Tax Column

I am an individual resident in India. During the current financial year 2021-22, I did some work in a foreign country. While remitting my fees, foreign tax has been deducted. Can I claim credit for the foreign tax in India? If yes, what is the process?

I assume that the foreign country which you are referring to has a double taxation avoidance agreement with India. In that case you are entitled for the credit of tax paid in a foreign country while computing the taxable income in India. Under the Income Tax Act, if an assessee has paid taxes in a foreign country or specified territory outside India, he shall be allowed credit for the same in the year in which the assessee offers such income for taxation in India. You can refer to Rule 128 of the Income Tax Rules 1962 for further reference. It lays down the conditions for computation and claim of foreign taxes paid in a foreign country by resident taxpayers. You also have to submit Form 67 while filing the Income Tax return for the financial year 2021- 22 relevant to assessment year 2022-23 which contains a statement of foreign income offered to tax and foreign taxes deducted or paid on such income. Form 67 is required to be furnished electronically through e-filing on the Income Tax portal. Further, details of tax relief claimed for taxes paid outside India are also required to be disclosed in the Income Tax return form.

I am a woman homemaker. During the current financial year i.e. 2021-22 I have sold my old residential house and made a capital gain of Rs 3 crore. I have invested the entire capital gain in a new residential house and accordingly entitled for full exemption under Section 54 of the Income Tax Act. I don’t have any other income. Let me know whether I am still supposed to file IT return? In the past I have never filed any return in the absence of any taxable income.

Under proviso to Section 139 of the Income Tax Act, you have to file your tax return for the assessment year 2022-23 even if you have not filed the return in earlier years. Under proviso to Section 139(1) of the Income Tax Act, filing of Income Tax return is mandatory if the total income, before claiming capital gain exemption under Section 54 and 54F of the Income Tax Act, exceeds the maximum amount not chargeable to tax. In your case, before claiming exemption under Section 54 of the Income Tax Act, your gross income would be Rs 3 crore, which exceeds the maximum amount chargeable to tax. Therefore, you are under obligation to file return of income for the current financial year and I recommend you must file the return to avoid unnecessary litigation with the Income Tax Department. Your sale transaction of the property is recorded in the Income Tax system and therefore after verification if it is found that you have not filed the return, the IT Department may commence inquiry and will force you to file the return.  

I am an individual and involved in share trading activities. I do intra-day transactions, derivatives in future and option and take delivery of shares on short-term and long-term basis. Can I set off my losses under one head of activity against income under another head during the financial year? Kindly explain.

All your three activities in share trading generate income under different heads. For example, intra-day transaction is considered as speculative activity and therefore gain or loss that arises through intra-day transaction will be considered as speculative gain or loss. Speculative gain is taxed at the normal rate. However, speculative loss can be set off only against speculative gain. Therefore, any loss you incur on intra-day transaction shall not be available for set-off against business income or long-term or short-term capital gain. However, speculative loss is allowed to be carried forward and can be set off against future speculativeprofit, if any. Derivative income or loss is considered as business income or business loss. This derivative income is taxed at the normal rate. Derivative loss can be set off against derivative income, long-term capital gain or short-term capital gain and speculative gains in the same financial year. When you take delivery of shares and then sell them, it would give rise to capital loss or gain. If you hold the shares for more than 12 months, the loss or gain would be of long term. Long-term loss can be set off only against long-term profits. Short-term loss can be set off against short-term capital loss as well as long-term capital gain. Unabsorbed long-term capital loss is allowed to be carried forward to be set off against future long-term capital gain.

I am an individual. In the financial year 2014-15 I had invested Rs 1 crore as advance for purchase of a residential flat. Unfortunately, it turned out to be a wrong decision as the builder who was under the scanner did not complete the project. Under pressure from various agencies including the courts, the builder has agreed to cancel the allotment letters for a consideration of Rs 3 crore. I have agreed and I was paid Rs 3 crore in the current financial year. Could you explain what would be the tax treatment?

On advance payment of Rs 1 crore to the builder for purchase of a residential house, you have acquired a right in a residential flat in the form of allotment letter. This right in a residential flat is a capital asset. Therefore, any surplus that arises on surrender of capital right would be in the nature of capital gain. In your case, since you have been holding the right for more three years, the surplus would be considered as long-term capital gain. As the right in the property is a long-term capital asset, you will also be entitled for indexation. The indexed cost would be deducted from the amount of Rs 3 crore and the remaining surplus will be long-term capital gain in your hand, which is subject to tax at 20 per cent plus surcharge. However, if you don’t have more than one residential house on the date of surrender of right, then you can also invest in another residential house to avail exemption under Section 54F of the Income Tax Act.