The Hindu Business Line : Tax on gains depends on the nature of transaction

I EARN by buying and selling of shares on the same day, buying and selling derivatives and from buying shares and taking delivery thereof and selling the same in less than 364 days.

I pay securities transaction tax on all these transactions. I understand that the gain will be taxed at 10 per cent. Is this correct?

Gnanasekaran

Reply

The gain resulting from the buying and selling of shares will be assessed as business income and will be treated as speculative income. The gain from buying and selling derivatives will not be treated as speculative income provided the same is carried on in a recognised stock exchange.

This benefit will be available only if the transaction is carried on through a registered broker or sub-broker or by banks or mutual funds and where the transaction is carried out electronically on screen based systems and which is supported by a time stamp contract note which indicates the client identity and the number allotted under the SEBI Act or the SCR Act or the Depositories Act and also gives the permanent account number of the client.

Whether the gain from sale of shares, which have been taken delivery of, is to be assessed as business income or as capital gains will depend on the facts of the case.

If it is assessed as business income, the same will be taxed at the normal rates of tax applicable to an individual. If it is assessed as short-term capital gains, it will suffer tax at 10 per cent (increased by the appropriate surcharge and additional surcharge).

You may note that a loss from speculation activity cannot be set off against other income but can only be set off against speculative income. The balance if any after such set off can be carried forward and set off against speculative income within a period of four assessment years immediately succeeding the assessment year in which the loss was first computed. You may also note that if the gain is assessable as business income the securities transaction tax can be claimed as a rebate. The rebate will be lower of the tax payable on the business income computed at the average rate of income tax or the securities transaction tax paid.

Query

I purchased a house in 1967. I have now sold this house. How do I find out the value of the house as on April 1,1981?

Anonymous

Reply

You could obtain a valuation report from a registered valuer. The law permits an assessee to take the cost of acquisition as the cost at which the asset was acquired or the fair market value as of April 1,1981, at his option. This can be done where the asset has been acquired prior to April 1,1981.

Query

I have recently sold a house, which I owned. I purchased a land and paid for it in three instalments during the financial years 1987-88 and 1988-89. The registration charges were paid in the financial year 1991-92. For constructing the house on this land, I took a housing loan from my employer in four instalments during the financial years 1989-90 and 1990-91. The construction of the house was completed in the financial year 1990-91. For computing the capital gains, from which year will the indexation apply? In so for as the construction is concerned, I am yet to give the particulars of the cost of construction in my income tax returns . What documents should I furnish for proof of cost of construction?

B. M. Agarwal

Reply

Since the gain is long term, the benefit of indexation will be available from the year in which you became the owner of the asset. You have stated different datespaying the instalments for buying the land and paying the registration charges. The benefit of indexation will be available from the year in which the asset was first held by you. The details given by you do not indicate the year in which you became the owner of the asset. This will have to be looked into see from which year the benefit of indexation will be available in respect of the land.

In so far as the building is concerned, the benefit of indexation should be available from the financial year 1990-91, which was the year in which you completed construction. As for proof of cost of construction, it would be advisable to furnish the report of a registered valuer, which will be a good basis to determine the cost of acquisition. You may also note that the interest on housing loan, which you have not claimed as a deduction under income tax, can be added to the cost of acquisition.

The benefit of indexation will be available in respect of the same from the year in which the asset was first held by you, irrespective of the year to which the interest relates.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002

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