Have you recently gotten married, or are planning to soon?
The due date for filing income tax returns is coming close, individuals will have to file their returns by the July 31. While a seasoned tax payer from Goa may be familiar with the benefits of the provision I will be detailing, for a Goan who has just gotten married, this is one tax section that might just put a smile on your face. When filing a return, have you noticed a question asking whether you are governed bythe Portuguese Civil Code?
Section 5A of the Income-tax Act 1961 prescribes equal apportionment of income, other than salaries, to a husband and wife governed by the system of community property under the Portuguese Civil Code.
Let us do a quick drill down on what this means...
While most of India has personal laws based on religion that have come from the era of the British Raj, the Goan Civil Code, also known as the Portuguese Civil Code which was initially implemented during Portuguese rule in Goa, is a code that is common across religions whether Hindu, Christian, Muslim etc. It contains personal laws that govern Goans and those from Daman and Diu in matters such as marriage, succession and property.
So, what does that have to do with Tax?
The Code has the concept of community property(known under the Portuguese Civil Code of 1860 as “Communiao Dos Bens”), for a husband and wife, which to put it simply means that both are entitled to share in all assets, those acquired during the marriage and before, this would include inherited property.
In addition to this, one spouse cannot dispose of an asset without the consent of the other. Therefore, effectively each has a 50% share in all their assets.
How long has this been active?
This was implemented through the Finance Act 1994, with effect from 1st April 1963, after Harish Zantye, the then North Goa MP, facilitated the Goan CA fraternity including CA VB Prabhu Verlekar in explaining the difficulties Goans were facing after the Bombay HC ruled in the case of Modu Timblo that income of spouses should be clubbed together and taxed, to Manmohan Singh (then Finance Minister of India).
How does this practically affect a tax payer?
Section 5A allows a tax payer to apportion their income other than salary with their spouse. Let us take an example. Mr A has a net taxable Income of Rs 7 lakhs from business under the New Scheme of Income Tax. We can assume that the taxable income of his spouse was NIL. He doesn’t have to pay any tax after taking the benefit of rebates. Above Rs 7 lakhs, he would be required to pay tax.
However, if Mr Ais governed by a system of community property under the Portuguese Civil Code, even if he earned Rs 14 Lakhs as net taxable income, this would be tax free.
Due to 50% of the income being apportioned to his spouse, continuing to assume that the separate income of his spouse was NIL, She can then take benefits of lower slab rates for lower income and a rebate separately.
If I am a salaried employee, is this of no use to me?
Not at all, even though you won’t be able to apportion your income from salary.
• Income from Capital Gains e.g. Sale of shares, property etc.
• Income from Other Sources e.g. Interest on Fixed Deposits, bank accounts, dividends.
• Income from House Property e.g. Renting out your house
You can take the benefit on all these. Say an employee gets ESOPs during employment and exercises them. When he/she sells the shares in the market, Section 5A would be applicable for the Capital Gains earned on that sale.
Why not salary? Wouldn’t a spouse be entitled to 50% of your salary income?
Your earnings and property that is generated through salary would give your spouse a 50% share.
However, this matter was decided in Goa Salaried Taxpayers vs Union of India &Ors where the Bombay High Court found Section 5A constitutionally valid. The Court stated in its judgement that they were not able to find arbitrariness in Parliament excluding salaried persons from getting this benefit, as the Supreme Court had observed that there is a discernible dissimilarity between salaried persons and persons having other sources of income and different treatments have been meted out for computation and even payment and reduction of tax.
If I have property or earnings outside Goa, will I need to manage my taxes as per the laws applicable in those states?
The Supreme Court ruled in 2019, that for a Goan domicile, Portuguese Civil Code will apply for properties in India whether in or outside Goa. Therefore, you can pay your taxes accordingly.
What about if a Goan lady marries a gentleman from outside Goa?
As per article 1107 of the Portuguese Civil Code, the personal laws of the male spouse are considered. This would require the husband and wife to file returns without considering Section 5A.
What do you need to consider?
- What are the personal laws applicable to you?
- When you got married, did you do so under the provisions of Portuguese Civil Code.
- Have you signed an ante-nuptial agreement, getting married under the regime of separation of assets? If so, then this section will not apply to you.
Can both spouses take deductions such as Section 80 C (Investments etc.), Section 54 for Capital Gains or 80D (Medical Insurance) individually, what about Tax deducted at source (TDS)?
Once the apportionment of Income is done each tax return is filed individually, this means that each spouse can take the deductions that they are entitled to. The TDS will also be apportioned between both spouses equally.
What details do you need to input in the return to take this benefit?
The name, Aadhar and PAN number of your spouse. The Income under each head earned and amount apportioned to your spouse, TDS deducted on the income and apportioned.
(The writer is a Chartered Accountant and financial educator with a passion for stocks, corporate finance and tax, looking to make all of India financially literate)
