Tax Column

Jayesh Dadia
Chartered Accountant

I am an individual and was out of India for more than 200 days in the financial year 2018-19. Am I a non-resident under the Income Tax Act for the financial year 2018-19 relevant to assessment year 2019-20 ?

If you have taken up a job employment outside India and remained outside India for more than 182 days, then you are a non-resident. However, if you remained outside India for personal or business purpose, then you don’t become a non-resident. Under Section 6(1) of the Income Tax Act, an individual is said to be a resident in India in any previous year if he is in India in that year for a period amounting to 182 days or more or having within four years preceding that year been in India for a period in excess of 365 days and also remained in India for a period in excess of 60 days in that particular financial year. In your case, although you have stayed outside India for more than 182 days but remained in India in excess of 60 days and also preceding four financial years, i.e. financial year 2014-15, 2015-16, 2016-17 and 2017-18 you were a resident. Therefore, in the financial year 2019-20, you will be considered as a resident in India. If you have earned any income outside India, it would be taxable in India.

I am an individual carrying out a proprietary business. I also purchase and sale shares and mutual fund as an investor. I also earn interest on fixed deposits with banks. In the financial year 2018-19, I have earned business profit of Rs. 10 lakh. I have also earned long term capital gain of Rs. 2 lakh and incurred short term capital loss of Rs. 10 lakh. Can I set-off my short term capital loss against long term capital gain and business profit?

Under Section 74 of the Income Tax Act, short term capital loss can be set-off against other capital gains, which include long term capital gain. However, business profit of Rs. 10 lakh cannot be set-off against short term capital loss. You can carry forward short term capital loss for eight years and would be available for set-off against future capital gains. However, for carry forward of short term capital loss and to set-off against future capital gains, you have to file the Income Tax Return within the due date prescribed under section 139(1) of the Income Tax Act.

I have given an advance of Rs. 30 lakh to my very close friend who was facing financial crisis. He has agreed to pay me interest at 9% p.a. I have also borrowed Rs. 20 lakh from my close friend at the same rate of interest, i.e. 9% p.a. The borrowed amount of Rs. 20 lakh has been directly utilised to give advance of Rs. 30 lakh to my friend. My question is whether interest earned by me on Rs. 30 lakh can be set-off against interest paid by me on Rs. 20 lakh?

Since there is a direct nexus between the amount borrowed and loan given, you can set-off interest earned under section 57(iii) of the Income Tax Act. You have to establish the nexus between the interest earned and interest paid.

I have a residential house in the name of HUF consisting of myself as Karta, my wife and my two sons as members. The HUF has sold the residential house and earned capital gain of Rs. 2 crore. Can we invest the entire Rs. 2 crore in a new residential house which will be purchased in the name of my elder son? Can the entire capital gain be exempted under section 54 of the Income Tax Act?

Under the Income Tax Act, the capital gain can be reinvested in a new residential house by the same person who has sold the property. Since the residential house is sold by the HUF, investment in new house has to be in the name of HUF. So, if you invest the entire capital gain in the name of your elder son, then the HUF may not get exemption under section 54 of the Income Tax Act. Under the Income Tax Act, HUF is a separate entity from the Karta/member. Thus, if you want your entire capital gain to be exempted, the new house has to be purchased in the name of HUF.

I am an individual. I have sold a residential unit on March 15, 2019. The letter of allotment in respect of the said residential unit was given to me by the builder on December 8, 2014, while the sale agreement was executed on June 11, 2017. Would the surplus made by me on the sale of residential unit on March 15, 2019 be in the nature of short term capital gain or long term capital gain?

It is now a settled law pronounced by the Bombay High Court in a recent case of Pr. CIT vs Vembu Vaidyanathan, where the jurisdictional High Court held that the date of letter of allotment is the date on which property is acquired. In other words, it has been held that the date on which the letter of allotment is issued would be the relevant date for the purpose of capital gain tax as the date of acquisition. According to the High Court, the letter of allotment is final unless it is cancelled. The allottee gets the title to the property on the issue of the allotment letter and payment of instalments is only merely a follow-up action and taking delivery of the possession is only a formality.

In the light of the above ruling of the Bombay High Court, the capital gain earned by you on the sale of residential unit is a long term capital gain as the date of sale is after two years from the date of acquisition, i.e. date of allotment letter.

Since it would be long term capital gain, you can also reinvest the capital gain in another residential unit under section 54 of the Income Tax Act.