Tax Column

Tax Column

Tax Queries By Jayesh Dadia Chartered Accountant 

I am an individual and doing F and O activity (derivatives) at Nifty through a registered broker. For the financial year 2021-22 I have earned ₹ 40 lakhs from F and O activity. I was told that any gain on this activity is taxed as business income. Therefore, can I avail provision of Section 44AD of the IT Act and offer 6 per cent of ₹ 40 lakhs as deemed taxable profit? 

F and O activity is not a business activity carried out by you. Under Section 43(5) of the IT Act, this activity is not considered as speculative transaction. Therefore, only for taxation, profit or loss earned on F and O activity can be considered as business income. However, it cannot be said that you are carrying out business activity within the meaning of Section 44AD of the IT Act. Therefore, on F and O profit, you can’t avail the benefit of Section 44AD of the IT Act. 

I am a resident and an individual and have earned foreign income in the UK on which tax was deducted. As I am a resident in India I have to offer foreign income in my tax return. Will I get credit for the tax paid abroad and if yes, what is the procedure? 

India has a Double Taxation Avoidance Treaty with the UK. Therefore, you are entitled credit for tax paid in the UK while offering foreign income in India. However, you have to file Form 67 electronically for availing foreign tax credit. This form needs to be filled properly. Note that in the absence of Form 67, the system will not give credit of foreign tax while processing your return. Rule 128 of IT Rules also clarifies working and claiming of foreign tax credit. There is no refund of foreign tax.

I have an investment in crypto currency. I was just told that now income arising on crypto currency is taxable. Can you explain what the provision is and how it works?

From April 1, 2022 any gain on sale or transfer of virtual digital asset (VDA) would be subject to tax at a flat rate of 30 per cent. VDA includes crypto currency and NFT and any other digital asset. Therefore, if you sell the crypto currency now, you have to pay Income Tax at a flat rate of 30% on profit. You cannot claim any expenses or allowances against such income, except the cost of acquisition i.e. purchase price. Thus, your taxable income would be the selling price minus the purchase price. If you have incurred any short-term or long-term loss, the same cannot be allowed to be set off against income arising on transfer of VDA. 

Further, even if you incur loss on sale or transfer of VDA, the loss will not be available for set-off against any other income including income on sale of other VDAs. In other words, loss incurred on sale of VDA needs to be ignored. Even if you gift a VDA it is taxable in the hands of the one who donates it or the recipient. Further, under Section 194S of the Income Tax Act, a person responsible for making payment on transfer of VDA must deduct TDS at 1 per cent of the aggregate amount during the financial year if it exceeds ₹ 10,000 and ₹ 50,000 in case of a specified person.

I am an individual. During the current financial year I am likely to receive ₹ 1 crore as share of beneficiary from my family trust where I am one of the beneficiaries. I am also likely to receive substantial jewellery on account of dissolution of HUF. I am also likely to receive a residential house from the estate of my father who passed away recently. I want to know the tax implication in my hand. 

If you are a beneficiary in a trust which has been filing its tax returns regularly and disclosing income and paying the taxes at the trust level, then on dissolution of the trust the amount received by the beneficiary is not subject to tax. Normally, when a beneficiary receives his or her share of wealth on dissolution of family trust, it is not subject to tax as the trust has already paid the taxes. Even on dissolution of an HUF, if the members of the HUF receive any assets such as jewellery, fixed deposits, etc., the assets or income are not subject to tax in the hands of the recipient who is a member of the HUF 

Such income is exempt in the hands of members in view of the provision of Section 10(2) and Section 56(2)(x) of the IT Act. If you inherit any asset on the death of your father, there is no tax implication in your hand. Therefore, the residential house which you are likely to receive as distribution of assets of your father is not subject to any tax in your hand. However, if you sell the residential house subsequently, then there will be capital gain tax implication. However, you will be entitled to deduction of the indexed cost and other exemption under Sections 54 and 54F of the IT Act.

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