TAX TALK-01.02.2016-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
Ownership of land is not a pre-requisite for having agricultural income
Query 1]
- Sir, My uncle is an agriculturist. Due to his old age he is unable to cultivate land. He proposes me to do cultivation & I would be getting 50 % of the produce. He is filing his IT Return regularly as he has other income of interest and house property. I am running my business presently. Myself also an income tax payer. My queries are:-
a] Can I do cultivation on uncle’s land?
b] What will be the position of my tax payment with agriculture income?
- Ours is a registered partnership firm with five partners. Deed had been executed on stamp paper, with capital of Rs. Five Lac of each partner (Total capital of Rs. 25 lacs). Partners are two pair (Wife & Husband) and mother. Two partners has been shown as working partner, but nothing has been mentioned about salary or remuneration to working partner in partnership deed. My query is:-
a] Can we give salary of remuneration to working partners in present contest?
b] Profit share of wife and husband can be clubbed for tax purpose.
Please clarify. [Abhay Jain-kreftfurniture@gmail.com]
Opinion:
Agricultural Income:
Tax free income carries smile on the face of taxpayer. It is the first choice of every taxpayer. India is primarily an agricultural based economy. Agricultural income earned by a taxpayer in India is exempt under Section 10(1) of the Income Tax Act, 1961. However, while computing tax on non-agricultural income, agricultural income is also required to be taken into consideration.
It may be noted that any income from land can be treated as “Agricultural Income” if the following three conditions are satisfied:
1. Rent or Revenue should be derived from the land
2. Such land is one which is situated in India
3. Such land is used for agricultural purposes.
It is not necessary that the recipient of revenue should be the owner of agricultural land. Ownership of land is not a pre-requisite for having agricultural income and it would suffice if revenue is derived from agricultural activities carried out on an agricultural land situated in India.
In the present query, you can carry on the cultivation in the agricultural land owned by your uncle. Even if you are carrying out agricultural activities on the land not owned by you, still income therefrom would be considered as your agricultural income.
Deduction towards Salary to Partners:
Remuneration /salary paid to partners can be allowed as deduction in the hands of the firm, subject to the following conditions:
1. It is paid only to a working partner
2. It is duly authorized by the partnership deed.
3. It is not pertaining to any period prior to the period of partnership deed
4. The amount is not exceeding the permissible limit.
In your specific case,
1. Since the partnership deed doesn’t authorize the payment of remuneration/salary, the payment would not be allowed as deduction in the hands of the firm. To get the deduction, amend the partnership deed with above conditions/stipulations in mind.
2. Husband & wife are two different persons when they are admitted as partners in the partnership firm. The clubbing provision, in normal course, would not be applicable in such cases.
Query 2]
I’ve PPF account for myself, my son (minor account under my guardianship) and daughter (minor account under my guardianship). I invested Rs. 1.50 Lacs in my PPF account for 80C income tax deduction every year. Can I still invest in my children’s minor PPF account after investing Rs. 1.50 Lacs in my own PPF account? Is there any PPF rules that after completing my own Rs. 1.50 Lacs limit and if I invest additional money in my children’s account in the same year, then it would clubbed together with my PPF account and the interest will not be paid by Government for additional money invested in minor’s PPF account? If above is the case, can I wait till my children’s become major and then my children’s can claim interest for their PPF accounts? Please suggest.
[krunal.shah@ebix.com]
Opinion:
Taxpayer should opt for the investments that generate tax-free income. Public Provident Fund (PPF) is one of the most lucrative time tested tax saving risk free investment option for the millions of Indian taxpayer. PPF purely operates on EEE (Exempt- Exempt- Exempt) model i.e., Investment in the PPF account offers tax deduction, Interest of PPF account is tax free and amount withdrawn after maturity is also tax free. Besides tax benefit, it is also safe, secured & offer good returns.
Account opening:
One person can have only one PPF account. However, under PPF scheme the guardians of a minor child can open a PPF account on his/her behalf. Further, either father or mother can open PPF account on behalf of his / her minor child, but both cannot open the account for same child. HUFs were allowed to open PPF account till 13th May 2005 but thereafter they were made barred from opening account. Any account opened prior to that date shall be continued till the maturity but cannot be extended.
Investment Ceiling:
As per PPF rules, one can deposit a maximum of Rs 1.50 Lacs per year in the PFF account (including the account wherein such individual is a guardian also). The maximum limit for investment in PPF account for all accounts taken together is Rs 1.50 Lacs. In all, one can invest / claim only Rs 1.50 Lacs for tax exemption whether in his own PPF account or in the account of a minor or both. Many people deposit more than Rs 1.50 lacs in a financial year. Such excess amount will not earn any interest. So it is always better to not exceed the limit of investment. The ceiling of Rs. 1.50 Lacs is applicable only till the minority of the child. You can invest in all the PPF account (yours and 2 minors A/c) in such a way that overall investment doesn’t exceed Rs. 1.50 Lacs p.a. Deduction u/s 80C would be available to you against deposit in your PPF A/c as well as in the PPF A/c of minor, subject to overall cap of Rs. 1.50 Lacs.
[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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