Your Taxes

I purchased a plot in 2010 jointly with my elder brother at a cost of about ₹7 lakh. Now we jointly sold that plot for approximately ₹15 lakh in March 2017. I had bought another plot for ₹20 lakh in June 2016 by taking a plot loan of ₹13 lakh from an NBFC.

I used my share (₹7.5 lakh) of the plot sold in March 2017 to repay part of this loan account. How much long-term capital gains tax will I have to pay? . Can the loan repayment be set off against the gains?

Ashutosh Pachauri

The plot of land which has been sold would be regarded as long-term capital asset as it has been held for more than 36 months. Long-term capital gain is calculated as the difference between sale proceeds (after reducing any expenses connected with sale) and indexed cost of acquisition. Since you are a joint owner of the plot, the capital gains would be proportionate to your share in the plot.

Considering the cost inflation index notified for the year of purchase and year of sale, your long-term capital gain would be ₹196,200 [₹750,000 – (350,000)*(1125/711)]. The resultant gain is taxable at 20 per cent, exclusive of surcharge (if any) and cess.

The loan repayment cannot be set off against the long-term capital gains. Under Section 54F of the Income Tax Act, 1961, if you construct a residential house property in the new plot within three years from the date of transfer of old plot or a new property is purchased within two years from the date of sale and the cost of the new property is not less than the net consideration for the plot sold, you can claim exemption for capital gains.

The exemption claim is subject to other conditions prescribed under Section 54F. That is, the individual should not own more than one house property on the date of sale of old plot and should not purchase or construct a new house property (other than the one in the new plot) within next two or three years, respectively.

My wife does not have any source of income. She has a demat account and I purchase mutual fund scheme units and shares in her name from my income.

For FY 2016-17, out of the total amount of sales, ₹6,000 and ₹15,000 are treated as short-term and long-term capital gains, respectively. Please advise about tax implications of the above.

Milind Phendarkar

We understand that the only source of income for your wife is short-term and long-term capital gains arising out of trading in shares. Since her investment in shares was funded by you, any income arising out of such investment would be taxable only in your hands in accordance with clubbing provisions under Section 64(1)(iv) of the Act. As a result, your wife would not be taxed with respect to those gains. Since she does not have any other taxable income, she is not required to file tax returns.

If securities transaction tax has been pain at the time of sale of securities, then the long-term gains would be exempt in your hands, while the short-term gains would be taxed at 15 per cent. The income has to be reported along with your other income in the return of income.

The writer is Partner, Deloitte Haskins & Sells LLP. Send your queries to taxtalk@thehindu.co.in

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