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I am a retired government pensioner aged above 85 years. I have incurred about ₹45,000 for medical treatment and cost of medicines during this year. In the Budget, I understand that the deduction of ₹30,000 for medical expenses incurred by super senior citizens has been raised to ₹50,000 per year, and a deduction of ₹1 lakh each from long-term capital gains (LTCG) and dividend income has been announced. Kindly clarify whether this applies for AY2019-2020.
K Govind
As per Section 80D of the Income Tax Act, the amount paid as medical expenditure on the health of a senior citizen is allowed as a deduction from taxable income. Deduction to the extent of ₹50,000 per year is allowed for medical expenditure incurred on the health of the individual or any member of his/her family, provided no amount is paid towards any medical insurance policy taken for the same individual.
The above annual limit of ₹50,000 was raised from ₹30,000 by the Finance Act, 2018, and is applicable for FY2018-19 (AY2019-20) and onwards. The category of very senior citizen was also been relaxed to senior citizen by the Finance Act, 2018.
As per the Finance Act, 2018, LTCG from listed equity shares/equity-oriented mutual funds were made taxable if the gain amount exceeded ₹1 lakh. The same is applicable for FY2018-19 and onwards. Further, in regard to dividend income received by a resident individual from an Indian company, such dividend is taxable if the same exceeds ₹10 lakh p.a. (and not ₹1 lakh). The same is applicable from FY2016-17 and onwards.
I had invested in zero-coupon NCDs of India Infoline Finance Ltd for an amount of ₹2 lakh in September 2012. The NCDs matured in 2018 and I received an amount of ₹4.1 lakh on redemption. As the coupon rate was zero, I have not provided for accrued interest during earlier years.
Kindly advise me on the taxation aspect of the additional ₹2.1 lakh I received on maturity, to enable me to reflect the same while filing my tax returns this year.
N R Pai
As per a circular issued by Central Board of Direct Taxes (CBDT), income received on maturity of a zero-coupon bond/NCDs is considered as interest income, and is taxable as income from other sources. Further, as per the Income Computation Disclosure Standard (ICDS) - IV issued by CBDT, the discount received on zero-coupon NCDs is taxable on an accrual basis. The ICDS will have applicability only if an assessee follows the accrual system of accounting, However, it is pertinent to note that ICDS became effective from FY2016-17. Since you invested in the NCD in FY2012-13 and have been following the cash basis of accounting, ICDS - IV will not be applicable in your case. You may offer such interest income of ₹2.1 lakh to tax in the year of receipt.
Deduction under Section 57 of the I-T shall be allowed in respect of expenditure (other than capital expenditure) incurred wholly and exclusively to earn such income.
If I sell certain listed NCDs or tax-free bonds in the secondary market and make a profit, what is the tax treatment? Do I have to account for the interest that is accrued but unpaid, as ‘income from other sources’, and the remaining excess amount as capital gains? How is the calculation to be done? What will the be impact of the holding periods here (long-/short-term)?
Subhash R
NCDs held as investments and sold before maturity are considered to be in the nature of a capital asset, and the income/gains on such transfer before maturity is treated as capital gains.
In case of listed NCDs, if the period of holding is 12 months or less, the same shall be considered as a short-term capital asset, and the gains from such transfer is taxable as short-term capital gains. If the period of holding of the NCD is more than 12 months, the same should be considered as a long-term capital asset and the resultant gain/loss should be taxable as LTCG.
The same is to be taxed as per the provisions of Section 112, wherein the same is taxable at 20 per cent (plus applicable surcharge and cess as applicable) after providing for adjustment of cost indexation index, or at 10 per cent without such adjustment.
The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in
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