The Hindu Business Line : Works contracts are not ‘gilded’

We do job work in gold, designing and making ornaments. This is normally referred to as works contract in our industry.

We would like to know whether the provisions of Section 44AD will be applicable to us whereby we would be able to offer 8 per cent of the gross receipts as the income from such business. — Arun

You cannot opt to be governed by the provisions of Section 44AD.

This Section will apply only to a person engaged in the business of civil construction or supply of labour for civil construction and civil construction for the purpose of this Section is defined to include (a) the construction or repair of any building, bridge, dam or any other structure or of any canal or road, or (b) the execution of any works contract.

The term works contract in this context has to be understood only as such activities which involve construction or supply of labour for civil construction.

The activity of making and designing gold ornaments apparently cannot fall within the ambit of this section.

I purchased shares of various companies a few years back.
I now propose to transfer these shares to my daughter; this, apparently, would be an off-market transaction. Will I be required to pay capital gains tax on such transfer? If my daughter were to sell these shares a year later through a recog nised stock exchange will she be liable to pay capital gains tax? — N. Subramanian

When you gift the shares to your daughter, there will be no tax liability in your hands or of your daughter.

If your daughter were to sell the shares a year later through a recognised stock exchange there will be no capital gains tax liability in her hands in view of the exemption available under Section 10(38).

You may also note that a capital asset being shares will be treated as long term if held for a period exceeding 12 months and where the asset is acquired by way of gift, will, inheritance, etc., the period of holding of the previous owner will also be taken into account in determining whether an asset is long or short term.

My wife, a home-maker, has no independent source of income.

I propose to gift to her a certain sum of money which she would deploy in the stock market and to make other investments. Will the gift of money be taxable in either my hands or in hers?

What evidence should be retained to show that the amount was in fact my gift to my wife?

Will the capital gains or other incomes earned by her be subject to the normal rates of tax in her hands or would the same be clubbed in my hands? — Suvadeep Sinha

There will be no tax liability either in your hands or that of your wife when you gift her some money.

A simple letter stating that the amount is given by you to her as a gift out of natural love and affection which is accepted by her would suffice to prove the genuineness of the gift. The income, whether by way of capital gains or other incomes earned by your, wife will be clubbed in your hands and not be assessed in her hands.

To a query in this column on May 27, relating to the taxability of income earned in Singapore by way of salary, you stated that since the questioner has not stayed in India for 182 days or more before departing for Singapore to take up empl oyment in that country, the income earned in Singapore will not be taxed in India.
To determine residential status, it is sufficient for an individual to be in India for 60 days or more in the previous year and 365 days or more in the four years preceding the previous year for him to be treated as resident and thereby for the income in Singapore to be taxed in India.

The questioner in that case had been in India for 161 days and if this were so, he could become a resident whereby his income could be taxed in India. Kindly clarify. — K. Muthusekar

For determination of residential status of an individual, the following are relevant:
Basic Conditions

He is in India in the previous year for a period or periods aggregating in all to 182 days or more.

Having been in India for 365 days or more during the four years preceding the previous year, he has been in India for 60 days or more during the previous year.
Exceptions to the second basic condition

In the case of an individual being a citizen of India who leaves India in any previous year as a member of the crew of Indian ship as defined in the Merchant Shipping Act, 1958 or for the purpose of employment outside India, 60 days shall be substituted by 182 days.

In the case of an individual being a citizen of India or person of Indian origin who being outside India comes on a visit to India in any previous year, 60 days shall be substituted by 182 days.
Additional Conditions

He has been a resident in India for at least 2 out of 10 previous years immediately preceding the previous year.

He has been in India for a minimum period of 730 days in the seven years preceding the previous year.

An individual is said to be a resident ordinarily resident in India if he satisfies at least one of the basic conditions and both the additional conditions.

An individual who satisfies one of the basic conditions and one or none of the additional conditions is a resident but not ordinarily resident and an individual who satisfies none of the basic conditions is a non-resident.

It can be seen that one of the exceptions to the second basic condition is that the 60 day period stated there gets substituted with 182 days if the individual were to leave India to take up employment outside India where such individual is a citizen of India. In the query answered on May 27, the questioner had stated that he was leaving India, to take up employment in Singapore.

Therefore, the second basic condition gets covered by the exception and both the basic conditions would require a stay of 182 days in India while the questioner has been in India only for 161 days which means he would satisfy none of the basic conditions and consequently would be a non-resident.

In the case of a non-resident income accruing or arising outside India will not be taxable in India by virtue of Section 5 and hence it was replied that the individual will not be taxed in India in respect of the salary earned in Singapore.

More Stories on : Taxation | Tax Talk

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page