The Hindu Business Line : MF incomes and redemption flows

I PURCHASED 800 CANPEP (equity-linked insurance plan) in 1991. The Mutual Fund has now redeemed the same paying me Rs 6,368 and deducting tax at source of Rs 1,632. How is the income to be computed on this redemption?

Chidambar Joshi

Canpep 1991 would have qualified for a deduction under Section 80CCB at the time when the investment was made. When units referred to in Section 80CCB are repurchased by the Mutual Fund, the taxability would be as follows:

The amount invested and claimed as deduction would be taxable as income under the head, `income from other sources'. Any excess received over and above the amount originally received will be treated as a capital gain.

In the instant case, the amount invested and the amount realised are like sums of Rs 8,000. Therefore, the entire amount of Rs 8,000 will be taxed as income under the head, income from other sources. The reader may claim credit for the tax deducted at source of Rs 1,632.

Query

I purchased 1,000 units of ITI Pioneer Mutual Fund under the dividend payout option. This was purchased three years back. I have now switched to the growth option with the same fund. What is the tax implication? If the same is taxable under the head, capital gains, can I set off the brought-forward loss under capital gains against this income?

I have a brought-forward capital loss, which I propose to set off against my capital gain in the current year. On the balance of gain, is the tax to be computed at 10 per cent or 20 per cent? The gain that has arisen during this year is from the transfer of listed securities.

T. S. V. Ramanan

When a person switches from one scheme to another of a mutual fund though within the same fund, a capital gain will arise.

The loss arising from the transfer of a short-term capital asset may be setoff against income arising from the transfer of either a short-term or a long-term capital asset and the balance, if any, be carried forward and set off against the income arising from the transfer of either a long-term or short-term capital asset within eight assessment years immediately succeeding the assessment year in which the loss was first computed

The loss arising from the transfer of long-term capital asset may be set off only against income arising from the transfer of a long-term capital asset and the balance, if any, be carried forward and set off against income arising from the transfer of a long-term capital asset within eight assessment years immediately succeeding the assessment year in which the loss was first computed.

Until assessment year 2002-03, a long-term capital loss could be set off against a short-term capital gain and vice-versa. The balance, if any, could be carried forward and set off either against long-term or short-term capital gains of the subsequent years, but within a period of eight assessment years immediately succeeding the assessment year in which the loss was first computed. The reader is, therefore, right in concluding that a brought-forward capital loss can be set off against the capital gain arising on the transfer of the units of the mutual fund.

The provisions relating to computation of tax on the long-term capital gains are governed by Section 112.

Under this Section, the tax on capital gain is computed at the rate of 20 per cent.

In the case of individuals and HUFs, however, the unexpired portion of the basic exemption may be reduced from the long-term capital gain before computing the tax at 20 per cent.

In case of transfer of listed securities, the excess over 10 per cent of the capital gain is ignored in computing the tax. Therefore, the brought-forward capital loss shall be set off against the capital gain (arrived at with the benefit of indexation) of the current year provided the same is permitted (as discussed above).

On the reminder of capital gain after such deduction, the tax shall be computed at 20 per cent and compared with 10 per cent of the gain arrived at before such set off and without the benefit of indexation. Thereafter, the excess over such 10 per cent will be ignored in determining the tax.

Query

I took the UTI-Unit Linked Insurance Policy 12 years back. I have claimed a rebate under Section 88 on the basis of the premium that I have paid every year.

I have not accounted any income as arising from the ULIP on a year-to-year basis.

I have in 2001-02 surrendered the policy and received the proceeds.

What is the tax treatment for this?

Kissna

Income received from the ULIP is exempt until the assessment year 2002-03 in the hands of the unit holder under Section 10(33).

The income in the instant case will, therefore, not be taxable in the hands of the reader.

Capital assets

IS there a threshold limit only beyond which short-term capital gain is taxed?

Rakesh

Short-term capital gain is treated on a par with any other income. Short-term capital gain is, therefore, to be added to the other incomes (other than long-term capital gain) and is to be taxed at the normal rates applicable to the person. Thus, in the case of the individuals and HUFs, the basic exemption would be available on the short-term capital gain and the balance would be taxed at the slab rates of 10 per cent, 20 per cent and 30 per cent (to be increased by a surcharge).

Query

Can loss on account of forfeiture of share application money be claimed as a loss under the head, `capital gains', and be set off against income under that head?

Rakesh Garg

For an income or a loss to arise under the head capital gains, there must be the transfer of a capital asset. If the share application money is forfeited, no loss can arise under this head for neither is there a capital asset nor its transfer.

Query

The State Government has notified the value of a property at a particular location at Rs 25,000. The local authority in exercise of his discretion has taken Rs 15,000 as the value for the purpose of determining the stamp duty payable for the reason that the property is of a hilly nature and is not approachable from the main road. The property is sold in the previous year for Rs 10,000. How is the gain to be computed? What documents need to be produced to the assessing officer?

Anonymous

A new Section 50C has been introduced by the Finance Act 2002 so as to provide that the full value of consideration in respect of immovable property shall be the guideline value adopted for stamp duty purposes unless the same is disputed before the appellate or revisionary authority under the relevant law.

In the reader's case, the reader should take Rs 15,000 to be the full value of consideration. If he shows a lower value as the full value of consideration, the matter may be referred to a valuation officer by the assessing officer.

T. Banusekar

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