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Are profits from gifts taxable?

There is no tax implication provided the receiver is not a minor.

Print Edition: November 30, 2006

I took a personal loan and lent the money to my wife and brother for use in their business. Can I offset the interest I pay on the loan against the interest that I receive from them? Can the y claim the interest paid to me as a deduction from their business income or capital gains?

Yes, the interest payments you receive from your wife and brother can be adjusted against the interest you pay on the loan you have taken. This way, the interest payments you receive will not be treated as your income for calculating your tax liability. Under the provision of Income Tax Act interest expenditure (payment) is allowed against interest income if the expenditure is made for earning the interest income—which seems to be your case. For the interest your wife and brother are paying to you, they can claim deduction from their business income if the loan you have given them is being used for business. But interest payments are not deductible for computing capital gains. For instance, if you take a loan to invest in an asset (say, shares of a company) and you sell that asset at a higher than the purchase price, the interest you are paying on the loan can’t be deducted to arrive at your capital gains tax liability.

I stay in a rented house and claim HRA exemption for the rent paid. I want to take a loan for the repair and renovation of my father’s house, which is registered in his name. Will I be able to get the tax benefits from the loan?

Up to Rs 1 lakh of the interest paid on a loan for buying, constructing or repairing a property can be deducted from an individual’s taxable income in a year. But this exemption can be claimed only by the registered owner of the property. Since you are not the owner, you will not be eligible to claim the benefit.

I plan to sell a plot that falls within the jurisdiction of a panchayat. Would I have to pay capital gains tax on the profit from the sale?

Agriculture land is considered a capital asset only if it is situated within the jurisdiction of a municipality or a cantonment board or is located 8 km from the local limit of the board as notified by the government or falls in an area with a population of over 10,000. If your plot is located beyond 8 km or such limit notified by the panchayat, then you will not have to pay the capital gains tax.

I bought 50 shares of a company in December 2005 at Rs 144 per share. I purchased 30 more shares this January at Rs 149 a share. On February 3, 2006, the firm declared a bonus of three shares for every two shares held. In the same month, I sold my original holding of 80 shares at Rs 44.30 per share.How will my capital gain be computed?

Your total cost for 80 shares comes to Rs 11,670 but the sale consideration for the same is Rs 3,544. Hence you have incurred a loss of Rs 8,126—a short-term loss since the period of holding is less than a year. When you decide to sell the bonus shares, the sale consideration will be the capital gain liable for tax. To determine whether it is a short-term capital gain or a long term one, the period of holding will count from the date when the bonus was allotted, February 3.

I took a housing loan to buy a flat in Gurgaon in November 2004. In March 2006, I sold my house in Maharashtra. If I use the proceeds to repay the loan, will I be eligible for any exemption from the capital gains arising from the sale of the property?

An exemption under Section 54 of the Income Tax Act in respect of capital gains arising from sale of house property is available to an assessee who purchases a new residential property within one year before the date of transfer of such property or within two years thereafter. The exemption is also available if the assessee constructs a new residential property within three years from the date of transfer. In your case, the gap between purchase of the flat and the sale of the property is over a year, hence you will not be able to claim the exemption.

I bought a plot in March this year where I plan to build a house before March 2007. Can I claim exemption for the stamp duty charges for buying the land?

According to Section 80C, the payment made on account of stamp duty, registration and other expenses for the purchase or construction of a residential property is eligible for deduction up to Rs 1 lakh from the gross income. You have incurred expenditure on stamp duty only in the month of March 2006 when you bought your plot. In that case, the income from the plot is not chargeable and you may not be able to claim the benefit.

Under the Income Tax Act, an employer is required to deduct tax at source on the salary paid to an employee. If the employer fails to make the deduction, who is liable to pay the tax?

The payment of tax on the income earned is the responsibility of the person in whose hands the income accrues or arises. The deduction of tax at source is only a mechanism to collect tax. In case of failure of the employer to deduct tax at source, it will be the responsibility of the employee to pay tax on such income.

Do deposits made under the senior citizens savings scheme in 2006-07 qualify for tax exemption?

Deposits made under the Senior Citizens scheme in the current financial year won’t qualify for deduction under Section 80C of the Income Tax Act as the same is available in a term-deposit for a five-year period with a scheduled bank and in accordance with the scheme notified by the Government for this.

I am an NRI and propose to transfer money into my father’s account in India for him to meet his personal expenses and make investments in his name.Will there be any tax implications on such transfer of funds?

There are no tax implication on such a transfer. Nor will there be any tax on the recipient. But if your father invests that money, the profits from the investment will be taxed in his hands.

I have gifted some stocks to my daughter. She plans to sell them and share the proceeds with her two siblings. Are there any tax implications on either of us?

There is no tax implication on a gift made to your daughter provided she is not a minor. The capital gain from the sale of the shares will be chargeable in her hands. But the long-term gain, which have been subjected to securities transaction tax (STT) is exempt from tax. In order to compute the total period the shares have been held, the period for which you have held the shares will also be taken into consideration. The cost in the hands of your daughter will be the cost which you have incurred for the purchase of shares. There are no tax implications in case she gifts the proceeds from the sale of the shares to her siblings.

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