Readers' Corner: Taxation

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I pay Rs 30,000 as maintenance to my wife. We are separated. Who pays tax on this money? Shouldn’t I be getting a deduction and she be paying the tax? 

There is no specific provision/clause available in The Income Tax Act, 1961, on the taxability of alimony payments. Such a payment may be considered as a capital receipt (if paid in lump sum) and hence, not taxable. On the other hand, this may fall under the ambit of revenue receipt (if paid on a monthly basis) and,  therefore, liable to tax in the hands of the recipient.

There are judicial precedents which provide guidance/direction in this regard. In the case of ACIT vs Meenakshi Khanna, it was held that alimony paid by way of regular monthly payments is taxable income in the hands of the recipient and any lump sum payment relating to the divorce agreement is not taxable being a capital receipt. The Bombay High Court, in the case of Princes Maheshwari Devi of Pratapgarh vs. CIT (1984), held the same view. Considering these judgements, the monthly payment of Rs 30,000 may be as taxable in the hands of your wife. There is no specific exemption/deduction available in the law against this income.

Can you please explain the withdrawal procedure for National Pension Scheme (NPS) tier-II account. Also, what is the taxation on withdrawal?

Kuldip Kumar, partner and leader, personal tax, PwC India.
Tier-II account is a voluntary contribution scheme of NPS and has greater flexibility attached in respect of withdrawal options for subscribers. Payment from NPS on the closure of the account or opting out shall be exempt up to 40 per cent of the total amount under section 10(12A) of the Income Tax Act, 1961. A summary of eligible withdrawal amount and taxability is provided below:

In case of withdrawal on or after attaining the age of 60, the employee can withdraw in a lump sum up to 60 per cent of the corpus and the balance needs to be utilised towards the purchase of an annuity for pension payments. Only up to 40 per cent of the corpus so withdrawn in lump sum is exempt from tax. Monthly pension will be taxed, too.

An employee can make a partial withdrawal from NPS before attaining the age of 60 in respect of his own contributions to a maximum of three times for specified purposes only (higher education of children, marriage, construction of house, treatment of prescribed illness, etc). The first withdrawal up to 25 per cent of own contributions is possible only after 10 years of joining the NPS. The second withdrawal (25 per cent of own contributions) is allowed after five years from the first withdrawal and the third withdrawal (25 per cent of own contributions) is allowed after five years from the second withdrawal. The Finance Act, 2017, has exempted these partial withdrawals (25 per cent of own contribution) from tax with effect from FY 2017-18 onwards u/s 10(12B) of the Act.

For the process to be followed for making such withdrawal, you can refer to the website www.npscra.nsdl.co.in.

I have an ancestral property in my hometown. After my parents passed away, two brothers and I are the owners. I want to know if any of us need to pay deemed rent on this empty property? Will this rent be split among three of us? How do we declare it in our income tax returns?

Under section 23 of the Act, where you own two or more house properties, the property which is not self-occupied by the owner is to be treated as a deemed let-out property and a notional rent is to be offered to tax in India.

In your case, you are required to offer to tax a notional rent of the ancestral property in the proportion of your respective share. The due tax liability is also required to be discharged by way of advance tax as applicable.

The writer is partner and leader, personal tax, PwC India. The views expressed are the expert’s own. Send your queries to ourmoney@bsmail.in


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