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Your tax queries answered

| 1/13/2012 12:37 PM Friday

Please tell us in brief about taxation for futures & options, equity and commodities.
-    Dwijen Saikia


In brief, the provisions with regard to taxation for futures & options, equity as well as commodities are as follows:
In accordance with Proviso (d) of Section 43(5), an eligible transaction in respect of trading in derivatives referred to in clause (ac) of Section 2 of the Securities Contracts (Regulation) Act, 1956, carried out in a recognised stock exchange shall not be deemed to be a speculative transaction. Thus, the profit or loss from such transactions is to be treated as non-speculative income.
The income is chargeable to tax at the normal rates of tax applicable to the assessee.
The losses, if any, can be set off against the head ‘Income from Business’. In case the same cannot be set off under the head ‘Income from Business’, it can be set off against any income from house property, capital gains, or other sources, though not against the head ‘Income from Salaries’. In case the losses cannot be set off against any of the other heads in the financial year, the same can be carried forward for eight years and set off against ‘Income from Business’.

I am a salaried person and am also engaged in derivatives trading. I have been filing ITR 4 for the past three years, which is required for persons engaged in business. I have substantial income from trading, and wanted to understand whether I can diversify into the renting of residential property.

I also need to know whether I can claim depreciation for residential properties from my business income, apart from the deduction for interest paid for any loans taken for the purchase of such residential units. Request you to clarify.
-    Suraj Chhel


a)    You may rent out the residential property, if you so desire. The rent will chargeable to tax under the head ‘Income from House Property’.

b)    If the residential properties are used for business purposes and the income therefrom is being shown under the head ‘Income from Business’, then you are entitled to claim deduction in respect of depreciation for the said properties in addition to the interest paid on loans taken for the purchase of such properties.
Though, in our opinion, income from letting out of residential properties will be chargeable to tax under ‘Income from House Property’, in which case you are entitled for standard deduction at the rate of 30 per cent of the Net Annual Value and the interest paid for acquisition of the said house property. However, you will not be entitled to any deduction in respect of depreciation on the said property. If you sell the said property beyond 36 months of its acquisition, you will be able to claim indexed cost of acquisition as deduction from the net consideration thereof.

I have recently sold a house, and am in the process of buying a new flat now. Will the registry fee for the newly-purchased flat also be included in the overall investment for purchasing this flat while considering long term capital gains?
-    Rakesh Sankla


The total cost of acquisition includes the purchase consideration, the stamp duty in respect of the agreement, the share of transfer fee, the registry fee and the brokerage, if any. Thus, the total cost of acquisition of the flat/house will be required for calculating the indexed cost of acquisition and the long term capital gains. The total cost of acquisition for the new flat purchased will be considered for investment purpose to calculate tax exemption under Section 54 of the Income Tax Act, 1961.

KEY POINTS
  • Certain derivatives transactions are not be deemed to be speculative transactions. Thus, the profit or loss from such transactions is treated as non-speculative income.
  • If residential properties are used for business purposes and the income therefrom is being shown under the head ‘Income from Business’, deduction can be claimed in respect of depreciation for the said properties in addition to the interest paid on loan taken for the purchase of such properties.
  • The total cost of acquisition of residential property, including the purchase consideration, stamp duty, transfer fee, registry fee and brokerage, if any, is required for calculating the indexed cost of acquisition and long term capital gains.

 

Find More Articles on: DSIJ Magazine, Tax Queries, Personal Finance, Tax, Product, Large Cap

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