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Income from intra-day trade in stocks, after deducting expenses, is taxed at slab rates

Any income or loss arising from intra-day trade in stocks, without taking actual delivery, is treated as ‘speculative business income’ after deducting eligible expenses

I want to settle my estate during my lifetime. I will mention the same details in my Will also. I have the option of selling one property and giving the money to my daughter, or giving her the house itself. Which of the two options is more beneficial for her in terms of taxation?

—Brijlal Mohan

Gift provided by a parent to child (whether in the form of settlement of property or cash) would not give rise to income tax implications to either parties. It would be advisable to document the gift in a legal gift deed and place it in your records. You will need to evaluate stamp duty implications, where the property is gifted.

If you sell the property and thereafter gift the net sale proceeds to your daughter, you will be liable to pay tax on any capital gains arising from the sale of the property.

Where the property is gifted, your daughter will be liable to pay capital gain taxes, if she sells the property subsequently. If she continues to hold the property, she may be taxed on the actual or deemed rental depending on whether the property is rented and the number of other properties held by her.

If you or your daughter, as the case may be, have held the property for 24 months or more before the sale, the resultant gain or loss would be taxable as long term capital gain (LTCG) or long term capital loss (LTCL). Where the property is gifted to or inherited by your daughter, the period you held the property will also be considered when determining the period of holding by your daughter.

LTCG is computed as the difference between net sale proceeds and the indexed cost of acquisition of the property. LTCG, if any, shall be taxable at 20.6% (including education cess) in the hands of the property’s seller.

You or your daughter could be eligible for exemption from such LTCG provided the capital gains are reinvested in another property or specified bonds, subject to satisfaction of other conditions.

If the property is sold before it was held for at least 24 months, the resultant gain or loss is taxed as short-term capital gain (STCG) or short-term capital loss (STCL). STCG is computed as the difference between net sale proceeds and the cost of acquisition of the property (indexation is not permitted), at the slab rates applicable to you or your daughter in the year of sale.

I have been a day-trader in stocks for about 3 months. How will my holdings be taxed? Will income tax apply even if tax is deducted at source (TDS) and Securities Transaction Tax (STT) is paid?

—Bilal

Any income or loss arising from intra-day trade in stocks, without taking actual delivery, is treated as ‘speculative business income’ after deducting eligible expenses (including STT) incurred by you in connection with such trading.

Appropriate documentation and books of accounts would need to be maintained to support the income and expense claims. The requirement to maintain specified books of account and having a tax audit would depend on various factors like the quantum of net profit loss and gross turnover.

You would need to pay taxes on such speculative income at slab rates. These taxes (net of TDS if any) will need to be paid in advance during the year in 4 specified instalments by specified dates—assuming that you are not a senior citizen.

Tax is usually not deducted at source from speculation income, unless you qualify as a non-resident for tax purposes for the fiscal in which these transaction are entered.

Where you have incurred a net loss in a fiscal from such trades, the loss can be carried forward and will be allowed to be set-off only against income, if any arising from speculative transactions in the immediately following four fiscals.

My parents plan to sell their house in the city and buy a senior-living home in Dehradun. While 80% of the sale proceeds will go in buying the new house, the rest is at their disposal. How can they invest it to save taxes?

—Sakshi Kapoor

Capital gains tax will be payable on gains arising from the sale of house. If the house was held for at least 24 months by your parents, they will also be eligible to claim indexation of the costs of acquisition and improvement, and the gains are taxable as LTCG. If not, the gains would be taxable (without indexation) as STCG.

Where the resultant gain is LTCG, your parents can avail exemption from capital gains tax by reinvesting the capital gain in a new residential property situated in India, within 1 year prior or 2 years after the sale date of the old house (if the property is acquired) or within 3 years (if the house is constructed), subject to other conditions laid down in section 54 of the Income-tax Act, 1961.

If the amount invested in the new property is lesser than the LTCG arising on sale of the old property, your parents could consider investing the remainder amount in ‘long-term specified assets’ being bonds issued by the National Highway Authority of India and the Rural Electrification Corporation Ltd.

These bonds are redeemable after 3 years from the date of investment.

There are no similar exemptions prescribed in the Indian tax law in respect of STCG and taxes would be payable at the slab rates applicable to your parents on such STCG.

Parizad Sirwalla is partner (tax), KPMG.

Queries and views at mintmoney@livemint.com

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