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Your tax queries answered

| 1/2/2012 4:12 PM Monday

I own a house and two other properties (one is a residential converted plot purchased in 2011 and the other is a non-converted plot purchased in 1997). I wish to sell both the properties. Kindly advise where I should invest the amount and how I can avail exemption from Income Tax.
- Jaitirth Malik

The taxability for each of the plots will differ in as much as the period of holding will be relevant.

As regards the residential plot, if you sell the plot within less than 3 years (36 months), the same will be a short term capital asset and the resultant gain/loss would be a short term capital gain/loss. The said gain, if any, would be included in the total income and taxed as per the slab of tax applicable. There is no provision for exemption in respect of short term capital gains. Hence, tax would have to paid as per the computation thereof.

As regards the non-converted plot, as it is held by you for more than 3 years, the same will be a long term capital asset, and the resultant gain/loss would be a long term capital gain/loss. You may avail yourself of exemption u/s 54EC by investing the capital gains earned in the prescribed bonds issued by the Rural Electrification Corporation of India or the National Highways Authority of India for upto Rs 50 lakh per financial year. However, as there is no structure on the plot, deductions under other sections will not be available.

I am working in a software company. My mother is not working anywhere. Will I be allowed to make an FD in her name and submit Form 15G or Form 15H for upto Rs 1.9 lakh interest?
- Raina Mistry


When you make a Fixed Deposit in your mother’s name, it is assumed you will be gifting the same to her. If your mother’s gross income, that is all taxable income including interest income, is below the basic exemption limit, (i.e. Rs 190000), she can submit Form 15G to the interest payer, requesting not to deduct tax at source. If your mother is a senior citizen, she can submit Form 15H to the interest payer, even if her income is upto Rs 240000.

However, you cannot merely transfer the Fixed Deposit and your income to her, as it would amount to a benami transaction, and you will be liable to tax on the said income.

I have invested in debt funds (FMP as well as regular short-term/long-term funds) and have received dividend monthly, quarterly and at the end of the FMP period for the different fund schemes. When redemption is made after a year or more, can I apply indexation and calculate gains/losses based on the indexed value? The indexation is over 10% for the last 2 years, and as this generally ends in a loss, can it be carried forward for future gains offsetting?
- Harpreet Sachdeva

When the debt fund units are redeemed after a year, you will be entitled to calculate the capital gains after applying indexation. The Cost Inflation Index (CII) is published by the central government on a year to year basis, and is based on inflation. In case of a loss therefrom, being a long term capital loss, the same can be set off only against a long term capital gain. If the said long term capital loss cannot be set off in the year in which the sale/redemption has taken place, the said loss can be carried forward to subsequent years (upto 8 years) and set off against long term capital gains only. In case the said loss cannot be set off against any long term capital gains in eight subsequent years, then that long term capital loss lapses.

KEY POINTS:
  • Residential property sold within less than 3 years (36 months) will be a short term capital asset and the resultant gain/loss would be a short term capital gain/loss. The said gain, if any, would be included in the total income and taxed as per the slab of tax applicable.
  • Losses/gains against property held for more than three years are held as long term capital gains/losses.
  • Gains against long term capital assets may be exempted from tax u/s 54EC by investing them in the prescribed bonds issued by the Rural Electrification Corporation of India or the National Highways Authority of India for upto Rs 50 lakh per financial year.

 

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