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Deductions and Exemptions under the Income Tax Act

Monday, December 20, 2010

Are Deductions and Exemptions available under the Income Tax Act just two different words used at different places?
— Nitin Kapoor, Matunga

The Income Tax Act, 1961 provides for various exemptions and deductions. There is a substantial difference between the two phrases. Exemptions mean the income in respect of the exempt item is tax free altogether and is not to be included while computing the total income. Whereas deductions mean you need to include the income first in computing the total income. If you fulfill / qualify with respect to the conditions provided for claiming the deduction, then only the deduction would be available to you. There may be a monetary ceiling with respect to the deduction whereas there is generally no limit for an exemption.

I sold my old car in March-2010 and booked a new one. Unfortunately due to some problem at the end of the dealer the car Registration in respect of the new car did not happen in March-2010. It happened in April-2010. Please advice whether I can claim depreciation for the year ending on 31/03/2010?
— Mohit Pillai, Parel

You sold your existing car before the year end. The new car was not registered in your name in the same financial year. Hence, at the end of the financial year there was no asset in the Block for Motor Car. The surplus / deficit remaining in the books after taking into account the sale proceeds of old car would be taken as Short Term Capital Gain / Loss. There is no block left in your books of account and hence no depreciation can be claimed in respect of the car for the year 31/03/2010. The new car is registered in the current year and hence depreciation with respect to this car would be available in the current year.

I have sold a property for Rs one crore. However, when we went for Registration of the property, they  asked us to pay stamp duty on Rs 1.5 crore. The duty has been paid by the buyer. Please advice whether this additional stamp duty would affect my tax liability in respect of capital gain?
—Rohit Mehta, Mulund

Under Income Tax Act, 1961 a section 50C has been specifically inserted to deal with such cases. As per the section the higher of sale proceed or the amount on which the stamp duty has been paid would be deemed to be the sales consideration. In your case since the stamp duty was paid on Rs 1.5 crore it would be deemed to be the sale consideration. If you want to avoid tax on the Rs 1.5 crore, then you need to challenge the valuation done by the stamp office in a competent court. If you do not file a case, you are left with no other remedy, except paying higher capital gain tax.

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