Can short-term capital gains made on the sale of a property be set off against short-term loss from derivatives if income/loss from derivative is considered as business income?
—Bimal Manubhai Kotak
The Finance Act, 2005 had amended the proviso to section 43(5), with effect from assessment year 2006-07, to provide that derivatives trading transactions would not be regarded as speculative transactions, provided it is carried out on a recognized stock exchange. Accordingly, such income derived from derivatives shall be treated as income from non-speculation business.
In view of the above, any loss from derivative transactions will be treated as normal business loss and the same can be set off against short-term capital gain from the sale of property. This view is based on the provisions of section 71(2) of the Act, which permits set-off of loss arising under any head of income (other than loss under the head capital gains) against income under any other head (including income under the head capital gains).
My grandfather is survived by my grandmother, uncle, my mother and I. The house my grandfather owned is being sold and the consideration will be divided among us. Will it fall under long-term capital gains? If we receive it through a bank draft, should we deposit it by opening a new capital gains account in a bank or in an existing savings account? How to minimize tax implications?
It seems that after your grandfather’s demise, the property has been jointly succeeded by your grandmother, uncle, mother and you. In such a scenario, any gain arising from the sale of this house shall be taxed in the hands of each successor for their respective share. Also, as per section 2(42A) of the Income-tax Act, the period of holding of the house shall include the period for which it was held by the previous owner (your grandfather). If the period of holding is more than three years, then the property would qualify as a long-term capital asset and the gain shall be taxable as long-term capital gains.
As per section 54 of the Act, any long-term capital gain arising from the sale of a residential house shall be exempt to the extent of the amount invested in a new house either by way of purchase or construction within a prescribed time frame. It is noteworthy that any amount of capital gains that is not utilized for the purchase/construction of another house before the due date of filing of income-tax returns (pertaining to the fiscal year in which the house was sold) has to be necessarily deposited in any nationalized bank under the Capital Gain Account Scheme.
If the gain is not invested in a new property or a Capital Gains Account Scheme, the capital gains shall be taxable.
Nitin Baijal, director, BMR Advisors
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