Query corner: Taxation

Vaibhav Sankla, Executive Director, Adroit, guides you in matters relating to taxation.

DEMAT ACCOUNT TRANSFERS

My daughter has transferred shares from her demat account to my demat account after holding it for more than one year in her account. If I sell now, what is the tax implication on the profit gained? Also, if she buys mutual fund units from her account, but on my name, and I sell it after one year, is there any tax implication? —Vrinda Seshan

The period for which such shares were held by your daughter before gifting them to you will be included in the holding period. Since the total holding period is more than one year, the capital gains arising from sale will be considered as long-term. The long-term capital gains arising from the sale of shares through a stock exchange are exempt from income tax. If the mutual fund is equity-oriented, then the long-term capital gains arising from the sale of units are exempt from tax. If the mutual fund is non-equity oriented, then the long-term capital gains are taxable at a rate of 20% with indexation benefit or 10% without indexation benefit.

SHORT-TERM CAPITAL GAINS TAX FOR NRIs

Currently, short-term capital gains tax on sale of shares is 15.45% for non-resident Indians (NRIs). What is the short-term capital gain on the sale of shares for NRIs, according to the new DTC Bill 2010 tabled in Parliament recently? —Imtiaz Patel

As per the proposed revised Direct Taxes Code, such short-term capital gains will be taxed as per the applicable tax slab rate. Only 50% of such short-term capital gains will be considered as taxable.

JOINT HOUSING LOAN AND TAX BENEFITS

My brother and I have decided to buy a flat and we will take a joint housing loan. How can we claim tax benefits for this year? — Ravindra

You can claim the tax benefits in the ratio in which you contribute EMIs for the property. You should keep the ratio constant throughout the term of the loan.
DELAY IN FILING RETURNS

I am a naval officer and my TDS is deducted every month. When the new ITR forms were introduced, I found them quite cumbersome. That's the reason why I haven't filed my returns for the past four years. Is it possible to file all the returns now? I have to claim refund for all the four years. — Nitesh Garg
The tax law allows you to file late income tax returns if you failed to file returns before the due date. The late return can be filed within two years from the end of the financial year. Therefore, you can now file tax returns for financial year 2008-09 and 2009-10 only. You will be eligible to claim refund of excess income tax deducted at source for both these years. Also, if the late return is filed after the expiry of one year from the financial year, you will be charged with a penalty of up to Rs 5,000 unless you provide a valid reason for the delay.

CAPITAL GAINS TAX ON SHARE SALES IN MERGERS

According to the terms of the scheme of amalgamation/merger/demerger of companies, the sale proceeds of fractional share entitlement is given to the shareholder by the respective companies. I want to know if any capital gains tax is payable in such cases as Securities Taxation Tax (STT) is not charged on these transactions by the companies. —SK Ghosh

Yes, you are right. Since STT is not paid on such transaction, the long-term gains will be taxable.

TAX ON DIVIDEND FROM DEBT FUNDS

Will the dividend from debt funds be tax-free in the hands of investors under the new DTC regime? Also, will the long-term capital gains be taxed at 20% with indexation and at 10% without indexation? —Vinayak Hari Gadre

Under the proposed Direct Taxes Code, dividends from non-equity-oriented funds will be taxable in the hands of the recipient. The dividend distribution tax on dividends declared on non-equity funds is done away with in the code. Long-term capital gains will be taxed as per the applicable slab rate. The benefit of indexation will be available on long-term capital gains.

NO TAX RELIEF ON GOVT COMPENSATION

Due to the construction of a rail over-bridge, the state government had acquired part of my plot in 2008 and paid compensation after deducting the taxes. Can I seek tax relief (other than capital gains) as the transaction was not initiated by me for my gains? —Sridhar

No, you cannot claim any relief on such grounds. The gains will remain taxable.
TAX ON US CITIZEN’S SAVINGS IN INDIAN CURRENCY

My son is a US citizen and he has some savings in Indian rupees. He is earning bank interest and capital gains from mutual funds investment against the rupee funds. Can he submit form 15G if his taxable income from rupee funds is less than the exemption limit for individual Indians? Is he required to show his US income in if he files the return?— JS Arora
No, a non-resident cannot submit form 15G. He has to make an application to the jurisdictional tax officer in form number 13. If the application is accepted, the tax department will issue a certificate of non-deduction (or deduction of tax at lower rate) of tax at source. Such a certificate can be then be submitted with the bank/mutual fund and he will then receive income from them without deduction of tax at source. While filing his income-tax return, he may not show his US income in that return.