The cost of acquisition of any security is to be determined on the basis of first-in-first-out method
I purchased 300 shares of Noida Toll at Rs 70 on 10 December 2007. I purchased another 100 shares of the same company at 40 on 15 January 2008. I sold 100 shares at Rs 50 the next day. I have carried forward my 300 shares to the next financial year. Now comes the twist. Which shares should I show as sold: the one in my delivery or the one I purchased on the last day? Will this sale take place from the 300 shares I had purchased at Rs 70, implying a loss of Rs 20x100 = Rs 2000, or from the shares purchased at Rs 40, implying a gain of Rs 10x100 = Rs 1000.
— Prasant Agarwal, email
As per Section 45(2A) of the Income-Tax Act, 1961, for dematerialised holding, the cost of acquisition of any security is to be determined on the basis of the first-in-first-out (FIFO) method. Accordingly, when you sell 100 shares, the sale will take place from your existing depository of 300 shares purchased at Rs 70, meaning a loss of Rs 20x100 = Rs 2000.
I would like to know under which head of income, profit from shares should be mentioned? And do I have to submit the income tax return form (ITR) 2 or ITR 4, when filing my return? I trade from home and do not have any other income. I made a profit of Rs 1.15 lakh in 2007-08.
— Mrs. Ramdas, e-mail
If share trading is your only business and you regularly trade in shares, then profit from such activity will be shown under the head, ‘Income from business and profession’. You can file your return of income in ITR-4, which is applicable for individuals/Hindu undivided family (HUF) with proprietary business or profession. For firms or partnership, ITR-5 is applicable. ITR-2 is applicable for individuals/HUFs with income from any source except income from business or profession.
I am holding 100 bonus shares of Infosys Technologies for more than one year. The cost of acquisition is nil. If I gift these shares to my wife and she sells these shares, I understand there will be no tax liability on her as these have been held for more than a year. As per the clubbing provision, there will be no liability on me as the cost of these shares in my hands is nil.
— Vineet Jain, email
Section 64(1)(iv) of the Income Tax Act, 1961, pertains to an individual’s liability arising from income derived from assets transferred to spouse. When you gift the shares to your wife, there will be no tax liability in her hands under Section 56(2)(vi). But any income arising from the shares shall be clubbed with your income under Section. 64(1)(iv). The cost of acquisition to your wife will be of the previous owner (i.e., you). The period of holding considered will also be of the previous owner. Hence, when these shares are sold, the profit will be long-term capital gain (as these shares were held by you for more than one year) exempt under Section 10(38) if sale takes place on a recognised stock exchange and the securities transaction tax is paid. Hence, the question of clubbing does not arise.
We leased our factory premises in the year ending March 2007 (FY 2007). The lesse deducted tax at source (TDS) from the rent at the prescribed rate. However, the lesse has not deposited the TDS with the government and has not issued me a TDS certificate. We have submitted our tax return without the TDS certificate and have claimed credit for the TDS. On what basis will the assessment be finalised by the tax department?
— Amarjit Kapoor, email
The responsibility of depositing the tax deducted at source (TDS) is of the lesse. As he has not deposited nor given you the certificate you have to follow up with him for the certificate. While submitting returns you are not required to attach the TDS certificate as now the return to be filed is annexureless. The assessment will be finalised by the income tax (IT) department on the basis of your return. A query could arise when the IT department assesses your returns as you are required to fill TDS details like date of payment/credit in the return.
In the case of ACIT v Om Prakash Gattani (2000) 242 ITR 638 (Gauhati), it was held that if the payer deducted tax at source on the lottery winnings of the assesse and issued a certificate to that effect to the assesse, but did not remit the amount to the government, the assesse cannot claim credit for TDS merely on the strength of the certificate, nor can he contend that credit cannot be withheld merely because the payer has not paid the amount to the government. The IT department will not allow you credit based on the aforesaid case law.
I am transferring my property to another person. I am, however, not taking even a single penny. The consideration for transfer will be paid later. Can I avoid tax on such a transfer?
— Surbhi Agarwal, e-mail
As you are transferring property, there is capital gain or loss. If it is capital gain, then it will be taxed in the year when the transfer takes place no matter when the consideration is received — in that year or later. You have not specified what kind of property you have sold. You can get exemption under Sections 10(38), 54 and 54EC, 54F of the Income Tax Act, 1961, depending on the nature of the property you have sold.
I invested in IRB Infrastructure, a listed public limited company, from a short-term point of view in the year ending March 2008 (FY 2008). Recently, I sold those shares. Do these shares qualify for deduction under Section 80C of the Income-Tax Act, 1961?
— Alkesh Vangani, email
Under Section 80C of the Income Tax Act, 1961, amount invested in approved debentures and equity shares of a public company engaged in infrastructure, including the power sector, or units of a mutual fund, proceeds of which are utilised for the developing and maintaining of a new infrastructure facility, is qualified for deduction for a maximum of Rs 1 lakh. You can check from the Central Board of Direct Tax whether your equity shares are approved. To the best of our knowledge, they are not.
