The Hindu Business Line : Bond — licensed to kill tax Tax Talk

In May 2007, I sold for Rs 2 lakh a plot of land I had purchased in May 1991 for Rs 20,000. I get a deduction of Rs 75,000 under Section 80DD of the Income-Tax Act as I have a disabled child. I have a taken a house building loan and get a d eduction, under Section 24, of Rs 1,21,000 for the interest paid by me under Section 24.

I have investments and payments for Rs 1 lakh which qualify for deduction under Section 80C. Will I be required to make any investment in bonds of the National Highway Authority or Rural Electrification Corporation under Section 54EC to sav e on the capital gains tax if any? What will be my tax payable after making such investments? — B. Soor

Your total income will be computed as shown in Table 1. It is assumed that the property in respect of which you are paying interest on the loan taken is self-occupied and that the annual value of the same is ‘nil’.

The cost inflation index for the financial year 1991-92, the year of purchase is 199. The cost inflation index for computing long-term capital gains for the financial year 2007-08 has not yet been notified. This is assumed to be 530 in the calculations shown in the table.

It is further assumed that you are not a senior citizen. Based on these calculations, you will have to invest Rs 1,00,734 in bonds if no tax is to be paid by you.

I have a loss from dealing in derivatives of Rs.1 lakh in the financial year 2006-07. I would like to know whether the same can be set off against salary income or long term capital gains. — Srinivasan

The income from dealing in derivatives should normally be assessed under the head ‘Profits and gains of business or profession”.

Such income/loss from dealing in derivatives will normally be treated as speculation income/loss unless the transactions are carried on through a registered broker or sub-broker or by banks or mutual funds and where the transactions are carried out electronically on screen based systems and which are supported by a time stamp contract note indicating the client identity and the number allotted under the SEBI Act or the Securities Contracts Regulation Act or the Depositories Act and also gives the Permanent Account Number of the client.

If you satisfy all these conditions the loss of Rs 1 lakh will not be treated as speculation loss and can be set off against your long-term capital gains. On the other hand, if you do not satisfy these conditions, you cannot set off such loss against the long-term capital gains.

In any case, you may note that you cannot set off the loss arising under the head ‘Profits and gains of business or profession’ against the income under the head salaries in lieu of the specific prohibition contained in Section 71(2A).
I purchased a plot of land measuring 200 sq metres in January 2000 for Rs 4,80,000.

I now propose to sell the same for Rs 10,00,000. What will be my capital gains and how should I make the investment to avoid any capital gains tax being payable?

Will it be possible for me to claim an exemption in respect of the capital gains by investing in an agricultural land? — Prabhat Chandra Singh

The capital gains will be computed in accordance with the manner shown in Table 2.

You may note that the cost inflation index for the financial year 1999-00 which is the financial year of purchase of the land is 389.

It is assumed that the cost inflation index of the financial year 2007-08 will be 530 as the same has not yet been notified. The investment can be made in bonds of the National Highways Authority of India or Rural Electrification Corporation to claim exemption under Section 54EC in respect of the capital gains.

No exemption can be claimed on reinvestment in an agricultural land. The investment to be made in the bonds will be Rs 3,46,015, which is the long-term capital gains computed and shown in the table.

The turnover from my proprietary business was Rs 6 lakh in the last financial year.

I pay a rent of Rs 13,000 per month for the premise from where I run my business. Am I required to deduct tax at source on the rent? — Gargi Tosawad

Section 194-I which requires tax to be deducted at source on rent requires every person not being an individual or HUF to deduct tax at source if the rent exceeds Rs 1,20,000 per annum.

Individuals and HUFs would also be required to deduct tax at source if they were subject to tax audit under Section 44AB in the immediately preceding previous year by virtue of their turnover/sales/gross receipts exceeding the limits prescribed in that Section, if the rent exceeds the amount stated above.

In your case you are not subject to tax audit in the preceding previous year under Section 44AB as your turnover does not exceed the amount stipulated in the Section.

You will, therefore, not have to deduct tax at source on the rent though the rent exceeds Rs 1,20,000 per annum.

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taxtalk@thehindu.co.in

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‘Tax Talk’, Business Line, Kasturi Buildings,

859, Anna Salai, Chennai-600002

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