My father died 3 years ago. His will requires 50% of income from sale of his house (bought in 1978) to go to the eldest son and 25% each to two younger sons. How will the capital gains be computed?
—Sandeep Shenoy
Since the property was purchased long ago, any gain from its sale shall be treated as long-term capital gain. Out of the sale proceeds, 50% belong to the eldest brother and 25% each to the other two brothers, so the ratio of gain also shall be 2:1:1.
Long-term capital gains are taxed at the rate of 20% after indexation of cost. This indexation readjusts the price of acquisition by taking into account the inflation during the holding period. Let us assume the cost of acquisition and building the house was Rs 5 lakh 30 years ago and it was sold for Rs 50 lakh this year. The indexed cost of the house is calculated by the following formula:
Cost price (Rs 5 lakh) x Cost inflation index for year of sale (551)/ Cost inflation index for year of purchase (100) = Indexed cost
The indexed cost of the property works out to Rs 27.55 lakh. So the longterm capital gain will be Rs 22.45 lakh (Rs 50 lakh minus Rs 27.55 lakh). This gain shall be divided in the ratio 2:1:1.
Since the shares are defined, it is better to get separate cheques for the three brothers. Each one of you shall be taxed separately in your income tax return on your share of profit.
You can reduce your taxability by any of the following options:
- Invest the money for buying a new house within a year before or within two years after the date of transfer of such property
- Use the money to construct a house within three years of the sale
- Invest the money in tax saving bonds of the Rural Electrification Corporation or the National Highway Authority of India
My income was less than Rs 10 lakh last year. This year I have done a lot of share trading and paid securities transaction tax (STT). I made a short-term profit of about Rs 2.8 lakh. Do I have to pay 10% surcharge on my entire income. What will be my tax on short-term gain?
—Raman Sharma
No surcharge is applicable in your case as your income is less than Rs 10 lakh. It exceeds this amount only by adding short-term capital gains which are taxed at a special rate (flat 10% plus cess in all cases where STT is deducted). Your tax on Rs 2.8 lakh short-term capital gain would be Rs 28,000 plus education cess of 3%. But, if your income exceeds Rs 10 lakh, surcharge of 10% would be applicable on entire income including the short-term capital gain.
I am a retired person and pay Rs 6,000 as rent. Can I get a deduction for rent paid though I do not get any house rent allowance (HRA) in my pension?
—AK Sinha
Yes, you can avail tax deduction for payment of rent subject to certain conditions. Firstly, your rent payment for the accommodation should be more than 10% of your income. Secondly, no one in your family— including you, your wife and minor children—should own a house in the city where you are living. Thirdly, you should not be receiving HRA from your employer. If these conditions are fulfilled, you will get tax deduction under Section 80 GG of the Income Tax Act of up to 25% of your income but not exceeding Rs 2,000 a month. You shall also be required to fill form no 10BA along with your tax return form.
My salary for the financial year 2007-8 is Rs 2.3 lakh. I traded in futures and options and incurred a loss of Rs 2.25 lakh. Can this loss be set off against the salary income?
—Rajesh Krishna
No, the loss incurred by you in futures and options cannot be set off against your salary income. As per the Income Tax Act, no other loss can be set off against salary income except loss from house property (this loss is the interest you pay on a home loan). Your salary will be taxed at the normal rates. Trading in futures and derivatives is regarded as a business activity and any loss incurred in it shall be regarded as a business loss and can be carried forward to next year to be set off from future gains from derivative trading. The maximum period for which this loss can be carried forward is eight assessment years beginning from the year in which the loss was first incurred.
My annual income from salary after accounting for all deductions under Section 80C is Rs 92,000. I also have short-term capital gains of Rs 7,000 from share trading. Do I have to file a return for such income?
—Kavita Pai
You are not required to file your tax return as your total income after deductions does not exceed Rs 1.45 lakh, the exemption limit for women. The benefit of basic exemption is available to every person whose net income after deductions doesn’t exceed Rs 1.1 lakh for males, Rs 1.45 lakh for females and Rs 1.95 lakh for senior citizens for the financial year 2007-8.
I have booked a flat and will be given possession soon. I have Rs 14 lakh in a bank fixed deposit which I will need to pay at the time of possession. I am in the 30% tax bracket. Is there any other option to park my money that gives liquidity as well as absolute capital protection?
—Rakesh Ranjan
Since liquidity of your investment is very important, the best option for you will be to park your funds in a liquid fund which credits the money to your bank account at a day’s notice. If you are not going to need this fund for at least 15 days, you can go for liquid funds with a lock-in period of 15 days. In the present scenario, as an individual investor, you can expect to earn a return of around 7.3% on annualised basis. Since these schemes invest in money market instruments, there is no risk to the capital invested. Only the return may fluctuate on a day-to-day basis.
I am buying a used car from my employer. The car has a book value of Rs 3 lakh, but I am paying Rs 3.5 lakh for it. What will be the tax implications for me?
—Akhil Gupta
As per the Income Tax Act, where a moveable asset belonging to the employer is transferred to the employee at a concessional rate, the difference in the written down value in the books and the actual amount paid is taxable as a fringe benefit tax. The tax rate for this is 30%. The written down value in the case of a car is calculated by factoring in a 20% depreciation per year. However, in your case, the written down value of the car is lower than what you are paying for it. Hence, there will be no tax implication for you as there is no taxable value.
