TIMING OF INVESTMENT TO SAVE LONG TERM CAPITAL GAIN TAX

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TIMING OF INVESTMENT TO SAVE LONG TERM CAPITAL GAIN TAX

LONG TERM CAPITAL GAIN

Query 1]
I have heard that any surplus invested in section 80C above 1 Lacs can be transferred to once spouse showing it as advance and settling it by paying the amount by a/c payee cheque.
Sir, I have made following investment in section 80C:
  1. PPF Rs. 50,000/-
  2. ULIP Rs. 34,752/-
  3. PF Rs. 24,125/-
  4. LIC Rs. 11,123/-
Total Rs. 1.20 Lacs
I want to know if I can transfer ULIP or LIC to my wife or my parents A/c? [ssonu.aagrawal@rediffmail.com]
 
Opinion:
  1. Deduction u/s 80C is available if the payment of LIC/PPF/ ULIP is done by the individual assessee even if the
    a) PPF account belongs to the spouse/child of the individual or
    b) LIC/ULIP is in the name of the spouse/child of the individual assessee.
  2. Deduction u/s 80C is available on payment basis. In your case, if your parents or your wife makes the payment towards your PPF/ULIP/LIC then they will be eligible for deduction u/s 80C. As a tax planning tool, they can make the payment of Rs. 20,000/-.

Query 2]
My son-in-law was abroad as NRI in Central Africa between 1999 to 2009 during which period, he sent remittances to his father, by converting dollars into Indian rupees.  He has since returned to India in January 2009.  The amount totaling Rs. 22 Lacs is now being returned to him without any Interest, by his father by way of Crossed Bank Cheques. He has full details of remittances sent to India as NRI.   
  1. Is there any Tax liability on this refund of amount by the father to son? 
  2. What can be the future Tax planning?
  3. Can the amount be deposited in Bank FD’s? Presently he has no other source of Income.
 Please guide. [ak_manwani@yahoo.com]
Opinion:
  1. There is no income tax liability on returning back of the amount of Rs. 22 Lacs as mentioned.
  2. Future tax planning depends upon the number of factors like usage of the funds, other likely income of the receiver, family members & there income source etc & cannot be answered in isolation.
  3. The amount can be deposited in the bank FDR and income therefrom will be taxable as the income of the your son-in-laws

Query 3]  
I have some query regarding long term capital gain. If one want to save LTCG tax, he has to invest in Infrastructure bonds or has to invest entire sale consideration in a Commercial property or has to invest in residential property full sale consideration less stamp duty, any expenditure related to development of land etc.
Now, suppose he wait for some opportunity of investment in the property up to current financial year i.e. up to the date of submitting of return, but he could not find proper property and decide to pay tax (@ 20%): –
  1. Does he has to pay any penalty? If any, what will be the rate?
  2. If he does not open separate account for keeping sale consideration up to the date of investment, is there any penalty?
  3. Is there any time limit to pay tax for LTCG?
  4. If such time limit crosses, what is the penalty?
Please clarify. [desai1962@gmail.com]
Opinion:

Tax on long term capital gain can be saved:
a) U/s 54EC by depositing the amount of LTCG in the notified bonds issued by National Highway Authority of India (NHAI) or in the notified bonds issued by Rural Electrification corporation (REC). To save LTCG tax u/s 54EC, one need to invest the Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets from which LTCG has arisen.

b) U/s 54 if the LTCG arises from the sale of any house property. To save tax, assessee has to invest the LTCG for purchase of a residential house property (not commercial property as mentioned in the query) within a prescribed period. If the amount is not utilized for purchase of a residential house property till due date of filing the return of income, it should be deposited in the capital gain deposit account scheme to claim an exemption u/s 54.

c) U/s 54F if the LTCG arises from the transfer of any long term capital assets other than residential house property. Subject to various other terms / stipulations, assessee has to invest the sale consideration for purchase of a residential house property (not commercial property as mentioned in the query) within a prescribed period. If the amount is not utilized for purchase of a residential house property till due date of filing the return of income, it should be deposited in the capital gain deposit account scheme to claim an exemption u/s 54F.

From above it may be noted that, for exemption u/s 54EC, the amount need to be deposited within a period of 6 months from the date of Sale. For exemption u/s 54/ 54F, the amount either need to be invested for purchase of house property or need to be separately kept in the capital gain deposit account scheme. From the date of sale to the date prior to the due of filing the return of income, the assessee is free to use the amount as per his wish.

With above in mind, the point-wise reply to your queries is as under:

  1. No penalty is payable if the assessee opts to pay tax instead of opting for exemptions under above referred sections. Only interest u/s 234A/B/C shall be payable, wherever applicable.
  2. Assessee is free to use the amount till it is utilized for investment eligible for exemption u/s 54EC/54/54F. There is no stipulation to separately earmarked/ parked the fund immediately on its receipt itself. Pending the prescribed investment, the assessee is free to use the fund as per his discretions.
  3. Total LTCG tax is required to be paid on or before the due date of filing the income tax return. If the assessee is sure of not opting for exemption u/s 54EC/54F/54 then it is advisable to pay the same in advance to avoid interest leviable u/s 234B/234C of the I.T. Act- 1961.
  4. The assessee shall be liable to pay interest for delay in payment of LTCG tax.
Query 4]
Kindly let me know how and under which head, the income/loss from trading in commodity futures and currency futures, when the transactions are squared off and no deliveries are involved, is to be accounted for in income tax return? As you are already aware, no STT is charged on such transactions. [k_kumar39@hotmail.com]

Opinion:

Income from trading in commodity/currency futures should be treated as “Income from Business/ Profession” in the Income Tax return.

LONG TERM CAPITAL GAIN


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