Interest received from Credit Co-operative society – Whether exempt from Tax?
[Query 1]
I am a member of the employee’s credit co-operative society which is operating for employees and from Employees. I am earning interest on my fixed deposits regularly every year. Please clarify whether above interest is exempt from tax under section 80P (2d) or what are the implications in respect of Income-tax? [suresh.harpale@gmail.com]
Opinion:
1. The income of a member from the employee or any other credit co-operative society is neither exempt from tax nor eligible for deduction U/s 80P(2)(a) or 80P(2)(d) of the Income Tax Act – 1961.
2. It may be noted that the deduction U/s 80P(2)(a) or 80P(2)(d) is available to the credit co-operative societies and not to the members of the societies.
3. Income of the member is taxable as other interest income of the taxpayers.
[Query 2]
Common citizens are not aware how to make calculations for Long Term capital gain (LTCG), if residential plot is bought before 2000 & sold in FY 2023-24. Some of the features/ considerations and notified indexes are not available directly to calculate indexed cost of acquisition in FY 1998-99.
Could you kindly guide how to calculate indexed cost of acquisition & LTCG when notified index not available for FY 1998-99? In my case, Residential plot of 3000 Sq.ft was bought at Rs. 80,000/- (cost of plot) in FY 1998-99 & cost of improvement of land was Rs. 2,400/- and Registry cost Rs.10,000/-. I have sold the plot in the FY 2023-24 at a price cost of say Rs. 35 Lakhs. What options are available to common citizens for saving the income taxes after disposal/ sale of residential plot? Whether the option to invest the sale amount in bonds for saving taxes is better? [Subrah Saha – saha605325@gmail.com]
Opinion:
1. In respect of all properties acquired on or before 01.04.2001, the Fair Market Value (FMV) of the properties as on 01.04.2001 can be considered as the “Cost of Acquisition” of such assets by the taxpayers. Indexation in respect of such properties is available from the FY 2001-02 and since the original cost of assets acquired by the taxpayers prior to 01.04.2001 is replaced by the FMV of the property as on 01.04.2001, the indexation benefit is not available from the year of actual acquisition but the same is available from FY 2001-02.
2. In your case, you have purchased the plot in the year 1998-99. You can adopt the FMV as on 01.04.2001 as your acquisition cost. The original cost of acquisition of Rs. 92,400 /- (i.e., Rs. 80,000 + Rs. 2,400 + Rs. 10,000) can be replaced by the FMV as on 01.04.2001 if it is higher than your cost of acquisition.
3. Since the cost is replaced by the FMV as on 01.04.2001, the Cost Inflation Index (CII) of years prior to FY 2001-02 are not at all relevant and not required for computation of indexed cost of acquisition.
4. For the benefit of the readers, the CII from 2001-02 to 2024-25 are reproduced hereunder:
COST INFLATION INDEX (CII) FOR INCOME TAX ACT-1961
| S.No. | FY | CII | S.No. | FY | CII |
| 1 | 2001-02 | 100 | 13 | 2013-14 | 220 |
| 2 | 2002-03 | 105 | 14 | 2014-15 | 240 |
| 3 | 2003-04 | 109 | 15 | 2015-16 | 254 |
| 4 | 2004-05 | 113 | 16 | 2016-17 | 264 |
| 5 | 2005-06 | 117 | 17 | 2017-18 | 272 |
| 6 | 2006-07 | 122 | 18 | 2018-19 | 280 |
| 7 | 2007-08 | 129 | 19 | 2019-20 | 289 |
| 8 | 2008-09 | 137 | 20 | 2020-21 | 301 |
| 9 | 2009-10 | 148 | 21 | 2021-22 | 317 |
| 10 | 2010-11 | 167 | 22 | 2022-23 | 331 |
| 11 | 2011-12 | 184 | 23 | 2023-24 | 348 |
| 12 | 2012-13 | 200 | 24 | 2024-25 | 363 |
5. In your case, the FMV as on 01.04.2001 is not provided. You can get the same from a registered valuer. It may be noted that the FMV of the property cannot be more than the stamp duty valuation of the property as on 01.04.2001. For the ease of understanding, I am presuming the FMV as on 01.04.2001 as Rs. 95,000/- and so the resultant indexed cost of acquisition would be Rs. 3,30,600/- (i.e., Rs. 95,000 * 348/100).
6. You have sold the property for Rs. 35 Lakh. I am presuming that the stamp duty valuation of the property is not exceeding Rs. 38.50 Lakh (10% tolerance band is permissible between the actual sale price vis a vis stamp duty valuation). If it is more than Rs. 38.50 Lakh the capital gain would be required to be computed by taking such higher value.
7. With above facts and figures, your Long Term Capital Gain (LTCG) would be Rs. 31,69,400/-.
8. Option to save Tax:
You have sold the plot and not the house property. You have the following two options to save the tax:
A] Exemption u/s 54F:
To claim an exemption u/s 54F, taxpayers have to invest net sale consideration towards purchase/construction of another house property within a prescribed time frame. The prescribed time periods are as under:
i] For purchase:
One year before or two years after the date of sale.
ii] For Constructions:
Three years from the date of sale.
B] Exemption u/s 54EC:
For exemption u/s 54EC, taxpayers have to invest the amount of LTCG within a period of 6 months from the date of transfer in specified bonds issued by REC/PFC/IRFC. These capital gain tax saving bonds have a lock-in-period of 5 years.
9. Option to Invest in bonds:
Whether to invest in bonds or not would depend upon multiple factors like other investment preferences, risk tolerance, income level and tax bracket, and other sources of income. This decision cannot be generalized, as it is contingent on unique financial circumstances. Each taxpayer’s decision to invest in bonds should be based on a careful consideration of their personal financial situation and investment goals as one-size-fits-all recommendation is not possible for this.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
The copy of the order is as under:
