ASK ANIL: 'Do I have to pay tax on EPF interest?'

'Please let me know until which year I will continue to get interest and the best time to withdraw my EPF and the taxability of the same.'

Tax Guru Anil Rego answers your personal income tax queries.

KG Kutty: Is TDS applicable for senior citizens' bank accounts if interest income exceeds Rs 10000/- but is less than Rs 50,000?

Anil Rego: TDS is applicable for the interest income earned on fixed deposits. In your case, we suggest to submit form 15H at the beginning of the year to prevent TDS deduction.

Form 15H is applicable for depositors with age above 60 and annual income less than 3 lakhs and also resident Indian.

Pinaki Gupta: I left my corporate job on 28th June 2019 after working in the company for 19 years. After that I started my own venture and since it’s a start-up I don’t draw any salary. Thus there is no contribution to my PF account post 28th June 2019.

I do not wish to withdraw the PF money for now. So wanted to know do I have to declare the interest on PF earned as income and pay income tax on the interest.

Anil Rego: Your EPF account is eligible to get interest even if there is no fresh contribution till the retirement even without contributions. In case of retirement and where corpus is not withdrawn, post 3 years, the account becomes inoperative and no interest is paid. Hence, you can make periodic small withdrawals so as to continue to earn interest.

Interest earned on the account will become taxable in case there is no fresh contribution to the account. You can declare it under income from other sources.

Peter Cherian: I started my new Employee PF account in December 2005 and have been contributing until August 2017. At the age of 53, I moved out of the corporate. I received my PF interest in October 2018 for the financial year 2017-18 and in October 2019 for the financial year 2018-19. I am awaiting the next PF credit. I do not intend to get back to job. Please let me know until which year I will continue to get interest and the best time to withdraw my PF and the taxability of the same.

Anil Rego: Your EPF account is eligible to get interest even if there is no fresh contribution till the retirement age of 58. In case of retirement where PF corpus is not withdrawn, post 36 months, the account becomes inoperative and no interest is paid. The interest earned during this period (36 months) may become taxable in your hands. Hence, you can make small periodic withdrawals so that the account is still operative.

You may choose to hold EPF corpus till the age of 58, and enjoy high interest rate of EPF.

Abdul Azeem: I am an Ayurvedic doctor, having private practice with monthly income of Rs.30,000/- to Rs.40,000/-. Please suggest the following:

1) How much of my income is taxable?

2) What are the proofs/documents I have to maintain with regard to my income?

3) What are the tax deductions I can avail?

4) Types of savings I can choose, for tax exemptions.

5) Can I file the tax return by myself, or should I approach a tax consultant/C.A?

6) Which ITR form should I use?

Anil Rego:

1. We suggest you to opt for presumptive tax scheme under section 44ADA of IT act as your professional income is below 5o Lakhs p.a. and you are eligible to deduct 50% of gross revenue and remaining is subject to taxation.

2. You are not required to maintain books of accounts if you opt for presumptive income under sec.44ADA. But we suggest you maintain cash book, ledger a/c (with day to day transactions), and original bills or receipts of value more than Rs.50 value. To track your income and expenditure.

3. You cannot avail any deductions if you go in for Presumptive tax scheme

4. No. exemptions allowed if opt for Presumptive income (sec.44ADA).

5. You can file your tax returns or use a tax consultant based on your comfort.

6. You need to use the Sugam ITR-4S.

Alternatively, you can also choose to file normally capturing your expenses linked to your private practice and also using various deductions.

Balla Kumar: I am retired from private services. 

I lost my wife on 23 Dec'2019. She files IT Returns and for the AY 2020-21 I filed her returns as representative. I too file IT Returns every year. I have not yet filed my returns for the AY 2020-21 since I have a query on the amount of bank and post office fixed deposits, LIC's PMVVY and two MFs of my wife.

As a nominee I received an amount of Rs 73,99,082 for all the fixed deposits of banks and post office, LIC PMVVY of my wife. The two Mutual Funds of Rs 33,31,316 of my wife also transferred on my name.

My queries are:

1. Do I have to show the above in my Tax Return?

2. If I show it, is it taxable?

3. Which ITR form should I use to file the returns for AY 2020-21?

I will be highly grateful for your help and guidance on this sir.

Anil Rego: Since you have inherited the assets of your spouse as a legal heir, you need to pay tax on any income from the assets of your spouse after her demise. However, you don’t need to pay any tax on transfer of assets to your name, as there is no estate duty currently.

Only the interest/returns earned or the capital gains when you exit capital assets would have to be added in your return.

If your annual income is more than Rs.50 Lakhs, you need to disclose all the assets owned by you (incl. inherited assets) in the ITR.

Mohan Seelam: I was holding some shares in a publicly traded company in the USA for about 7.5 years. Late last year I sold those shares and paid taxes on them in the USA. I paid 20% Long Term Capital Gains tax plus 3.8% Net Investment Income Tax (This tax started in 2013) in the USA. As you may know both these taxes are levied by the Federal/Central government in the USA.

While filing taxes in India for AY 2020-2021, I know I can claim a Foreign Tax Credit upto the 20% Long Term Capital Gains tax that I paid in the USA. Can I also claim a Foreign Tax Credit for the 3.8% Net Investment Income Tax that I paid in the USA?

Anil Rego: As per CBDT (Central Board of Direct Taxes) notification on Foreign tax credit (FTC), if you have paid excess tax on income arising from foreign country, such excess shall not be considered.

FTC shall be lower of either Tax payable under provisions of tax treaty Or Foreign tax paid on such income.

Balraj.H.S: I have retired from service 31st Oct-2019. My company was covered under payment of gratuity act 1972.

I have received Rs 1876910/-

My company has mentioned Rs 911642/- as tax exemption and the remaining amount was taxed.

I have cross checked with the exemption limit using income tax gratuity tax calculator. it shows my tax exemption limit as Rs 1051895/-. 

My employer says you are not paid as per gratuity payment act. The company is covered under the act. I do not know other provisions of my company if any.

Please advise me the method of calculation 

Anil Rego: As per the latest amendment to Gratuity act 1972, least of the following is exempt from tax:

1. Actual Gratuity received
2. Rs. 20,00,000 (which has been hiked from Rs. 10 Lakh as per the amendment)
3. Last salary (basic + DA)* number of years of employment* 15/26

We suggest computing as per above provision and claim tax exemption.

MILIND KALHAPURE: My home loan interest component for FY 2020-21 is 3,01,473.00. Under section 80C of the Income Tax Act, the interest paid is deductible up to Rs 2 lakh per annum under section 24. But if the house is rented can we get benefit above 2 lakh? If yes, let me know how to claim it.

Anil Rego: From AY 2018-19, set off of losses due to let out property interest is restricted to Rs 2 lakh, in line with that of a self-occupied property.

HUSHIDER MUNSHI: A company whose shares I own has made it compulsory for all its shareholders to surrender all the shares under its 'EXIT Offer'. As this is an off market transaction the proceeds of this transaction would be taxable. Could I save tax by investing the entire proceeds Under Section 54EC Capital gains bonds to avoid paying any tax. The date of purchase of the shares is December 1998?

Anil Rego: As per Budget 2018, Government has restricted scope of Sec.54EC to LTCG from land or Building or both. You cannot utilise the benefit of this section. Since, holding period of unlisted shares is more than 24 months, you can utilise the benefit of indexations and pay tax of 20% on long term capital gain.

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.