The Hindu Business Line : Hands that give are not taxed

I inherited a part of an agricultural land from my father six years back. I now propose to sell the same and use a part of the proceeds to buy a car. The balance I plan to transfer to my mother. What will be the tax implication in my hand and in the hands of my mother? My brother, who has inherited the other part of the land, proposes to sell his share and transfer the entire sale proceeds to my mother. My brother does not have a Permanent Account Number. What would be the tax implications on this transaction? — Rohit

On sale of agricultural land, capital gains will not arise if it is located outside specified area, not being land situated within the specified limits. Specified area means any area which is comprised within the jurisdiction of a municipality or cantonment board and which has a population of less than 10,000 as per the last preceding Census of which the relevant figures have been published before the April 1 of the previous year, or includes any area within a distance of 8 km from the limits of such municipality or cantonment board and notified by the Central government in the Official Gazette.

If this condition is satisfied, the sale of the land will not be chargeable to tax. If, on the contrary, the condition is not satisfied, the transfer of the land will give rise to capital gains that will be chargeable to tax. This tax liability will arise in your hands and that of your brother. The amounts transferred from out of the proceeds by you and your brother to your mother will not be liable to tax either in your hands or that of your brother or your mother. You may note that a sum transferred without consideration in excess of Rs 50,000 per annum is treated as the income of the recipient under Section 56(2)(v).

However, the said provision also grants an exclusion from tax in the hands of the recipient if it is received from a relative. The term `relative' includes the child of an individual and, therefore, when your mother receives the amounts from you and your brother, no tax liability will arise in her hands.

I hold equity shares which were purchased by me 20 years back. If I now sell these shares through a recognised stock exchange paying the Securities Transaction Tax (STT) at the time of sale what will be the applicable tax rate on the long term capital gains? If the gain from sale of shares is short term and the STT is paid at the time of sale what will be the applicable rate of tax? Also clarify whether long-term and short-term capital gains will be treated as part of taxable income? — Luxmi

The long-term capital gains arising from sale of equity shares sold through a recognised stock exchange will be exempt under Section 10 (38). This will not be treated as part of your taxable income. Short-term capital gains on sale of equity shares through a recognised stock exchange will be taxable at 10 per cent (as increased by the appropriate surcharge and additional surcharge) in accordance with Section 111A. Such short-term capital gains will be treated as part of your taxable income.

I purchased National Savings Certificates for Rs 65,000 in August 2006. This matures after six years. Will the amount I receive on maturity be taxable or not? — Kartik S. S.

The principal amount of Rs 65,000 received by you on maturity will not be taxable as your income under the law as it now stands. The annual interest will be taxable in your hands based on your method of accounting. If you are following the cash system of accounting, it will be taxed in the year of receipt and if you follow the mercantile system of accounting it will be taxed in the year in which it accrues to you.

My son took a housing loan from LIC Housing Finance Ltd for renovation and repair of a house that is registered in my name. He is the applicant for the loan and I the co-applicant. My son pays the EMI (equated monthly instalment) on the loan. Can he claim deduction under Section 80C of the Income-Tax Act, on the principal repayment and deduction under Section 24 for the interest? Will it be possible for me to gift this property to my son and will there be any tax implications on such gift? — N. Ramachandran

Neither you nor your son will be able to get the tax benefits for the repayment of the loan or the interest thereon. The benefits under Section.24 for interest and under Section for the principal paid can only be claimed by the owner of the house property. Since your son does not own the house, he cannot claim the tax benefits. You cannot claim the tax benefits as your son is paying the principal and the interest.

In any case you may note that insofar as the deduction under Section 80C is concerned the benefit is available only in respect of loan taken for purchase and construction of the house property and not for repair and renovation.

You can gift the property to your son and there is no prohibition on the same. There will be no income-tax implications on such gift made by you. However on the property being registered in the name of your son, the necessary stamp duty/registration charges will have to be paid in accordance with law.

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