Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

Normally, long-term capital losses are allowed to be set off against long-term gains

The format of the tax return (as it currently stands) seems to disallow such an offset of losses against gains

I incurred long term capital loss (LTCL) of about Rs75,000 while selling a listed share wherein I had paid STT. I also made long term capital gain (LTCG) of about Rs90,000 by selling an unlisted equity shares. Here I had not paid STT. Can I adjust above LTCL against the LTCG? 

—Nitesh Agrawal

Any Long Term Capital Gains (LTCG) arising from the sale of shares where a Securities Transaction Tax (STT) has been paid on or after 1 October 2004, is exempt from tax under section 10(38) of the Income-tax Act, 1961 (“the Act"). Any LTCG arising from sale of shares that has not been subject to STT (eg: unlisted equity shares) would be taxable (at 10% without indexation/20% with indexation, plus applicable cess and surcharges). Indexation refers to adjusting the cost of the asset based on the cost inflation index (CII) published by the Income tax department for the FY of purchase and the FY of transfer.

Normally, Long Term Capital Losses (LTCL) are allowed to be set-off against LTCG. However, there is a school of thought that LTCG/LTCL arising from sources that are exempt (i.e. from the sale of shares, mutual funds, etc. on which STT has been paid) is not allowed to be set-off against LTCL/LTCG from other non-exempt sources. The format of the tax return (as it currently stands) also seems to disallow such an offset of losses against gains. 

I live in my parents’ house. It is owned jointly by my parents. And I get an HRA component as part of my salary. I pay a certain amount monthly to my parents. Can I claim tax deduction on this amount which can be considered as house rent that I am paying to my parents? 

—Anoop B S

Merely living in your parents’ house/making a monthly payment to your parents may not entitle you to claim the House Rent Allowance (HRA) exemption. 

This exemption is available to a taxpayer, subject to the limits specified in the tax law, in respect of accommodation occupied by him that is not owned by him, for the payment of ‘rent’ in exchange for tenancy rights. It should therefore be evaluated if the monthly payments made by you to your parents qualify as ‘rent’. 

In case it does, the claim for the HRA exemption is also subject to you providing your employer the prescribed declaration (Form 12BB) specifying your parents’ name, address and PAN number (the PAN number is mandatory if the aggregate rent paid during the Financial Year exceeds Rs1,00,000).

Your tax officer can demand proof (including lease agreements, proof of payment of rent, letter to the housing co-operative society notifying the tenancy, etc.) that the HRA exemption claimed is genuine. In a recent judicial precedent, the Indian Revenue Authorities denied the claim of rent paid to parents by a taxpayer in the absence of documents/information/records evidencing payment of rent.

I have a flat that I want to sell. I am selling it for Rs38.5 lakh and I also have a loan of Rs28 lakh over it. The loan amount includes a top-up loan. I want to know my long term capital gain liability. The original loan amount for the property at the time of purchase was Rs15 lakh. I had bought the house in 2012. For calculating capital gains, does it matter whether there was a loan on the house or not? How much tax would I have to pay on selling this house?

—Deepak Negi

The sale of your flat would trigger taxes on any capital gains arising from the sale.

As you plan to sell the flat after having held the same for more than 24 months, the gains, if any, resulting from the sale of the flat would be taxable as Long Term Capital Gain (LTCG). The LTCG is computed as the difference between net sale proceeds and the indexed cost of acquisition of the flat.

Indexation refers to adjusting the cost of the asset based on the cost inflation index (CII) published by the Income tax department for Financial Year (FY) of purchase and FY of sale. The balance gain, if any, is subject to tax @ 20.60 per cent (plus applicable surcharge).

There are investments you can make to claim an exemption from capital gains tax, by reinvesting, within the specified time frames, the LTCG in the purchase /construction of a residential house in India (‘new asset’ for ease of reference) or by purchasing specified bonds.

Parizad Sirwalla is partner (tax), KPMG.

Queries and views at