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T. Banusekar

I SOLD some shares on September 15 and 16, 2004. I held these shares for more than a year. I was under the impression that the gain would be exempt. However, I have come to learn that there will be no exemption in respect of the gain since the securities transaction tax has not been suffered on the sale of these shares. Kindly clarify.

B. R. S. Raghavan

Reply

You cannot claim exemption under Section 10(38) in respect of the gain. The exemption under Section 10(38) can be claimed if:

The transaction of sale of such equity shares or units is entered into after the coming into force of the securities transaction tax, that is on or after October 1, 2004. Such transaction is chargeable to securities transaction tax, that is, where the sale is through a recognised stock exchange.

In your case since the sale has taken place prior to October 1, 2004. No securities transaction tax would have been payable at the time of sale. Therefore, the exemption will not be available to you. You will be taxed on the gain in accordance with Section 112 which will be the lower of 10 per cent of the gain computed without the benefit of indexation or 20 per cent of the gain computed with the benefit of indexation.

Query

I am paying the LIC premium on a policy taken by dependent parents. Will I be able to claim the tax benefit in respect of such premium?

Thirugnanasambandam

Reply

You will not be able to claim the deduction under Section 80C in respect of the premium you are paid by you paying on the insurance of your parents. Section 80C(4) only allows a deduction to be claimed if the premium is paid to insure the individual, the spouse of the individual or any child of the individual. The premium of your parents paid by you cannot be claimed as a deduction though they may be dependent on you.

Query

IN this column (May 15, Business Line) you had stated that the deduction under Section 80C is to be reduced in computing the gross total income. It is presumed that this will mean that the gross total income will not include items, which are exempt, such as interest from PPF, dividends from listed companies and long term capital gains exempt under Section 10(38). However, it appears that long-term capital gains chargeable at 10 per cent or 20 per cent, as the case may be and short-term capital gains chargeable at the normal rates or at 10 per cent in case of sale of shares through a recognised stock exchange will be included in computing the gross total income. It, therefore, appears that the long term capital gains chargeable at 10 per cent or 20 per cent and the short-term capital gains chargeable at 10 per cent will also be treated as part of gross total income and the deduction under Section 80C can also be claimed from such income. Is this correct?

R. C. M. Pitchai

Reply

Deduction under Section 80C cannot be claimed against the long-term capital gains chargeable at 10 per cent or 20 per cent and the short-term capital gains chargeable at 10 per cent. These incomes, of course, will form part of the gross total income as pointed out by you. Long-term capital gains is chargeable at the lower of 10 per cent computed without the benefit of indexation or 20 per cent computed with the benefit of indexation in case of transfer of listed securities or at 20 per cent on transfer of any other asset.

Short-term capital gains realised from sale of shares through a recognised stock exchange and subject to payment of securities transaction tax will be taxed at 10 per cent. These rates are provided for in Sections 112 and 111A respectively. Since Sections 112 and 111A specifically prohibit the claim of deduction under Chapter VI-A when tax is suffered at the rates prescribed in the section and since Section 80C falls under Chapter VI-A, no deduction can be claimed under Section 80C on such incomes.

Query

The Finance Minister recently announced that investments will be subject to tax based on the EET method, that is they are to be taxed when the investments are realised though a deduction will be available when the investment is made, say, for example, in NSCs or ELSS. Does this mean that the maturity proceeds that I will receive in the current year will be treated as my income?

Reply

The Finance Minister has only announced that we must move to the EET method and not made any proposals with regard to the taxability based on this method.

He has only suggested that this method may be brought into the statute in the future and has further stated that a committee that will appointed to look into this proposal. The legislation, as such, to make investments taxable on maturity has not been introduced. This being the case, the maturity proceeds from NSCs and ELSS that you receive in the current year will not be taxable as your income.

***

Query

I am a manager in a nationalised bank. I will be receiving arrears of salary in the financial year 2005-06. The arrears relates to the financial years 2002-03 to 2004-05. I want the same taxed in the current year, and not in the respective years, since tax burden will be lower. Can this be done?

P. V. Narayanan

Reply

The arrears of salary will be taxed as income of the financial year 2005-06; it cannot be taxed in the respective years to which it relates.

You can also claim relief under Section 89 (in the method stated in earlier in this column), if the same is available based on the mathematical calculations indicated.

Query

The Finance Act, 2005, has brought in a deduction of upto Rs one lakh under Section 80C in respect of amounts invested in LIC, PF, NSC and so on. The deduction is also available on the principal repayment of housing loan and tuition fee paid for the education of children. Is there any maximum limit, which will qualify for deduction in respect of tuition fee under the said section?

Antony

Reply

The tuition fee paid for the education of children of an individual will not be subject to a maximum limit. However, the deduction can be claimed only in respect of the tuition fee paid for any two children..

Query

Will deduction under Section 80C in respect of repayment of housing loan be available even if the property is let out? Can the deduction be claimed where the property is constructed or purchased?

Vishwanath

Reply

The principal repayment of housing loan will qualify for deduction under Section 80C irrespective of whether the property is self- occupied or let out and also irrespective of whether the property is purchased or constructed.

Query

My wife works as a clerk in a bank. During the financial year 2005-06, under a tripartite agreement with Indian Banks Association, my wife has to receive arrears of salary, which relates to earlier years. How will the arrears be taxed?

Reply

The arrears will be taxed as salary income of the current year. Your wife will, however, be eligible to claim relief under Section 89 on the following basis:

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