Income earned by your adult daughter on the amount gifted to her will be taxed in your daughter's hands
I understand that if I gifted up to Rs 20 lakh to my adult daughter the tax liability on any earning on this gifted amount shall be shifted to my daughter. Is it correct? What would be the tax liability on the gifted amount?
— Amita Sharma, email
Income earned by your adult daughter on the amount gifted to her will be taxed in your daughter’s hands. It will not attract clubbing provisions. Income so earned will form part of her total income and shall be taxed as per applicable slab rates. There will be no tax liability on you on the amount gifted to your daughter.
I want to give some shares as gift to my wife. Can you suggest a model /draft deed for gifts? I also want to know whether such deed is to be executed on stamp paper? If yes, what will be the value of such stamp paper?
— S H Pajwani, email
For draft of gift deed, you may contact your lawyer/CA. Gift deed is to be executed on a stamp paper. Stamp duty to be paid is Rs 10 for every Rs 500 (gift value) or part thereof. It works out to approximately 2% of the market value.
Our company has to make payments to an Indian company in dollars. We do deduct tax at source though the dollar payment is made by the parent company in the US. Do we still have to deposit this money with the government by the 7th of the month following the month in which the payment is made?
— Trusha Bhojwani, email
Although regular assessment of any income is to be made in a later assessment year, tax on such income is payable by deduction at source or by advance payment, as the case may be under Section 190 of the Income-Tax Act, 1961. Once tax is deducted, it has to be deposited within seven days of the month following the month in which the payment is made. It does not make any difference if the payment is made in dollars. You have to make provisions for any shortfall in tax deduction on account of foreign exchange fluctuations between the period of deduction and the payment of amount.
Can I set off long-term capital gain against short-term capital gain tax? What happens if the shares I had purchased for Rs 2 lakh in 1995 and converted into stock-in-trade on 22 August 2006, when the market value was Rs 10 lakh are sold on 4 November 2006, when their value was Rs 6 lakh? I have paid the securities transaction tax (STT) on the deal. Can I show long-term cap gain of Rs 8 lakh (Rs 10 lakh–Rs 2 lakh) and claim business loss of 4 lakh (Rs 10 lakh-Rs 6 lakh)? Can I also claim refund of STT paid?
— Ashok Dalmia, email
From the assessment year (AY) 1985-86, conversion of investment into stock-in-trade is treated as transfer under Section 2(47). It will be treated as ‘transfer’ in the year in which capital asset is converted into stock-in-trade. The notional profit arising by way of transfer of conversion of capital asset into stock- in-trade is chargeable to tax in the year in which the stock-in-trade is sold. You can show long-term capital gains of Rs 8 lakh and claim business loss of Rs 4 lakh.
An assessee can claim rebate under Section 88E on the STT paid as per Form 10DB for evidence of payment of STT on transactions entered on a recognised stock exchange under the Income-Tax Rule 20AB, provided the total income of an assessee in the previous year includes any income chargeable under the head, ‘Profit and gain of business or profession’ arising from taxable securities transactions. In your case, there is business loss, which is not taxable. Hence, STT cannot be claimed.
Form 10E is for furnishing particulars of income under Section 192(2A) for claiming relief under Section 89(1) by a government servant or an employee.
I trade in the futures and options (F&O) segment and also invest in the cash market. Instead of transferring the shares to my demat account, I pledged all my share purchases in the margin account of my broker. The broker grants me margin against these shares and I trade in the F&O segment with this margin. All my share purchases have crossed one year. I have contract notes as proof of my purchase. I wish to sell my shares now. Will I get long-term capital gain benefit?
—Anuj Rajvanshi, email
If the period of holding of shares, preference or equity, listed or unlisted, listed debentures in recognised stock exchange, units of UTI, units of mutual fund specified under Section 10(23) D of the Income-Tax Act, 1961, crosses 12 months then the asset becomes long-term capital asset. You will get the benefit of long-term capital gain. If the sale of your shares has taken place on a recognised stock exchange and the securities transaction tax has been paid, then the entire capital gain is exempt from tax.
The assessing officer is not ready to consider the gross difference, i.e., positive or negative, for the purpose of turnover in the futures & options (F&O) segment. He says turnover is total of purchases or sales — whichever is higher — as per the contract notes. Can you please provide me any supporting law or notification to make my case strong?
— Omprakash Prabhu, email
As per the guidance note on tax audit, under Section 44AB of the Income-Tax Act, 1961, of the Institute of Chartered Accountants of India (ICAI), a speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise then by actual delivery or transfer of the commodity or scrips. In speculative transactions, the contract for sale or purchase entered into is not completed by giving or receiving delivery so as to result in the sale as per the value of the contract note. The contract is settled otherwise: squaring up by paying out the difference, which may be positive or negative. In such a transaction, such difference is turnover. It can be positive or negative arising from settlement of various contracts during the year. Each transaction resulting into a positive or negative difference is an independent transaction.
