I am in the 30 per cent tax bracket. Based on reading various articles, I understand that if I invest in mutual fund's liquid/liquid plus schemes by opting for daily/weekly dividend reinvestment option, the Asset Management Company (AMC) would deduct TDS @ 13.84 per cent whenever they distribute and reinvest the dividend amount. This is the only tax that I would be subjected to and hence I can avail tax benefit of 16.06 per cent (30.9 minus 13.84)

If I invest in monthly income plan of mutual funds and opt for dividend pay-out option, the AMC would deduct TDS @ 13.84 per cent and whatever amount I get as dividend will not be subjected to any further tax. Again I can save on the tax front to the extent of 16.06 per cent. Is my understanding correct?

— Parameswari

According to the tax laws in India, dividend income received under the above two options is exempt in the hands of the unit holder, irrespective of the dividend plan opted. Accordingly, no TDS is deducted by the AMC at the time of paying the dividends to its unit holders.

However, the mutual fund is liable to pay DDT (Dividend distribution tax) on any amount of income distributed by it to its unit holders at the rates specified in section 115R of the Income Tax Act, 1961.

I am 82 years old and also an Income Tax Assessee. My pension including arrears of D.A. for the financial year 2011-12 (assessment year 2012-13) is Rs 2,36,206.

Other sources of interest income from SCSS and FD A/c for the assessment year is Rs 2,08,994. Thus the total income comes to Rs 4,45,200. I have also invested Rs 1,00,000 in tax saving FD u/s 80c and Rs 20,000 in PFC bonds u/s 80ccF.

On June 12, 2009 my wife died and I inherited the movable asset (old silver and gold ornaments) as gift. These ornaments were gifted by our relatives at the time of our marriage in 1958.

She authorised me to make use of the sale proceeds of the ornaments for meeting domestic expenses and the balance to retain for my medical expenditure.

Accordingly, I sold the ornaments to the jewellery shop during the assessment year and realised the amount in two cheques totalling Rs 2,08,378 and obtained the receipt from the shop for having sold the same.

Now, my queries are:

Whether the amount received by cheques from jewellery shop is to be included in my tax returns.

Please let me know whether the cheque amount is treated as income for the assessment year.

Whether I should claim exemption by including it as tax-free income.

If the exemption is to be claimed please let me know under which section of the I-T Act it is exempted.

— M. Ramaswamaiah

Jewellery qualifies to be a capital asset according to the tax laws in India. Any income arising from its sale will be taxed as capital gains.

In view of the fact that the capital asset is held for more than 36 months, the gain from its sale would be taxable as long term capital gains and benefit of indexation will be available.

The amount received on sale of jewellery is regarded as full value of consideration in order to compute the capital gains. Fair Market Value of jewellery as on April 1,1981 can be considered as the cost of acquisition of the assessee since the asset was acquired prior to April 1,1981. There are authorised valuers who can assist in calculating this value.

Capital gains so computed may be claimed as exempt in case it is invested in accordance with the terms and conditions as specified under section 54EC (i.e. the gain is invested in the long term specified asset) or/and section 54F (i.e. purchase/construction of residential house) etc. of the I-T Act, 1961.

Mail your queries to >taxtalk@thehindu.co.in

(The author is a practising chartered accountant.)

Related Topics
comment COMMENT NOW