Explain the Following:
a) Bond Washing Transaction
A bond washing transaction is a tax avoidance method where an investor sells securities just before the due date of interest payment and repurchases them after the interest is paid. This is done to avoid showing the interest as income and shifting the tax burden to someone with lower income. Such transactions are closely monitored by the Income Tax Department, and Section 94 of the Act disallows such avoidance.
b) ITR-1 (SAHAJ)
ITR-1, also known as SAHAJ, is the simplest Income Tax Return form in India. It is used by individuals who have:
- Salary or pension income
- One house property
- Income from other sources (except lottery, race horses, etc.)
- Total income up to ₹50 lakhs
It cannot be used if the individual has capital gains, foreign income, agricultural income over ₹5,000, or business income.
c) Exemption of Capital Gains u/s 54F
Section 54F provides exemption from long-term capital gains tax if the gain is invested in a residential house. It applies when the capital gain is from sale of any long-term asset other than a house property (e.g., land, gold, etc.).
- The exemption is available if the entire net consideration is used to buy or construct one residential house in India within specified time limits.
- If only part of the consideration is invested, the exemption is proportionate.
- The new property must not be sold for at least 3 years.
d) Rent-Free Accommodation
Rent-free accommodation is a perquisite provided by an employer where the employee is allowed to stay in a house without paying rent. It is a taxable perquisite under the Income Tax Act and is added to salary income for tax purposes.
The taxable value depends on:
- Whether the employer is government or non-government
- City of residence
- Employee’s salary and type of accommodation
Standard rules are applied to calculate the perquisite value, and it is taxed as part of the employee’s salary.