Your Taxes

We bought Colgate-Palmolive shares cum bonus in FY2015-16 for ₹2,040. In FY2017-18, we sold a few of the same ex-bonus. By FIFO (first in, first out), the shares sold resulted in long-term capital loss (LTCL). Now in FY2018-19, we hope to sell the remaining bonus shares of about ₹1,250, which would result in long-term capital gain (LTCG). What is the rule to carry forward the LTCL of the previous years and the period for set-off thereof?

Jamshed F Mehta

As per Section 10(38) of the Income Tax Act, LTCG arising from transfer of a long-term capital asset — equity shares of a company or a unit of equity-oriented fund or a unit of a business trust — was exempt from tax up to March 31, 2018.

However, as per the newly inserted Section 112A by the Finance Act, 2018, effective April 1, 2018, LTCG arising from sale of such assets computed without giving benefit for cost inflation index, exceeding ₹1 lakh shall be taxed at 10 per cent.

As you had LTCL during FY2015-16 on sale of shares — income for which was exempt under Section 10(38) of the I-T Act — such loss is not allowed to be carried forward and set off in future years. Accordingly, any LTCG on sale of bonus shares during FY2018-19 which exceeds ₹1 lakh shall be taxable and can’t be set off against LTCL from sale in FY2015-16.

The cost of acquisition for long-term capital assets acquired on or before January 31, 2018, will be the higher of the actual cost of acquisition or the fair market value as on January 31, 2018. For bonus shares acquired before January 31, 2018, the fair market value of the bonus shares as on January, 31, 2018, will be taken as cost of acquisition, provided the bonus shares qualify to be a long-term capital asset at the time of sale.

One of our employees retired on January 31, 2018. The gratuity was paid after March 31, i.e., the date after the new ceiling came into effect. Can the person claim the IT exemption ceiling of ₹20 lakh for FY2017-18?

Prem

As per the provisions of Section 15 of the I-T Act, salary is taxable on due or received basis, whichever is earlier. Further, as per Section 17 of the I-T Act, salary includes gratuity. Accordingly, the same becomes due to be taxed upon retirement of employee (which was on January 31).

The Centre had amended Section 4(3) of the Gratuity Act (The Payment of Gratuity (Amendment) Act, 2018). On account of the said amendment, the maximum amount of gratuity payable to an employee was increased from ₹10 lakh to ₹20 lakh, with effect from March 29, 2018, which is applicable on a prospective basis. Also, as per Section 10(10)(ii) of the I-T Act, gratuity received up to ₹20 lakh is exempt from tax.

As the employee retired before the amendment became effective, the increased tax exemption ceiling of ₹20 lakh would not be applicable in this case.

The author is a practising Chartered Accountant. Send your queries to taxtalk@thehindu.co.in

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