My father retired from the army as an officer in 2006. His income details are: Government pension: Rs 1.8 lakh per annum; income from salary (after retirement he worked with an organisation for four months but is now no longer employed): Rs 1 lakh. Total income for the year: Rs 2.8 lakh. What would be the taxable income and the tax liability? Can he claim house rent allowance (HRA), medical allowance, leave travel allowance (LTA) or any other allowances despite the fact that he is retired? If yes, how much? The flat that he stays in is in my name (I am his daughter). Can he show that he pays rent to my mother (instead of me, since I am salaried and have a tax liability)?
— Sheetal Rao, email
You have not stated whether the pension received by your father is commuted (lumpsum payment) or uncommuted (regular periodical payment). Commuted pension is fully exempt from tax under Section. 10(10A)(i) of the Income-Tax Act 1961, for government employees. Uncommuted pension is taxable as salary. It is not possible to correctly determine the taxable income and tax liability as you have not clearly stated all the relevant details in the query.
As your father has salary income, we can claim benefit of any allowances (if any) received. However, the benefit of HRA can be claimed only if he is staying in a rented premises and pays rent. Deduction available for HRA is the least of the following:
* 50% of salary if the residential house is situated in Bombay, Delhi, Calcutta or Madras, or else 40% of salary.
* HRA actually received
* Excess of rent paid over 10% of salary.
Fixed medical allowance is chargeable to tax. Re-imbursement of medical expenses is not chargeable to tax up to Rs 15000 in aggregate. Similarly, LTA benefit is also available only if the assesse has actually undertaken travel during the year and subject to compliance of other conditions specified.
Your father stays in a flat which is in your name. He cannot pay rent to your mother when the flat is in your name. As you are the owner of the flat, rental income must accrue to you and not to your mother.
Can I avoid tax on short-term capital gain? My income is Rs 5 lakh per annum.
— Rajendra Nandi, email
No you cannot avoid tax on short-term capital gain. However, you may avail the basic exemption limit of Rs 110000. Assuming that the entire Rs 5 lakh is your capital gain income and you have no other income, on the balance income of Rs 390000 (Rs 500000 – Rs 110000), you will have to pay capital gain tax as per applicable rates. You may set off short-term capital loss (if any) against the gain.
I purchased 300 shares of Noida Toll at Rs 70 on 10 December 2007. I purchased another 100 shares of the same company at 40 on 15 January 2008. I sold 100 shares at Rs 50 the next day. I have carried forward my 300 shares to the next financial year. Now comes the twist. Which shares should I show as sold: the one in my delivery or the one I purchased on the last day? Will this sale take place from the 300 shares I had purchased at Rs 70, implying a loss of Rs 20x100 = Rs 2000, or from the shares purchased at Rs 40, implying a gain of Rs 10x100 = Rs 1000.
— Prasant Agarwal, email
As per Section 45(2A) of the Income-Tax Act, 1961, for dematerialised holding, the cost of acquisition of any security is to be determined on the basis of the first-in-first-out (FIFO) method. Accordingly, when you sell 100 shares, the sale will take place from your existing depository of 300 shares purchased at Rs 70, meaning a loss of Rs 20x100 = Rs 2000.
I would like to know under which head of income, profit from shares should be mentioned? And do I have to submit the income tax return form (ITR) 2 or ITR 4, when filing my return? I trade from home and do not have any other income. I made a profit of Rs 1.15 lakh in 2007-08.
— Mrs. Ramdas, e-mail
If share trading is your only business and you regularly trade in shares, then profit from such activity will be shown under the head, ‘Income from business and profession’. You can file your return of income in ITR-4, which is applicable for individuals/Hindu undivided family (HUF) with proprietary business or profession. For firms or partnership, ITR-5 is applicable. ITR-2 is applicable for individuals/HUFs with income from any source except income from business or profession.
I am holding 100 bonus shares of Infosys Technologies for more than one year. The cost of acquisition is nil. If I gift these shares to my wife and she sells these shares, I understand there will be no tax liability on her as these have been held for more than a year. As per the clubbing provision, there will be no liability on me as the cost of these shares in my hands is nil.
— Vineet Jain, email
Section 64(1)(iv) of the Income Tax Act, 1961, pertains to an individual’s liability arising from income derived from assets transferred to spouse. When you gift the shares to your wife, there will be no tax liability in her hands under Section 56(2)(vi). But any income arising from the shares shall be clubbed with your income under Section. 64(1)(iv). The cost of acquisition to your wife will be of the previous owner (i.e., you). The period of holding considered will also be of the previous owner. Hence, when these shares are sold, the profit will be long-term capital gain (as these shares were held by you for more than one year) exempt under Section 10(38) if sale takes place on a recognised stock exchange and the securities transaction tax is paid. Hence, the question of clubbing does not arise.
