My mother, being a nominee, has received MF units by transmission due to my sister’s death. These investments are in an equity fund and long-term in nature. If she sells this units, will it attract any tax?

Satish Gowda

As per the the Income Tax Act, long-term capital gains (LTCG) of up to ₹1 lakh arising from transfer of a long-term capital asset — units of a mutual fund in your case — is exempt from tax. LTCG exceeding ₹1 lakh is taxable at 10 per cent (with no adjustment for cost inflation index).

Further, the cost of acquisition of long-term capital assets acquired by way of gift/inheritance shall be the cost to the previous owner — the cost of purchase paid by your sister. However, in case the MF units were acquired before January 31, 2018, the cost of acquisition for the purpose of computing the LTCG shall be the higher of: i) purchase cost as paid by your sister; ii) Fair Market Value (FMV) as of January 31, 2018 (if the sale consideration is less than FMV as of January 2018, the sale consideration shall be taken as FMV).

One of our officers is retiring on March 31, 2019. He wants to encash his leaves on retirement in April ’19. Is the amount taxable in FY 2018-19 or 2019-20? Is it beneficial to him if he encashes it in April?

K Giridhara

As per the provisions of Section 17(1)(va) of the I-T Act, salary includes any payment received by an employee in respect of any period of unavailed leaves.

Even though the leave encashment becomes due to the employee upon his retirement on March 31, 2019, which belongs to past services, the same may be considered as taxable salary only once the encashment is received by the employee — FY 2019-20 in your case — subject to the exemption available under Section 10(10AA) of the I-T Act.

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

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