You may also refer to the guidance note issued by the ICAI for accounting of F&O. You may also refer to the decision of the tribunal in the cases of Royal Cushion Vinyl Products Ltd [IT Appeal No. 7859 (Bom) of 1992 dated 8 January 1993], Babulal Enterprises 31 BCAJ 788 (Bom), Saumil J Trivedi 34 BCAJ 280 (Bom), and Growmore Exports Ltd 78 ITD 95 (Bom), where it has been held that for speculative transactions, the gross sale value cannot be considered to be the turnover in the absence of delivery.
Althogh not treated as speculative, F&O transactions are completed without delivery of shares or securities. These are also squared up by payment of differences. Contract notes are issued for full value of the asset purchased or sold. But entries in the books of accounts are made only of the difference. Transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in these transactions is to be determined as follows:
* The total of favourable and unfavourable difference is to be taken as turnover.
* Premium received on sale of options is to be included in turnover.
* If any reverse trades are entered, the difference, should also form part of turnover.
I suffered loss of Rs 11 lakh in share trading in 2004-05. I filed return indicating the loss. The matter is up for scrutiny. I have not undertaken audit of accounts. I am a new investor. I do not have any taxable income before or after 2004-05. My gross turnover exceeds Rs 40 lakh. But if I take the net profit/loss of the derivatives and cash turnover, then it is below Rs 40 lakh. Can you help me in pleading with the income-tax officer with the support of relevant income-tax laws?
— Simmi Kour, email
As per the guidance note on tax audit under Section 44AB of the Income-Tax Act, 1961, published by the Institute of Chartered Account of India (ICAI), derivatives (futures & options) transactions are squared up by payment of difference. The contract notes are issued for the full value of the asset purchased or sold. But entries in the books of accounts are made only for the differences. The turnover in such types of transactions is to be determined as follows:
* The total of favourable and unfavourable difference is be taken as turnover.
* Premium received on sale of options is also to be included in turnover.
* For any reverse trades entered into, the difference should also form part of the turnover. In cash (delivery-based) trading, gross sales consideration is taken as turnover. For example, if a share (delivery-based) is purchased for Rs 90 and sold for Rs 100, then the turnover would be Rs 100. But in F&O contract, Rs 10 (Rs 100-Rs 90) is the turnover. If in another F&O contract, there is a loss of Rs 20, then the total F&O turnover would be Rs 10+Rs 20 = Rs 30.
Taking into consideration all the above points, if your total turnover exceeds Rs 40 lakh then you must get your books of accounts audited.
I understand that if I gifted up to Rs 20 lakh to my adult daughter the tax liability on any earning on this gifted amount shall be shifted to my daughter. Is it correct? What would be the tax liability on the gifted amount?
— Amita Sharma, email
Income earned by your adult daughter on the amount gifted to her will be taxed in your daughter’s hands. It will not attract clubbing provisions. Income so earned will form part of her total income and shall be taxed as per applicable slab rates. There will be no tax liability on you on the amount gifted to your daughter.
I want to give some shares as gift to my wife. Can you suggest a model /draft deed for gifts? I also want to know whether such deed is to be executed on stamp paper? If yes, what will be the value of such stamp paper?
— S H Pajwani, email
For draft of gift deed, you may contact your lawyer/CA. Gift deed is to be executed on a stamp paper. Stamp duty to be paid is Rs 10 for every Rs 500 (gift value) or part thereof. It works out to approximately 2% of the market value.
Our company has to make payments to an Indian company in dollars. We do deduct tax at source though the dollar payment is made by the parent company in the US. Do we still have to deposit this money with the government by the 7th of the month following the month in which the payment is made?
— Trusha Bhojwani, email
Although regular assessment of any income is to be made in a later assessment year, tax on such income is payable by deduction at source or by advance payment, as the case may be under Section 190 of the Income-Tax Act, 1961. Once tax is deducted, it has to be deposited within seven days of the month following the month in which the payment is made. It does not make any difference if the payment is made in dollars. You have to make provisions for any shortfall in tax deduction on account of foreign exchange fluctuations between the period of deduction and the payment of amount.
Can I set off long-term capital gain against short-term capital gain tax? What happens if the shares I had purchased for Rs 2 lakh in 1995 and converted into stock-in-trade on 22 August 2006, when the market value was Rs 10 lakh are sold on 4 November 2006, when their value was Rs 6 lakh? I have paid the securities transaction tax (STT) on the deal. Can I show long-term cap gain of Rs 8 lakh (Rs 10 lakh–Rs 2 lakh) and claim business loss of 4 lakh (Rs 10 lakh-Rs 6 lakh)? Can I also claim refund of STT paid?
— Ashok Dalmia, email
From the assessment year (AY) 1985-86, conversion of investment into stock-in-trade is treated as transfer under Section 2(47). It will be treated as ‘transfer’ in the year in which capital asset is converted into stock-in-trade. The notional profit arising by way of transfer of conversion of capital asset into stock- in-trade is chargeable to tax in the year in which the stock-in-trade is sold. You can show long-term capital gains of Rs 8 lakh and claim business loss of Rs 4 lakh.
