The Hindu Business Line : Market-savvy management student

I AM a student doing my MBA. I did some trading in equity shares in the previous year 2004-05. The trading was usually with a short-term holding. All the trading was done on or after October 1,2004 and was through a recognised stock exchange where the Securities Transaction Tax was charged at the time of sale. The investment was partly out of my own funds and partly out of my father's money. Will this trading in shares be treated as short-term capital gains or as business income? Will I be able to claim the basic exemption of Rs 50,000 and also the rebate under Section 88? Please note that I do not have any other income chargeable to tax.

Nikhil Ahuja

Reply

Insofar as the buying and selling of shares is concerned, the issue of whether the same should be treated as giving rise to capital gains or business income is one which will have to be determined on the facts and circumstances of the case. Broadly speaking, the issue of whether such income will be treated as business income or capital gains can be decided based on the period of holding, the frequency of such transactions, the motive of the transaction which is to be examined on facts, the entries in the books, the infrastructure deployed such as employees nature of systems monitoring, the source of funds whether own funds or borrowed funds.

None of these factors in isolation can be taken in determining whether the transactions by way of buying and selling of shares are in the nature of business or in the nature of investment. The answer to your query will therefore have to be examined on the facts of the case. If the gain is taxed as business income you will be eligible for rebate under Section 88. If it is taxed as capital gain no rebate under Section 88 can be claimed. The basic exemption of Rs 50,000 will be available in either case.

Query

Will the interest accrued on NSCs qualify for the deduction under Section 80C? Will I be able to the get exemption in respect of HRA even when I own a house for which I have taken a loan and am claiming the tax benefits on a housing loan? Will reimbursement of medical expenses by the employer be exempt even when the medical treatment or the bills for purchase of medicines are in the name of my wife and mother? Will exemption under Section 10(10D) be available even when the benefit of deduction has been claimed under Section 80C in respect of the premium paid on a life insurance policy?

N. S. Viswanathan

Reply

Under the NSC VIII issue, which is in operation now, the interest except in the last year is not paid to the investor but only credited to his account. The interest, which is not paid, is treated as invested in the NSC. Therefore, the interest so credited will qualify for deduction under Section 80C. You may, however, note that in the last year of the investment, the interest will be paid to you and, therefore, will not qualify for deduction under Section 80C.

There is no prohibition on claiming the exemption under Section 10(13A) even where you are claiming the tax benefits in respect of the principal repayment and interest on a housing loan taken by you. The only issue will be whether you can treat the house owned by you as self-occupied. Note that only one residential house can be treated as self-occupied and that the annual value can be taken as nil. If more than one house is self-occupied, only one will be treated as self-occupied and the others will be treated as deemed let out property.

In your case, you can treat the property owned by you as self-occupied and take its annual value as nil if you are not in a position to occupy it due to your place of employment being at a place different from the place where the property is located and further if the same is not let out. This will, however, be possible only if you do not own any house property other than this one. If you own more than one house this will not be possible even if none of the houses is let out. In such a case, you can opt to treat any one house of your choice as self-occupied. The other house(s) will be deemed to be let out and the sum for which such property can be let should be treated as the income under the head `income from house property'.

Deductions can be claimed against such notional income in computing the income from the property. In any case the tax benefits in respect of the interest and the principal repayment of the housing loan will be available to you. You can also claim the exemption under Section 10(13A) so long as you are in receipt of HRA and you pay a rent. This would be irrespective of your owning other houses and should be within the limits laid down in Section 10(13A) of the Act.

Under Section 17(2), medical reimbursement of up to Rs 15,000 is not treated as a perquisite where the sum is paid by an employer on expenditure actually incurred by an employee on his medical treatment or a member of his family. Therefore, the reimbursement made by your employer of medical expenses of up to Rs 15,000 will not be taxed in your hands even where the bills are in the name of your wife and mother.

The exemption under Section 10(10D) is available in respect of any sum received under a life insurance policy except where

the sum is received under Section 80DD(3) or 80DDA(3)

the sum is received under a keyman insurance policy

the sum is received under an insurance policy issued on or after April 1, 2003 and where the premium payable for any of the years exceeds 20 per cent of the sum assured and where such sum is received otherwise than on death of the person assured.

If the sum is received under a life insurance policy other than in the circumstances stated above, the exemption under Section 10(10D) would be available.

The fact that the deduction under Section 80C is claimed at the time of paying the premium will not disentitle the person from claiming the exemption.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.