I am 47 years old and for higher returns from company fixed deposits (FDs), I transfer money from my bank account to my 82-year-old father’s linked account. He invests in FDs from his account and submits Form 15H. If the FD’s maturity amounts credited to my father’s account are transferred to my account through NEFT, will it be taxed in my hands? —Name withheld on request
It appears that the funds are merely invested in the name of your father for your benefit and the funds along with income are ultimately returned to you i.e. it is a revocable transfer of asset. Hence, the income generated on such funds (invested in your father’s name in order to earn a higher rate of interest) would be taxable in your hands.
If you were to transfer such funds to your father as a gift i.e. an irrevocable transfer, the amounts received by your father would not be considered as his income. The income your father earns from subsequent investments would be taxed in his hands. It would be advisable for any such gift to be documented in a legal document viz. a gift deed and placed in the records. However, the onus of proving that the amount transferred by you to your father is a gift/ irrevocable transfer would be on you and there should be robust documentation to support the claim.
If I buy listed preference shares via exchange at a discount to the face value, will I have to pay tax on the differential amount at the time of redemption? If so, will it be considered as long-term capital gain (LTCG)? —Aniruddha Oak
Listed preference shares held by you for at least 12 months qualify as a long-term capital assets. The gain resulting from the redemption is computed by reducing the indexed cost of acquisition from the redemption value and is taxable as LTCG. Indexation refers to adjusting the cost of the asset based on the cost inflation index (CII) published by the income tax department for the financial year of purchase and the financial year of redemption.
The LTCG would ordinarily be taxable at 20% (plus applicable cess and surcharge). But if you are a tax resident of India, you can opt to compute the capital gains by ignoring the indexation and instead pay tax at the rate of 10% (plus applicable cess and surcharge), if this is more beneficial to you.
You can claim exemption from such LTCG by reinvesting the sales proceeds into one residential property in India within specified timelines and subject to satisfaction of other conditions (including that of temporary investing of funds in Capital Gains Account Scheme, if necessary).
If you did not hold the listed preference shares for at least 12 months before the sale, the resultant gain is taxable as short-term capital gain that is taxable at the slab rates applicable to you (plus applicable cess and surcharge). The gain will be computed by reducing the indexed cost of acquisition from the redemption value.
If the calculation results in a loss (long-term or short-term capital loss), there are specific rules for set off and carry forward of the same.
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Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at firstname.lastname@example.org