TAX TALK-21.12.2015-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
Age has special privileges in the Income Tax Law
Query 1]
I would be grateful to you if you could clarify on the status of an assessee when they become senior citizens in the middle of any month in that financial year? Whether such person who became senior citizens in the middle of the year, the basic tax exemption limit would be available on proportionate basis or full year basis? For example, in case a person becomes a senior citizen in the month of January in the financial year 2015-16 (Assessment year 2016-17), can he claim tax slab of that entire financial year under “senior citizen slab” for income tax exemption? [vravikanth7551@gmail.com]
Opinion:
Age has its privileges in the Income tax law. Not only benefit of higher basic exemption limit, senior citizen or very senior citizens are favored by the Income Tax Act by following additional tax bonanza:
a] Higher deduction u/s 80D towards mediclaim payment or medical expenditure
b] Higher deduction u/s 80DDB towards expense on medical treatment of specified ailments.
c] Exemption from payment of advance tax if senior citizens don’t have any income chargeable under the head “Profits and gains of business or profession”,
d] Forms 15G and 15H are the declaration forms to seek exemption from TDS on interest payment. Form No. 15H is for senior citizens whereas Form No. 15G is for non senior citizens. 15G cannot be filed by any person whose income from interest on securities/ interest (other than “interest on securities”) exceeds the applicable basic exemption limit. However, this is not so with Form No. 15H. Senior citizens can submit form No. 15H even if interest exceeds basic exemption limit provided his tax liability on the basis of his estimated income is nil. Effectively even if the interest from payer exceeds basic exemption limit (i.e., Rs. 3 Lacs & Rs. 5 Lacs for senior citizens and very senior citizens respectively), Form No. 15H can be submitted by senior citizens if the ultimate tax liability is nil as a result of deduction u/s 80C etc.
e] E-filing is made mandatory for individual if (i) the total income is more than Rs. 5 Lacs or (ii) if there is a refund claim. However, very senior citizens can file return in paper mode in such cases.
Income tax Act is very liberal as far as reckoning the person as Senior Citizens. It doesn’t matter whether the person was senior citizens at the beginning of the year or became senior citizens in the middle of the year. If a person attains the age of 60 years at any time during the year, he would be considered as Senior citizens (80 years for very senior citizens) and all the benefit available to senior citizens would be available without any limitations or restrictions. In nutshell, if a person attains the age of 60 years (or 80 years) even on 31st March, he would be bestowed with all the benefit of senior citizens in that financial year.
Query 2]
I am Resident Indian Woman Salaried, taxpayer of about 58 yrs working in a private, self funded engineering college. I was terminated from service on 16th June 2002 and was reinstated in service on 25th September 2004 by an order of Hon'ble Bombay High Court. On 6th November 2015, I have received an amount of INR 2,59,818 as back wages (by the order of Hon'ble Bombay High Court) from my employer, details of which are as follows:
| S.No. |
Period |
INR |
| 1 |
June 2002 - March 2003 |
77,546 |
| 2 |
April 2003 - March 2004 |
1,08,919 |
| 3 |
April 2004 – Sept-2004 |
73,353 |
| |
Total Rs… |
2,59,818 |
During above mentioned period, I was unemployed and having no income. My salary income for F.Y. 2015 - 16 is taxable. In addition to above mentioned amount , I also received an amount of INR 1,88,379 on 6th November 2015 as interest @ 6% p.a. on back wages from June 2002 to October 2015 (as per the order of Hon'ble Bombay High Court). Further, salary income received in -
| S.No. |
Period |
INR |
| 1 |
2002-03 |
19,625/- |
| 2 |
2004-05 |
29,367/- (After deduction) |
Please advise me the tax treatment of amount of back wages and interest received in November 2015. [Girija Maheshwari- gmrmrmacet@yahoo.co.in]
Opinion:
Interest received by you in the FY 2015-16 would be taxable in the current FY 2015-16 itself even if it is determined due to court order in the current financial year.
Similarly, arrears of salary / back wages, even if it may be pertaining to earlier years, shall be taxable as the income of the year in which it is received. However, in respect of arrears pertaining to FY 2002-03 to 2004-05 & received in the current year, you can get a relief provided u/s 89(1) of the Income Tax Act-1961 read with Rule 21A(2). Relief u/s 89(1) would almost nullify the excessive tax implication arising in the FY 2015-16 as a result of clubbing of earlier years salary income with current years income.
For mass benefit, I am elaborating the mode of computing relief u/s 89 in respect of Arrears Salary. The relief can be calculated by adhering to the point-wise steps as mentioned below:
1. Calculate the tax payable on the total income, including the arrears of salary, of the relevant previous year in which the same is received.
2. Calculate the tax payable on the total income, excluding the arrears of salary, of the relevant previous year in which the additional salary is received.
3. Find out the difference between the tax at (1) and (2).
4. Compute the tax on the total income after including the arrears of salary in the previous year to which such salary relates.
5. Compute the tax on the total income after excluding the arrears of salary in the previous year to which such salary relates.
6. Find out the difference between tax at (4) and (5).
7. The excess of tax computed at (3) over tax computed at (6) is the amount of relief admissible under section 89. No relief is admissible if tax computed at (3) is less than tax computed at (6). If the arrears of salary relates to more than one previous year, salary would be spread over the previous year to which it pertain in the manner explained above.
8. The required particular for relief u/s 89 is required to be worked out in Form No. 10E.
Coming to specific point of your query, it may be noted that
- In Annexure-I to form No. 10E, you have to mention total income & not gross total income.
- The figure of total income (in some cases like yours) of the relevant years without arrears would be required to be revised (vis a vis shown at the time of filing the return of income) on account of receipt of arrears. In short, in some cases, figure in (2) to table A of Annexure-I could be balancing figure also which could be arrived at by deducting (3) from (4).
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at
nareshjakhotia@ssrpn.com]
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