Your taxes

I am 44 years old and work in an MNC. My total income in FY2013-14 was around ₹8 lakh, on which tax was deducted by my employer. I am the only son of my father, who passed away in December 2013 at the age of 79. The income that he derived from bank deposits was below the income tax slab and hence, he did not submit any income tax returns. I inherited his bank deposits of around ₹20 lakh (which included Post Office Senior Citizen Savings Scheme deposits worth ₹10 lakh and bank deposits totalling ₹10 lakh). I placed ₹5 lakh each in my and my wife’s name in tax-saving bonds. The rest was placed in my wife’s name as deposits. My wife is a homemaker and has no other source of income. Will my wife have to file an income tax return for FY2013-14 and pay tax on the income earned? Will the interest earned by my wife on the bank deposit be clubbed with my income?

Nitai

According to the provisions of Indian tax law, where any asset whose aggregate fair market value exceeds ₹50,000 is received without consideration by an individual in any year, the whole of the aggregate fair market value of such asset shall be chargeable to tax under the head, “Income from other sources”. This provision does not apply in case of transfer of assets under a will or by way of inheritance. But income received post-inheritance by the transferee from such assets is treated as income of the transferee and is taxable in his hands.

Also, in case of any transfer of an asset to a spouse without adequate consideration, clubbing provisions are attracted. Accordingly, the income derived by the spouse from the transferred asset is taxable in the hands of the transferor spouse.

In your case, the income earned post-December 2013 from the tax-saving bonds purchased with your inheritance shall be taxed in your hands. The income earned by your wife from the bonds and bank deposits would be clubbed with your income and taxed in your hands since the deposits inherited by you were transferred in your wife’s name without any consideration.

Please note that the details of such income needs to be disclosed in your return of income under “Income of specified persons (spouse, minor child, etc) includable in the income of the assessee”, mentioning specified details of such person, such as name, PAN, relationship, etc. Since your wife does not have any other source of income, she would not be required to file a return.

I have a query regarding the right form to use for filing returns for AY2014-15. Apart from my salary, I earned savings bank interest of ₹7,800 in FY2013-14. Under Section 80TTA, savings bank interest up to ₹10,000 is allowed for deduction. So, should I file returns using ITR 1 or ITR 2?

Ritesh

According to the instructions issued with the ITR-1 form for AY2014-15 (FY2013-14), ITR-1 is to be used by individuals whose total income for the assessment year 2014-15 includes:

- Income from salary/pension; or

- Income from one house property subject to no brought forward loss; or

- Income from other sources (excluding winnings from lottery and income from race horses)

Please note that this return form should not be used by an individual whose total income includes income from agriculture/exempt income in excess of ₹5,000 and other specified cases.

In your case, I understand that you have only salary income and interest income and the exempt income is not more than ₹5,000. Hence, you would need to file your tax return for FY2013-14 using ITR-1, where you can fill both salary income and interest income details and can claim deduction under Section 80TTA of the Income Tax Act, 1961.

The writer is a practising chartered accountant. Send your queries to >taxtalk@thehindu.co.in