We leased our factory premises in the year ending March 2007 (FY 2007). The lesse deducted tax at source (TDS) from the rent at the prescribed rate. However, the lesse has not deposited the TDS with the government and has not issued me a TDS certificate. We have submitted our tax return without the TDS certificate and have claimed credit for the TDS. On what basis will the assessment be finalised by the tax department?
— Amarjit Kapoor, email
The responsibility of depositing the tax deducted at source (TDS) is of the lesse. As he has not deposited nor given you the certificate you have to follow up with him for the certificate. While submitting returns you are not required to attach the TDS certificate as now the return to be filed is annexureless. The assessment will be finalised by the income tax (IT) department on the basis of your return. A query could arise when the IT department assesses your returns as you are required to fill TDS details like date of payment/credit in the return.
In the case of ACIT v Om Prakash Gattani (2000) 242 ITR 638 (Gauhati), it was held that if the payer deducted tax at source on the lottery winnings of the assesse and issued a certificate to that effect to the assesse, but did not remit the amount to the government, the assesse cannot claim credit for TDS merely on the strength of the certificate, nor can he contend that credit cannot be withheld merely because the payer has not paid the amount to the government. The IT department will not allow you credit based on the aforesaid case law.
I am transferring my property to another person. I am, however, not taking even a single penny. The consideration for transfer will be paid later. Can I avoid tax on such a transfer?
— Surbhi Agarwal, e-mail
As you are transferring property, there is capital gain or loss. If it is capital gain, then it will be taxed in the year when the transfer takes place no matter when the consideration is received — in that year or later. You have not specified what kind of property you have sold. You can get exemption under Sections 10(38), 54 and 54EC, 54F of the Income Tax Act, 1961, depending on the nature of the property you have sold.
I invested in IRB Infrastructure, a listed public limited company, from a short-term point of view in the year ending March 2008 (FY 2008). Recently, I sold those shares. Do these shares qualify for deduction under Section 80C of the Income-Tax Act, 1961?
— Alkesh Vangani, email
Under Section 80C of the Income Tax Act, 1961, amount invested in approved debentures and equity shares of a public company engaged in infrastructure, including the power sector, or units of a mutual fund, proceeds of which are utilised for the developing and maintaining of a new infrastructure facility, is qualified for deduction for a maximum of Rs 1 lakh. You can check from the Central Board of Direct Tax whether your equity shares are approved. To the best of our knowledge, they are not.
My father retired from the army as an officer in 2006. His income details are: Government pension: Rs 1.8 lakh per annum; income from salary (after retirement he worked with an organisation for four months but is now no longer employed): Rs 1 lakh. Total income for the year: Rs 2.8 lakh. What would be the taxable income and the tax liability? Can he claim house rent allowance (HRA), medical allowance, leave travel allowance (LTA) or any other allowances despite the fact that he is retired? If yes, how much? The flat that he stays in is in my name (I am his daughter). Can he show that he pays rent to my mother (instead of me, since I am salaried and have a tax liability)?
— Sheetal Rao, email
You have not stated whether the pension received by your father is commuted (lumpsum payment) or uncommuted (regular periodical payment). Commuted pension is fully exempt from tax under Section. 10(10A)(i) of the Income-Tax Act 1961, for government employees. Uncommuted pension is taxable as salary. It is not possible to correctly determine the taxable income and tax liability as you have not clearly stated all the relevant details in the query.
As your father has salary income, we can claim benefit of any allowances (if any) received. However, the benefit of HRA can be claimed only if he is staying in a rented premises and pays rent. Deduction available for HRA is the least of the following:
* 50% of salary if the residential house is situated in Bombay, Delhi, Calcutta or Madras, or else 40% of salary.
* HRA actually received
* Excess of rent paid over 10% of salary.
Fixed medical allowance is chargeable to tax. Re-imbursement of medical expenses is not chargeable to tax up to Rs 15000 in aggregate. Similarly, LTA benefit is also available only if the assesse has actually undertaken travel during the year and subject to compliance of other conditions specified.
Your father stays in a flat which is in your name. He cannot pay rent to your mother when the flat is in your name. As you are the owner of the flat, rental income must accrue to you and not to your mother.
Can I avoid tax on short-term capital gain? My income is Rs 5 lakh per annum.
— Rajendra Nandi, email
No you cannot avoid tax on short-term capital gain. However, you may avail the basic exemption limit of Rs 110000. Assuming that the entire Rs 5 lakh is your capital gain income and you have no other income, on the balance income of Rs 390000 (Rs 500000 – Rs 110000), you will have to pay capital gain tax as per applicable rates. You may set off short-term capital loss (if any) against the gain.
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