Retain new house for 3 yrs to avoid tax on capital gains

Q. My wife expired on February 6, 2019. I filed her return for FY 2018-19. We have joint FDs and NSCs. Such savings where her name is first the interest was added to her income and where my name comes first, interest was added to mine. Please guide me on: 

a) How the interest on her FDs and NSCs will be added to the income? Should I file her return for 2019-20 or is this amount to be added to my income?

b) We are both senior citizens. If I add her interest money to my income, will I be allowed the 

a rebate of Rs 50,000? Can I claim rebate under Section 80C? 

C) The interest on her FDs will exceed Rs 50,000 in the financial year as such the bank will deduct income tax at 10 per cent. How will I adjust this amount in my return? — Satinder Vir Singh

Interest income in respect of those FDs which bear the name of your wife first should form part of her return of income as per preceding year. You will have to follow the same procedure in respect of NSC. You will, thus, have to file her return for the assessment year 2019-20 like you did for the preceding year.  This return would reflect her income up to February 6, 2019. The return so filed shall have to be signed by you in the capacity of a legal heir. The FDs in her name will have to be closed and their receipts will have to be made in the name of legal heirs w.e.f. February 7, 2019. In case there is a Will in which such FDs have to be inherited by a person named therein, FD receipts would be made in the name of such person.  The procedure in respect of NSCs would remain same.

Each one of you would be entitled to claim the benefit of deduction available to the extent of Rs 50,000 in respect of interest earned on FDs and deposits with post office, if any. There would not be any additional deduction in respect of interest beyond Rs 50,000 when your wife’s income is included in your income. A rebate under Section 80C will be allowed on NSCs’ interest, provided the amount of interest has been included in the total income of an assessee.

You can file Form No. 15H with the bank in case your total income would be to the extent of Rs 5,00,000.  The bank would not deduct tax if the said form is filed with the bank. If your total income exceeds Rs 5,00,000, TDS by bank can be set off against tax payable on your total income.

Q At the time of presentation of the Budget for FY 2019-20, the Finance Minister was silent on standard deduction and exemption of interest on saving account/FD. My son is a government employee. His income details for 2019-20 are as under: 

• Salary for 2019-20: Rs 7,60,000 
• Other income: Rs 50,000 
• Net income: Rs 8,10,000
• Standard deduction: Rs 50,000
• Exemption of interest:  Rs 40,000
• Saving u/s 80C: Rs 1,50,000
• Net taxable income:  Rs 5,70,000

Kindly provide the tax details with regard to the abovementioned information.  — Ramesh Kumar

Deduction to the extent of Rs 50,000 in respect of interest earned on deposits with bank/post office  is allowable for the assessment year 2019-20 (financial year 2018-19) whereas standard deduction of Rs 50,000 against salary income is allowable for the assessment year 2020-21 (financial year 2019-20).

Income up to Rs 5,00,000 is not taxable on account of rebate admissible under Section 87A of the Act which rebate is admissible only if the income does not exceed Rs 5,00,000. A deduction in respect of interest income is allowable to the extent of Rs 10,000 only to a person who is not a senior citizen. Total income in this case would thus be Rs 6,00,000 on which tax would be payable  at 5 per cent up to Rs 5,00,000 and at 20 per cent on the balance of Rs 1,00,000 plus 4 per cent of health and education cess on income tax so computed. The total tax liability in case of your son’s total income would be as under: 

• Rs 2,5L to Rs 5L @5% : Rs 12,500
• Rs 1,00,000 @20% : Rs 20,000 
•                                   Rs 32,500
• Cess @4%         : Rs 1,300
•                   Rs 33,800

Q I sold a flat in September 2016 and bought a flat from the sale amount in May 2018. What is the holding period for this flat so that I am not taxed for capital gain earned and invested? — Achal Kumar Sharma

If the amount of capital gain arising from the sale of a residential house is greater than the cost of new house, the difference shall be charged to tax at 20 per cent plus 4 per cent of cess thereon.  In case the new residential house is sold within three years of its purchase or construction, the cost of such new residential house shall be taken as nil for the purpose of computing tax on long-term capital gain arising from the sale or transfer of new residential house. It would be desirable that the new residential house is retained for a period of three years and is not sold or transferred within the said period of three years from the date of purchase or construction of the new residential house.