DSIJ Mindshare

Taxation For Income From Capital Gains

Q 1) Can you give me the scheme of taxation for Income from Capital Gains?

- Ameya A

The following chart summarises the scheme of taxation for Income from Capital Gains:

Income from Capital Gains
|
-----------------------------------------------------
 |                                                                  |
Long-Term Capital Gains                    Short-Term Capital Gains
  |                                                                 |
                 ---------------------------------                         ---------------------------------
                     |                                         |                           |                                          |
              Securities             Other than Securities       Securities             Other than Securities
             |                                    (a)                           |                                 (b)
                    ----------------------------                                    ------------------------
                  |                                  |                                     |                              |
            STT paid              Non-STT paid                   STT paid              Non-STT paid
                 (c)                              |                                    (d)                           (b)
                                                ------------------------
                                                |                            |
                                            Listed                Other than
                                            securities          listed securities 
                                              (e)                         (a) 
  1. At specific rate of Income Tax, viz. 20 per cent
  2. At normal rates of Income Tax
  3. Exempt from tax
  4. At specific rate of Income Tax, viz. 15 per cent
  5. Option to pay at specific rate of Income Tax, viz. 10 per cent on capital gains without indexation  or 20 per cent on capital gains with indexation

Note that the above capital gains tax calculated at the specified rates is to be increased by surcharge, education cess and higher education cess, as may be applicable.

Q 2) I am told that bank interest earned is exempt from tax. Is this true?

- Suhasini Manjanath Bandekar

Bank interest is not exempt from tax. However, interest on savings deposit accounts is eligible for deduction under the newly introduced Section 80TTA of the Income Tax Act, 1961, with effect from financial year 2012-13(Assessment year 2013-14).

The deduction is available to an Individual or a Hindu Undivided family in respect of interest on deposits (not being time deposits) in the savings account with a bank, co-operative bank or the post office, subject to a maximum of Rs 10000 only. In case the said deposit is held on behalf of a firm or association of persons or body of individuals, no deduction will be allowed in respect thereof.

Q 3) I have a son who has taken admission in a deemed university for graduation in Medicine. The fee for his education is very high and I propose to take a bank loan for defraying those. Do I have to take the loan in my son’s name or can I get any benefit of the expenses under the Income Tax law?

- Madhavi A

Education expenses, being personal expenses, will not be eligible for deduction under the Income Tax Act, 1961. However, as you are taking loan for higher studies, the interest on such loan is eligible for deduction u/s 80E of the said Act. The conditions for eligibility for the said deduction are as follows:

  1. Loan should be from any financial institution or any charitable institution
  2. It should be for the purpose of pursuing higher education or for the purpose of higher education of a relative of the assessee.
  3. The deduction shall be for the interest on the said loan taken by the assessee paid by the assessee in the previous year.
  4. The deduction will be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest in respect of the said loan is paid in full, whichever is earlier.

For the purpose of the above:

(i) Approved charitable institution means an institution established for charitable purpose and recognised under the said Act.

(ii) Any financial institution includes a bank or any other financial institution specified as such by the Central Government.

(iii) Higher education means any course of study pursued after passing Senior Secondary Examination or its equivalent from any recognised school, board or university.

(iv) Initial assessment year means the assessment year relevant to the previous year in which the assessee starts paying interest on the loans. This may be applicable where the student gets a moratorium period for repayment.

(v) Relative means the spouse and children and includes a child in respect of whom the individual is a legal guardian.

Even if you take the loan, you will be eligible for deductions subject to the conditions as stated above. It is not necessary that you take the loan in the name of your child.

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