Personal Finance

Your Taxes

Sanjiv Chaudhary | Updated on October 28, 2018 Published on October 28, 2018

My friend and his wife had been getting pension. Last year, his wife passed away, and now he gets his pension as well as the family pension of his deceased wife. Can he claim the standard deduction of ₹40,000 on his pension as well as the deduction on family pension?

Swaminathan

Section 16(ia) of the Income Tax Act provides for a deduction of a maximum of ₹40,000 from salary income.

As per the I-T Act, pension received by a taxpayer on account of his/her employment from a former employer is taxable under the head ‘Salaries’.

Family pension received by a family member of a deceased employee is taxable as ‘Income from Other Sources’. As per Section 57(iia) of the I-T Act, a person receiving income in the nature of family pension can claim a deduction of a sum equal to one-third of such income or ₹15,000, whichever is less.

Please note that sections 16(ia) and 57(iia) are independent provisions. In the I-T Act, there is no restriction on claiming both the deductions, and your friend can claim the benefits of both the sections.

I am a 34-year-old professional who works in an MNC. After my wedding in 2012, I opened a demat account with my wife (a home-maker) as the primary holder and with I as a nominee. I have since bought shares under the joint demat account for long-term wealth creation. Recently, my in-laws transferred some shares to my wife. What are the tax liabilities under the joint demat account? Who will have to face the tax liabilities arising from the sale of the gifted shares and the shares bought by me? Is it better to open another demat account under my name and continue my investments in shares without disturbing my wife’s account.

Arun

As per the I-T Act, where an individual receives any sum of money/property by way of gift (i.e., without consideration) from a relative as defined under the provisions of the I-T Act (which includes parents and parents-in law), the same shall be exempt from tax. No tax liability shall arise in the hands of the individual at the time of receipt of such a gift.

At the time of sale of such gifted property (shares, in your case), any profit/gains on such shares shall be taxable in the hands of your wife as the shares were gifted to her in her demat account. (Please note that being a nominee does not mean that the person is a joint owner/holder of such an asset.) Having a demat account in which your wife is the primary holder will not make any difference.

The person making the investment is liable to taxes on any gains made. Therefore, capital gains arising on the sale of shares bought by you out of your funds shall be taxable in your hands on account of the clubbing provisions of the I-T Act, and the tax on such shares needs to be paid by you.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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