Tax deducted at source does not solely determine the taxability of any income

Say, there are mutual funds for ₹50,000 that were redeemed by me after four years, for which there is a gain of ₹10,000, and no capital gains tax has been levied on it. Can one use ITR-1 and report the income under exempt income?

—Name withheld on request

We have presumed that you do not have income from business or profession. Redemption or sale of mutual fund units is a taxable transaction, which is subject to capital gains tax.

Further, deduction of tax at source (or the quantum thereof) does not solely determine the taxability or categorize the income as exempt.

The onus is on you to compute the applicable tax liability even if no tax is deducted at source. Also, as the income is in the nature of taxable capital gains (even if the taxable gains or tax liability is nil), you will need to file your ITR using ITR-2 form (as per the forms applicable for FY19) and make appropriate disclosures therein.

My parents (senior citizens) bought one plot in 1991 in their home town. They are now planning to sell the same and buy another residential plot somewhere else in India. However, they don’t want to construct a house on it as they currently don’t have sufficient money. Should they file long-term capital gains (LTCG) tax? The capital gains is less than the cost of the plot. In that case, will LTCG be exempt?

—Shiv Singh

As the plot of land was held for more than 24 months, the asset shall be considered as a long-term capital asset and the gains arising out of the sale would be taxable as LTCG in your parents’ hands.

A rollover exemption can be sought by your parents against LTCG on the sale of a plot of land under Section 54F of the Income-tax Act, 1961, by investing the net sale consideration in one residential house property in India. However, mere purchase of a plot of land without the construction of a house does not entitle your parents for the said tax exemption

A rollover exemption against LTCG on the sale of a plot of land is also available towards the following investments, subject to prescribed conditions and timelines:

• Under Section 54EC of the Act, by investing LTCG in specified notified bonds.

• Under Section 54EE of the Act, by investing LTCG in the units of a specified notified fund.

• Under Section 54GB of the Act, by investing the net consideration in equity shares of an eligible startup.

In case none of the above exemptions are available, your parents would be liable for tax on such LTCG arising from the sale of a plot of land.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com