An assessee can claim rebate under Section 88E on the STT paid as per Form 10DB for evidence of payment of STT on transactions entered on a recognised stock exchange under the Income-Tax Rule 20AB, provided the total income of an assessee in the previous year includes any income chargeable under the head, ‘Profit and gain of business or profession’ arising from taxable securities transactions. In your case, there is business loss, which is not taxable. Hence, STT cannot be claimed.
Form 10E is for furnishing particulars of income under Section 192(2A) for claiming relief under Section 89(1) by a government servant or an employee.
I trade in the futures and options (F&O) segment and also invest in the cash market. Instead of transferring the shares to my demat account, I pledged all my share purchases in the margin account of my broker. The broker grants me margin against these shares and I trade in the F&O segment with this margin. All my share purchases have crossed one year. I have contract notes as proof of my purchase. I wish to sell my shares now. Will I get long-term capital gain benefit?
—Anuj Rajvanshi, email
If the period of holding of shares, preference or equity, listed or unlisted, listed debentures in recognised stock exchange, units of UTI, units of mutual fund specified under Section 10(23) D of the Income-Tax Act, 1961, crosses 12 months then the asset becomes long-term capital asset. You will get the benefit of long-term capital gain. If the sale of your shares has taken place on a recognised stock exchange and the securities transaction tax has been paid, then the entire capital gain is exempt from tax.
The assessing officer is not ready to consider the gross difference, i.e., positive or negative, for the purpose of turnover in the futures & options (F&O) segment. He says turnover is total of purchases or sales — whichever is higher — as per the contract notes. Can you please provide me any supporting law or notification to make my case strong?
— Omprakash Prabhu, email
As per the guidance note on tax audit, under Section 44AB of the Income-Tax Act, 1961, of the Institute of Chartered Accountants of India (ICAI), a speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise then by actual delivery or transfer of the commodity or scrips. In speculative transactions, the contract for sale or purchase entered into is not completed by giving or receiving delivery so as to result in the sale as per the value of the contract note. The contract is settled otherwise: squaring up by paying out the difference, which may be positive or negative. In such a transaction, such difference is turnover. It can be positive or negative arising from settlement of various contracts during the year. Each transaction resulting into a positive or negative difference is an independent transaction.
You may also refer to the guidance note issued by the ICAI for accounting of F&O. You may also refer to the decision of the tribunal in the cases of Royal Cushion Vinyl Products Ltd [IT Appeal No. 7859 (Bom) of 1992 dated 8 January 1993], Babulal Enterprises 31 BCAJ 788 (Bom), Saumil J Trivedi 34 BCAJ 280 (Bom), and Growmore Exports Ltd 78 ITD 95 (Bom), where it has been held that for speculative transactions, the gross sale value cannot be considered to be the turnover in the absence of delivery.
Althogh not treated as speculative, F&O transactions are completed without delivery of shares or securities. These are also squared up by payment of differences. Contract notes are issued for full value of the asset purchased or sold. But entries in the books of accounts are made only of the difference. Transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in these transactions is to be determined as follows:
* The total of favourable and unfavourable difference is to be taken as turnover.
* Premium received on sale of options is to be included in turnover.
* If any reverse trades are entered, the difference, should also form part of turnover.
I suffered loss of Rs 11 lakh in share trading in 2004-05. I filed return indicating the loss. The matter is up for scrutiny. I have not undertaken audit of accounts. I am a new investor. I do not have any taxable income before or after 2004-05. My gross turnover exceeds Rs 40 lakh. But if I take the net profit/loss of the derivatives and cash turnover, then it is below Rs 40 lakh. Can you help me in pleading with the income-tax officer with the support of relevant income-tax laws?
— Simmi Kour, email
As per the guidance note on tax audit under Section 44AB of the Income-Tax Act, 1961, published by the Institute of Chartered Account of India (ICAI), derivatives (futures & options) transactions are squared up by payment of difference. The contract notes are issued for the full value of the asset purchased or sold. But entries in the books of accounts are made only for the differences. The turnover in such types of transactions is to be determined as follows:
* The total of favourable and unfavourable difference is be taken as turnover.
* Premium received on sale of options is also to be included in turnover.
* For any reverse trades entered into, the difference should also form part of the turnover. In cash (delivery-based) trading, gross sales consideration is taken as turnover. For example, if a share (delivery-based) is purchased for Rs 90 and sold for Rs 100, then the turnover would be Rs 100. But in F&O contract, Rs 10 (Rs 100-Rs 90) is the turnover. If in another F&O contract, there is a loss of Rs 20, then the total F&O turnover would be Rs 10+Rs 20 = Rs 30.
Taking into consideration all the above points, if your total turnover exceeds Rs 40 lakh then you must get your books of accounts audited.
0 comments:
Post a Comment