SAVING LONG TERM CAPITAL GAIN TAX

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CAPITAL GAIN TAX

Query 1] I had bought a flat for Rs. 1,10,000/- in the Financial Year 1984-85 and now I am selling it for Rs. 22 Lacs. What will be my long term capital gains liability and how to save the liability by way of savings or investment in booking for a new flat or purchasing some flat outright? I am a senior citizen and filing my Income Tax returns regularly, every year. Please suggest. [n_premkumar@hotmail.com]

Opinion:

  1. Cost Inflation index for the F.Y. 1984-85 is “125” whereas it is “711” for the current F.Y. 2010-11.
  2. Indexed cost of acquisition of flat shall be Rs. 6,25,680/- [i.e., Rs. 1,10,000/- * 711/ 125 ]
  3. The long term capital gain (LTCG) on sale of flat shall be Rs. 15,74,320/- [i.e., Rs. 22,00,000 (-) 6,25,680/-]. However, if the value of the flat, for the purpose stamp duty, is higher than Rs. 22 Lacs then LTCG would be required to be calculated by taking such higher value.
  4. Taxability of LTCG & Exemption:
    LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961. However, you can save LCTG tax by opting for an exemption u/s 54 or U/s 54EC, as under: –
    i) Exemption Under Section 54:
    Invest the amount of Long term Capital Gain on sale of house for purchase of another house property within a period of 2 years ( for construction- 3 years period is permissible) from the date of transfer of the house. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income of the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.
    ii) Exemption Under Section 54EC:
    Invest the amount of Long term Capital Gain in Specified bonds issued by the Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer.

Query 2]

Part A:

Sir, I had retired from Bank services on 31.07.2009. While filing return for the F.Y. 2009-10, whether I will be entitled for basic exemption of Rs 1.60 Lacs or Rs. 2.40 Lacs as a senior citizen? While claiming interest income, can I claim interest on some of the fixed deposits as per Cash Method and interest on some of the fixed deposits as per mercantile method? Please guide. [shripadsambarkar@gmail.com]

Part B:

I have completed the age of 65 years on 13.02.2010. Whether I will be entitled for the basic exemption limit of Rs. 2.40 Lacs for the entire year or I need to claim proportionately the basic exemption limit of Rs. 1.60 Lacs & Rs. 2.40 Lacs on day basis? [K.A. Sawarkar]

Opinion:

Part A:

Senior citizen is entitled for the basic exemption limit of Rs. 2.40 Lacs for the F.Y. 2009-2010. A senior citizen is a person who has completed the age of 65 years at any time during the previous year. So, if you have attained the age of 65 years on or before 31.03.2010, you would be entitled for the basic exemption limit of Rs. 2.40 Lacs. You can offer the interest income on fixed deposit for taxation either on cash basis or on mercantile basis. Offering interest income on some Bank FD on cash basis & some on mercantile basis is not permissible.

Part B:

You have completed the age of 65 years during the F.Y. 2009-10. You will be entitled for the basic exemption limit of Rs. 2.40 Lacs for the full Financial Year 2009-10.

Query 3]

Sir, I wish to invest Long Term Capital Gain (LTGC) in the bonds issued by NHAI / REC U/s 54EC of I.T. Act-1961. Kindly advice the rate of interest offered in these bonds & what is the lock in period? Whether interest income is taxable or tax-free? [rdteen@gmail.com]
Opinion:

  1. The lock in period in respect of bonds issued by NHAI/REC & eligible for exemption u/s 54EC is of 3 years.
  2. Presently, NHAI / REC bonds are available at interest rate of 6% p.a. The interest income is fully taxable in the hands of the investor.

.

Query 4]
I am an engineer by profession. I have been appointed as an Advisor in a power company w.e.f 1st June 2010. Also request you to please tell me about the rebates available to me considering me as senior citizen and Advisor. I understand that a lot of rebates in income tax are permissible to me as an Advisor. My lump-sum remuneration is Rs.1,25,000/- per month. Please advise the records needed (petrol receipt etc) to claim rebate? [bltiwari@gmail.com]
Opinion:
  1. The availability of deductions would vary significantly depending upon your status in the company you are working for.
  2. If you are working as an independent consultant (not an employee) & If the amount is paid as consultancy fees/charges, then the income would be assessable as “Income from Business/ Profession” and you will be entitled for all the expenses incurred for earning that income. Few illustrative list of expenses that would be eligible for deduction in such case could be Petrol Expenses, Telephone/Mobile Expenses, Depreciation on vehicles/laptop/etc, Salary paid for assistants/staff hired, Repairs & Maintenance expenses, etc etc. You would be required to maintain all the bills/ vouchers / records to justify your claim towards expenses.
  3. If you are working as an employee of the company & the fixed amount of Rs. 1.25 Lacs is paid by the company as “Salary”, the deductions could be restricted to few like conveyance allowances, medical reimbursement allowances, etc depending upon the upon the allowances/ reimbursement you are getting in the gross package of Rs. 1.25 Lacs/pm.

CAPITAL GAIN TAX

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