I am a senior citizen getting an income of ₹4.5 lakh (approx) p.a. It comprises long-term capital gains of ₹2.5 lakh on shares, short-term capital gains of ₹0.5 lakh (STT paid on all transactions), interest of ₹0.5 lakh on deposits with banks and post office, dividend on shares amounting to ₹0.5 lakh, and other income (interest on company deposits, debentures and pension amount from the pension policy of LIC) of ₹0.5 lakh. I contribute a sum of ₹0.75 lakh to my PPF account with State Bank of India. As per Budget provisions (2018-19), there will not be any tax on long-term capital gains to the tune of ₹1 lakh. Under Section 80 TTB, deduction to the extent of ₹50,000 is allowed on interest on bank and post-office deposit accounts of senior citizens. The dividend income is not taxable on the hands of a shareholder to the extent of ₹10 lakh. Taking into consideration the basic exemption limit of ₹3 lakh for senior citizens and 80C deduction on PPF investment, I presume that there will not be any tax liability on my account. Please confirm whether my presumption is correct.

RM Ramanathan

Long-term capital gains (LTCG) on sale of equity shares in excess of ₹1 lakh and short-term capital gains (STCG) on sale of shares (STT paid) are taxable at special rates of 10 per cent and 15 per cent, respectively. No deduction under Section 80C and Section 80TTB is allowed on these income. However, if the taxable income of a resident senior citizen excluding capital gains is less than the basic exemption limit of ₹3 lakh, relief can be claimed to the extent of the difference between the basic income exemption limit and the net taxable income excluding capital gains.

Applying the above to your fact pattern, there should not be any tax liability for FY 2018-19. This is because your net taxable income excluding capital gains (after claiming deductions under Sections 80C and 80TTB) is less than the basic exemption limit of ₹3 lakh, and such difference can be adjusted against the taxable LTCG and STCG of ₹1.5 lakh and ₹50,000 respectively.

I had purchased a flat in 1990 for ₹1.5 lakh and sold it in 2018 for ₹32 lakh. Now, what would be my tax liability? To my knowledge, there are only two government bonds available for investments, with meagre interest rates with a lock-in period of three years. Please advise so as to have maximum benefit as I am a senior citizen aged 76 years.

BV Subramaniam

If the immovable property is held for a period of more than two years, it is treated as a long-term capital asset, and the gains are taxable at the rate of 20 per cent. As the property was held for over two years, the costs of acquisition or the fair market value on April 1, 2001, can be increased with reference to the cost indexation index (CII) corresponding to the year of sale and as on April 1, 2001.

Based on the limited information provided by you and assuming that the FMV on April 1, 2001, was ₹1.5 lakh, LTCG will be ₹27.8 lakh being excess of sale value of ₹32 lakh over indexed costs of acquisition of ₹4.4 lakh (₹1,50,000 x 280/100) — 280 and 100 represents CII 2018 and as on April 1, 2001, respectively. This will result in a tax of ₹5.56 lakh (20 per cent of ₹27.8 lakh). Surcharge, if applicable and health and education cess shall be payable in addition.

You may claim deduction under Section 54EC by investing the capital gains in bonds issued by National Highways Authority of India (NHAI), Rural Electrification Corporation (REC) or any other bonds notified by the Central government in the Official Gazette. Effective April 1, 2018, the minimum lock-in period for the investment is five years.

Alternatively, you may claim deduction under Section 54 if the LTCG is invested in buying a residential property in India either one year before or two years after the date of sale of your flat, or is used for constructing a residential property within three years from the date of sale of your flat.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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