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Readers' Corner: Taxation

Kuldip Kumar / 18 May 17 | 01:40 AM

To help a friend who was travelling, I took a cash payment of Rs 2.5 lakh from his client and deposited in my bank account. Later, I transferred it to him via net banking. If I get a query from the tax department, asking to explain the source of funds, what should I do?

You are rightly worried as the tax authorities may suspect this to be the case of money laundering. There are several aspects to this transaction  which can be questioned and needed to be explained. First of all, why did you receive this cash? What is the nature of receipt? Whether  money taken from the client of your friend is a loan or repayment of loan or receipt for sale of good or services etc? There is prohibition on taking or repayment of loan in cash exceeding Rs 20,000. From April 1, 2017 onwards even cash transactions exceeding Rs 2 lakh are prohibited. Now coming to the other aspect, where your friend received the money from you, he may be questioned why did he receive it? Is it a loan? If not, it may be treated as a gift and as such taxed in his hands as gift from strangers under Section 56. Whatever is the nature of transactions, that should be accurately explained and may also be needed to be confirmed by the parties involved. The consequence will follow depending on the nature of transaction. It may be noted that where the cash Rs 2 lakh or more have been deposited into the bank during November 9, 2016 to December 30, 2016, the same needs to be disclosed in the return form.

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After working for a decade I took a sabbatical for two years in 2011 and 2012. I had no income during this period, not even from investment. Hence, I didn’t file returns for this period. In the income tax filing portal, there’s a query raised. There’s a drop down menu, which has an option that says I didn’t have income during the said period. Should I select it?

Yes. You can select the option “no filing requirement" online and submit your response to the query. An  individual is required to file a return of income if the total income earned during the financial year exceeded the maximum amount not chargeable to income tax. However, in case of ordinarily resident individuals, an individual is required to file the return even though he or she may have nil income or below the taxable threshold where such individual has any overseas asset or signing authority in any account located outside India. If you did not have any filing obligation, you may accordingly  proceed to select the relevant option in the portal and close the query.

How can I claim the tax benefit for medical expenses for a disabled person? What kind of receipts will I need to show?

Section 80DD of the Income Tax Act, 1961 (“Act"), allows a resident individual to claim the deduction of the of expenditure incurred on medical treatment (including nursing), training and rehabilitation of a dependent family member with disability. The amounts are capped to a maximum of Rs 75,000 (Rs 1,25,000 in case of severe disability). Even any payment made in a scheme providing for payment of annuity or lump sum for the benefit/maintenance of such person is also eligible for this deduction. In order to avail deduction, you will be required to furnish a copy of the medical certificate substantiating the disability of the concerned person in the prescribed form and manner along with the return of income in respect of the tax year for which deduction is claimed.

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