Pay tax on capital gains on time to avoid penalty

I need clarification regarding the shares and mutual fund investments. What is the liability on tax for an salaried individual when equity shares and mutual funds (equity oriented) are sold after 1 year of investment? If they are sold within an year, what is the liability? What is the treatment in case of other mutual funds (debt, liquid, ultra short term)?

On capital gains arising out of equity shares or mutual funds, should tax be paid within the quarter or can the payment be done at the end of financial year? ?S. Anand

Taxation of capital gains from sale of equity shares or equity oriented mutual fund (MF) depends on the period of holding. If the shares or MF are sold after holding for more than 12 months from the date of investment, the capital gains are long-term capital gain (LTCG). If Securities Transaction Tax (STT) is paid on such LTCGs, the amount is fully exempt from tax. If the period of holding is not more than 12 months, the capital gains are short-term capital gains (STCG). If STT is paid at the time of sale, the amount is taxable at 15.45 per cent (including education cess of 3 per cent).

In case of other MF investment, LTCG are taxable at 10.3 per cent (including education cess), if indexation benefit is not claimed or at 20.6 per cent (including education cess) if indexation benefit is claimed. The STCG are taxable at maximum marginal rate as applicable to the individual.

Tax on capital gains has to be paid within the timelines specified for advance tax to avoid penal interest. If you estimate that your total tax liability (after considering the tax deducted at source on estimated income including capital gains) is likely to exceed Rs 10,000 during the relevant financial year, advance tax needs to be paid.

Where the tax liability on the capital gains arising from April to June exceeds Rs 10,000, advance tax should be paid on the same by the instalment falling due September 15, 2011. In case of capital gains, where it is difficult to estimate the income in advance, you can pay the entire tax on gains arising during a particular period in the immediate remaining instalment or if no instalment is due, then such tax should be paid by end of the financial year — March 31.

If a minor's income was first clubbed with the father and now if the mother has a higher income, with whose income should the minor's income be clubbed with now?Sudhin Bathija

Income of minor child is clubbed with the income of the parent whose total income is higher (unless the income of the child is attributable to his skill, talent or specialised knowledge and experience). Once the income of the minor child is clubbed with a parent, the child's income needs to be clubbed with the same parent in the subsequent years as well even if the income of the other parent becomes higher. Therefore, as the income of a minor child will continue to be clubbed with the income of the father.

DDA allotted MIG flat costing Rs 13,65,350 (including Rs 77,330 stamp duty). I availed home loan of Rs 12,28,815 from HDFC and rest of the amount of Rs 1,36,535 was paid from my pocket. Date of possession of the flat is July 18, 2005. I have already paid Rs 8,65,054 towards EMIs till date. Outstanding principal loan amount is about Rs 10,80,000. The market value of the flat is Rs 80,00,000. To remove the EMIs burden, I wish to sell the flat. Please tell me what the capital gain tax will be and also ways to save the tax.GSB

As you hold the flat for more than 36 months, the capital gains will be treated as LTCGs. The LTCGs will be computed as difference between the net sales proceeds (after reducing transfer charges such as commission or brokerage) and the ‘indexed cost of acquisition' of the flat. While computing the LTCGs, the cost of acquisition needs to be appropriately indexed. Such LTCGs are taxed at 20.6 per cent (including education cess).

You can save tax on capital gains by investing in new residential house or investing on specified bonds within a time limit. The deduction is restricted to lower of the amount invested in new asset or capital gains from transfer of old house. This deduction is allowed if you purchase new house within one year before or two years after the date of transfer of the old house. In case of an under-construction house, the construction needs to be completed within three years from the date of transfer of the old house.

Where you are unable to make the new investment by the due date of filing the tax return, you should deposit the money in the “Capital Gain Account Scheme” with a prescribed nationalised bank to be able to claim this deduction. Also, the new house cannot be sold within three years if the deduction has to be claimed.

The author is Executive Director, Tax, KPMG

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