Compensation that is not income non-taxable

SC Vasudeva

Q. Please advise me on TDS. Consequent to a consumer court’s order, a builder in Punjab has to refund me principal deposit, plus harassment compensation, plus litigation expenses plus interest, all totaling around Rs 70 lakh.  

My queries are as under:

Is TDS deductible by builder?

 If yes, then on which component(s) of the total amount?

And at what rate? — Aditya D

A. TDS should be deductible on the amount of interest payable to you by the builder @10%.  The amount refunded to you in respect of your deposit would not attract TDS provisions. The amount of compensation not being in the nature of income should not be taxable as the same is not in the nature of an income. TDS provisions should therefore not be applicable to the amount of compensation paid to you. (b) & (c)  In view of the reply in (a) given above, the queries raised in (b) & (c)  would not arise.

Q. On the basis of Supreme Court judgment in the RC Gupta case, the PF department sent a letter to the department concerned for exercising joint option to be signed by employees and employer for diversion of contribution over and above the ceiling amount to pension fund. The scheme was started in 16/11/95 when only contribution was transferred on the ceiling amount which was 8.33% of Rs 5,000, which subsequently increased to Rs 6,500 (Rs 416 and Rs 541). The EPFO was giving pension ranging between Rs 2,000 and Rs 2,500 on this amount.

In view of the Supreme Court judgment, the diversion of contribution was allowed on full salary i.e. basic plus DA. The joint option was exercised by employees on the basis of which demand notes were raised by the EPFO for transfer of higher contribution along with interest for allowing higher pension with retrospective effect. Accordingly, funds were deposited by employees of our and other departments. The pension was revised accordingly and arrears were also paid. It is mentioned that the scheme was applicable for those who retired prior to 31/08/14. My query is as under:

Whether whole amount of arrears is taxable. Can we deduct the amount paid to EPFO for getting higher pension? The EPFO has filed a revision petition in the Supreme Court u/s 26(6) of the EPF Act which provides that option for diversion of contribution can be exercised only when the employee is in service. If the above contention of the EPFO is accepted then the higher pension may be discontinued and old pension may be restored. As the matter is pending in the Supreme Court, can we delay the tax liability subject to decision of the court which may reverse the old judgment. Kindly advise. — LK Singla

A. The issue raised by you is with regard to the tax liability of the arrears of pension from provident fund authorities.  There is no denial of the fact that this aspect of the matter is also linked to the tax liability of pension from provident fund authorities. In this regard, I invite your kind attention to my telephonic conversation with you. I had pointed out to you that the issue with regard to taxability of such pension is debatable. However, in view of the department being of the view that the pension so received by a person is taxable, it may not be worthwhile to litigate with the department in view of the costs involved. 

Therefore, taking into consideration this aspect, the amount of arrears of pension would also be taxable.

Q. My daughter has shifted to the UK. She has a house in Hyderabad with her husband (joint name) and has been given on rent. The rent is credited to the account of her husband’s name every month.  Can my daughter or her husband gift this amount to her mother (i.e. daughter’s mother) or not.  If yes, what is the gift tax or if the amount (gift money) can be invested in FDR or SB account in her bank account (mother) then who will pay the tax on invested amount. — Gyan Chand

A. Your daughter can gift any amount to her mother.  Your daughter’s husband can also gift any amount to his mother-in-law. There is no gift tax chargeable on such a transaction as the Gift Tax Act, 1958 is not in operation currently. The amount of interest earned by donee in such a case would be taxable in the hands of the donee.

Q. I sold my flat in Delhi for Rs 58 lakh in August, 2018 and purchased a flat in Chandigarh for Rs 1 crore in April, 2019. The funds beyond Rs 58 lakh came from my retirement benefits received. My annual income for the last 3-4 years is up to Rs 10.50 lakh, comprising salary and interest on bank deposits only. TDS for the sale of Delhi flat was deducted by the buyer @ 1% and deposited in the income tax department’s account. I am told that this TDS is refundable to me if I purchase another property within 1 year. Kindly advise me how to go about it: i.e. which form to fill, whether Saral or any other form, and how to show these transactions in the form. I don’t own any other house property except the one purchased in Chandigarh in April, 2019. — AK Sharma

A. It is presumed that the flat sold by you and the flat purchased by you are residential houses. This reply is based on the said presumption. The transaction of purchase and sale would be reflected in ITR-2.  The amount of sale consideration having been invested towards the purchase of a residential flat within a period of nine months, the provisions of Section 54 of the Income-tax Act 1961 (The Act) would be applicable and long-term capital gain on the sale of residential flat in Delhi would not be chargeable to tax. The amount of TDS deducted by the buyer would be adjustable against the tax payable by you in respect of your income from salary and interest.