Your Taxes

We recently started home-based data processing services for Australian and US clients.What are the tax aspects we should consider?

Pallekonda Srinivas 

Income earned from data processing activities would be taxable in India as ‘Profits and Gains of Business or Profession’.  The income liable to tax would be the sum of receipts minus expenses incurred for carrying out this activity. The rate of tax , computation methodology and the taxability of the distribution would depend on whether you are doing this business through a company, partnership firm or any other set up.  If income from the above-mentioned business activity exceeds ₹1.2 lakh in any of the three years immediately preceding the relevant year, or the gross turnover exceeds ₹10 lakh, you will have to maintain appropriate books of accounts as prescribed by law.  Since you have recently started the data processing service, the above conditions need to be tested for the initial year of set up.  If you do not want to maintain books of account, you could use the provisions relating to presumptive taxation (8% of gross receipts or total turnover should be offered as taxable profit)detailed in Section 44AD.  However, this cannot be availed if the turnover exceeds ₹10,000,000, or profit is less than 8 per cent of gross receipts.

There are no specific income tax concessions that are available for this line of business carried on from home. However, service tax may not be applicable as your clients are based out of Australia/the US. .

My father purchased a plot for in 1979 on a lease for 30 years from a housing board and paid lease rent. The house was constructed on the said plot for ₹2 lakh in 1982.After the demise of my father, the house was sold for ₹47.5 lakh on August 22, 2014.The above amount was shared in five equal parts of ₹9.5 lakh each among my mother and four siblings. How much tax should I pay for my share?

Dhananjay Shrikhande

According to tax laws, the period of holding of the previous owner has to be included to determine if an asset is to be treated as long term or short term for levying capital gains.  Applying this principle, the property would become a long-term capital asset and will hence be eligible for indexation benefit.  Capital gain (or loss) on sale of such asset would be the difference between the sale consideration and indexed cost of acquisition (that is, cost of land and building).

Section 49(iii) provides that where a capital asset is acquired under a will or by succession or inheritance, the cost of acquisition would be deemed to be the cost for which the previous owner acquired it after adding to it the cost of improvement, if any. For arriving at the indexed cost of acquisition, the year in which you first held the asset has to be taken as the base year. 

Hence, you will be liable to capital gains tax on the difference between ₹9.5 lakh and the indexed cost of acquisition.