Financial Daily from THE HINDU group of publications
Sunday, Sep 05, 2004
Columns - Tax Talk
Charges are many in my demat account
Transaction charges, charged for each individual transaction of purchase and sale;
Monthly maintenance charges, charged at the end of each month; and
Custodial charges, charged at the end of every month depending on the number of scripts remaining in the demat account.
How are these charges to be treated in computing capital gains?
The transaction charges on sale of shares can be reduced in computing the capital gains, as expenditure incurred wholly and exclusively in connection with the transfer. The other charges may be included as part of the cost of acquisition of shares, and capital gains may be computed accordingly.
My total income, excluding long-term capital gains, is Rs 7 lakh. While my long-term capital gain computed with the benefit of indexation is Rs 1.40 lakh, it is Rs 1.70 lakh when computed without the benefit of indexation. I am opting to pay tax at 10 per cent on the capital gain computed without indexation. Will I be liable for surcharge?
Ramesh T. B.
Surcharge is leviable on the individual if his total income exceeds Rs 8.50 lakh. In your case, the total income is only Rs 8.40 lakh and, therefore, will not be liable for surcharge. The fact that your tax on long-term capital gains is computed at 10 per cent of Rs 1.70 lakh will not make your total income Rs 8.70 lakh so as to attract surcharge.
At this stage you may note that Section 48, which provides for the computation of capital gains, only talks of the gain with the benefit of indexation. You may further note that the computation of total income gets completed after applying the provisions of Section 80U of the Act. It is only by virtue of Section 112 that you are required to ignore the excess over 10 per cent of the gain computed without the benefit of indexation on transfer of listed securities.
Section 112 only deals with determining the tax on long-term capital gains and not with the computation of long-term capital gains as such. In other words, Section 112 will not affect the computation of total income.
It is now proposed that from assessment year 2005-06, long-term capital gains will be fully exempt. I, however, find advertisements from Nabard that investment in their bonds will make a person eligible for exemption against long-term capital gains. I further am told that long-term capital gains tax is to be computed on the basis of 10 per cent of the gain computed without the benefit of indexation or 20 per cent of the gain computed with the benefit of indexation. I do not understand why there should be a tax rate when long-term capital gains is exempt and also as to how the exemption in respect of investment in bonds of Nabard will be available when the gain itself is exempt. Please clarify.
M. Ramakrishna Rao
Your understanding that long-term capital gains is fully exempt is incorrect. The exemption from assessment year 2005-06 will be available only in respect of long-term capital gains arising out of the transfer of listed securities or units of an equity-oriented mutual fund. Even this will be applicable only if the transaction is through a recognised stock exchange and where securities transaction tax is applicable. Long-term capital gains from transfer of other assets will not qualify for an exemption straightaway. Therefore, there may be a need to make investments, such as in the bonds of Nabard, to claim the exemption.
The computation of tax on long-term capital gains as indicated by you will be the lower of 10 per cent of the gain computed with the benefit of indexation or 20 per cent of the gain without the benefit of indexation, whichever is lower, only on transfer of listed securities.
It may be possible that listed securities are sold otherwise than through a recognised stock exchange.
In such a case, if the gain is long term the tax rates will still have to be applied. It may also be possible that non-listed securities may be transferred, in which case the capital gains tax will be 20 per cent of the gain computed with the benefit of indexation if the gain is long term.
It may be noted that this will apply in respect of other assets as well if the gain is long term.
Mail your queries to email@example.com or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.
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