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Your tax queries answered

| 2/9/2012 9:30 PM Thursday

I am a 46 year old salaried individual. I have sold my ancestral property. Now, can I invest in my 13 year old son’s name and my eight year old daughter’s name to get capital gains tax exemption?

- Parimal Rathore

You have not stated whether the ancestor who owned the said property died intestate or had made a will and who the legal heirs are. Thus, it is difficult to answer your question. We are enumerating the provisions of law here, and you would have to refer to the facts and circumstances of your case to determine the taxability/exemption of capital gains.

If the ancestor has died intestate, the property would devolve as per the personal law as may be applicable. In case the ancestor who owned the property had made a will, was the property willed to your children? Furthermore, if your children have inherited the said property, and if the period of holding of the said ancestor and your children (after inheritance) exceeds 36 months, it would qualify as long term capital asset but would get the benefit of indexation only after your children acquired the property and not from the date of acquisition by the said ancestor. Besides, the capital gains would be clubbed with your income under Section 64(1A) of the Income Tax Act, 1961.

Is the HDFC MIP Growth Plan redeemed after a year subject to Long Term Capital Gains tax? I understand that the Reliance MIP Dividend Plan redeemed after a year should not be treated as a long term capital asset. Please clarify.

- Unmesh Deo

As regards mutual funds, if you invest in a Growth Plan, there is an element of investment in capital assets. Hence, if you redeem the same after a year, the appreciation in the investment will be treated as a Long Term Capital Gain. In case of Dividend Plans, there is no appreciation as the profits on such units are declared as dividends. Hence, they are not treated as long term capital assets.

I have two demat accounts with different brokers. I purchase and sell stocks using both accounts, and sometimes also purchase the same stock from both the accounts. For calculating the Short Term Capital Gains, should the stock FIFO be calculated based on each demat account, or overall?

For example, I purchased the IFCI scrip using my ICICI Bank demat account on 1st October, 2010, and later again using my SBI demat account on 1st September, 2011. Subsequently, I sold the scrip using my SBI demat account on 1st December, 2011. Is this a short term gain or a long term gain?

- Shahana Surti

Once you have purchased a scrip, the demat account to which the scrip is credited on your purchase is irrelevant. You purchased the IFCI scrip on 1st October, 2010 and the next purchase was made on 1st September, 2011. Thus, when you sold the said scrip on 1st December, 2011 by applying the FIFO method, you would be deemed to have sold the IFCI scrip purchased on 1st October, 2010.  As the scrip was held for more than 12 months, it is a long term capital asset, and the profit or loss thereon would be a Long Term Capital Gain/Loss, as the case may be. Thus, you have to consider the overall FIFO, and not demat account-wise.


KEY POINTS

  • Inherited property qualifies as a long term capital asset if the period of holding of the ancestor and the inheritor (after inheritance) exceeds 36 months. However, it gets the benefit of indexation only after the inheritor acquires the property and not from the date of acquisition by the said ancestor.
  • Investing in a MF Growth Plan involves an element of investment in capital assets. If redeemed after a year, the appreciation in the investment will be treated as a Long Term Capital Gain. For Dividend Plans, there is no appreciation as the profits on such units are declared as dividends, and hence, they are not treated as long term capital assets.
  • Scrips held for more than 12 months are a long term capital asset, and the profit or loss thereon would be a Long Term Capital Gain/Loss, as the case may be.

 

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

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