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Ask Mint Money | If shares are held for at least a year, capital gains are tax-exempt

Ask Mint Money | If shares are held for at least a year, capital gains are tax-exempt
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First Published: Wed, Aug 17 2011. 09 43 PM IST
Updated: Wed, Aug 17 2011. 09 43 PM IST
I have received shares in demat form as a gift from a relative, who had held them for at least five years. If I sell the shares within a year, the capital gains will be short- or long-term?
—Vikesh Punj
Since 1 October 2009, any immovable property or other property (including shares) received without adequate consideration is taxable in the hands of the recipient as “income from other sources”. However, if such shares or other property is received by way of gift from a specified relative as defined in section 56(2)(vii), then it is exempt from tax in the hands of the recipient.
Also, at the time of subsequent sale of the shares, there shall be capital gains tax implications. For computing the capital gains tax liability, the period for which the shares were originally held by your relative have to be included in the period of holding in your hands. Since the total period of holding will exceed a year, the capital gains will qualify as long-term capital gain, which shall be exempt from tax under section 10(38) if shares are listed equity shares and the transaction is chargeable to securities transaction tax.
I want to open a fixed deposit (FD) of Rs2-3 lakh. Can I do it in my wife’s name to save on tax since her income is not taxable? Since the FD will be opened in the middle of a year, the interest earned is to be treated for which year’s income?
—K.K. Kohli
You may not be able to save tax by opening an FD in your spouse’s name. Section 64(1)(iv) of the Income-tax Act provides that income arising from any assets transferred directly or indirectly to the spouse by such individual without any adequate consideration or without any agreement to live apart shall be clubbed with the income of an individual. Accordingly, clubbing provisions shall get attracted and interest income earned on FD opened in your spouse’s name shall be clubbed with your income and shall be taxable in your hands and not in the hands of your spouse.
If the FD has been opened in the middle of the year, interest income earned from the date of investment till the end of the fiscal year (31 March) shall be treated as income of FY12 and shall be taxed accordingly.
I want to buy a house along with my elder brother in Bangalore. Both of us want to take the loan. Can we avail tax benefits on the loan individually?
—Ravi
According to section 26 of the Income-tax Act, where a house property is owned by two or more persons and their respective shares are definite and ascertainable, then the share of each person in the income from property shall be computed individually as per the normal house property computation mechanism (sections 22 to 25) and shall thereafter be taxed. Therefore, both of you are eligible to avail tax benefits individually.
Nitin Baijal, director, BMR Advisors
Queries and views at mintmoney@livemint.com
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First Published: Wed, Aug 17 2011. 09 43 PM IST