Your child may have to pay tax on the prize money she won using her skills

By Selene 0

My daughter won Rs4 lakh in a quiz contest. We will be using it to fund her coaching this year. How will this be taxed?

—Nandana Desai

Clubbing provision (i.e. taxation in hands of either parents) applies if minor child (i.e. below the age of 18 years) earns income [section 64(1A)]. However, the said clubbing provisions are not applicable if the income arises or accrues to the minor child on account of activity involving application of skill, talent or specialized knowledge and experience. In the present case, even if your daughter is minor, since she has won the quiz by applying her skill, talent or specialized knowledge; the income earned shall be taxable in her hands only.

She will be required to pay tax on gross basis on this income at 30% (section 115BB). Also, education cess at 3% of the basic tax liability will have to be applied. The payer of the aforesaid income would have deducted tax from prize money on gross basis at flat 30%. No deduction or exemption will be allowed against this income.

I have invested in my Public Provident Fund (PPF) account as well as my wife’s. Can I claim tax benefits for the amount paid for her as well?

—Akash Mahapatra

You can claim deduction from total income in respect of contributions to any PPF belonging to self, spouse or any child. However, this is subject to an overall limit of Rs1.5 lakh per financial year (FY).

Accordingly, you can claim deduction in respect of contributions made by you for both your account and your wife’s account, subject to an overall limit of Rs1.5 lakh per FY (section 80C).

I have been paying advance tax on interest income from my investments apart from my salary for 5 years now. I am about to retire after turning 60 in May this year. Do I need to pay advance tax for FY 2017-18?

—Ganesh Iyer

Advance tax is payable by an individual as per the prescribed instalments, if the total tax liability (after deducting tax deducted at source) on the estimated income is likely to be Rs10,000 or more during the relevant FY. However, resident senior citizens (i.e. who are 60 years and above), who do not have any income from business or profession, are exempted from payment of advance tax irrespective of quantum of tax liability.

As you would attain 60 years in May 2017, you will qualify as a senior citizen for the FY 2017-18. Since your source of income comprises only salary and interest income, you will not be required to pay advance tax instalments—irrespective of quantum of your tax liability for the FY 2017-18. In the future, if you earn income from business or profession, you would be required to pay advance tax depending upon the quantum of income.

My interest income from savings accounts for FY2016-17 is Rs20,000. How much of this income would be taxable?

—Abhilash Menon

The interest earned on a savings bank account maintained with a specified bank, cooperative society or post office is taxable in the hands of the individual as “Income from Other Sources”. One can claim deduction from total income, subject to cap of Rs10,000 per FY (section 80TTA). You will be taxable on the balance savings bank interest of Rs10,000.

If I sell some units received through dividend reinvestment in an equity mutual fund, within a year of receiving the units, when computing capital gains, what should be taken as the cost of acquisition of such units?

—Sableen Minhas

In the dividend re-investment option, where the investor avails dividend the in form of additional mutual fund units, the cost of acquisition of such additional units would be the amount or the quantum of the dividend re-invested.

The number of units are computed based on the Net Asset Value and the quantum of dividend accrued. The details about all these would appear in the mutual funds statement.

Parizad Sirwalla is partner (tax), KPMG

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First Published: Mon, Mar 20 2017. 05 21 PM IST