your PAN.
It is therefore advisable to get the correction made before filing the return. If the return has already been filed without the credit, the appropriate remedy may be a revised return or rectification, depending on the stage of processing.
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.
