The Hindu Business Line : To file or not to file

I AM a housewife. I have been buying and selling shares and the source for investment has been the property inherited from my parents and from out of agricultural income.

I have not filed my returns so far, as my income has not exceed the maximum amount not chargeable to tax. In the current year I expect my income to exceed the maximum amount not chargeable to tax. Should I file my returns?

If I hold 100 shares of a company and purchase 100 more of the same company and sell 100 shares out of the shares that I acquired later, how is the gain to be computed?

Renuka Haridas

Reply

If your income exceeds the maximum amount not chargeable to tax in the current year, you will have to file a return of income in relation to the current year.

In respect of the shares that you have sold, if they are in the dematerialised form, Section 45(2A) will operate, which would mean that the FIFO (first in first out) method will be adopted for determining the cost of acquisition and in determining the consequent gain.

That is, the shares acquired first and dematerialised will be deemed to have been sold first.

In your case even though you have sold only the shares that were acquired later, the deeming fiction will operate and the shares acquired first will have to be treated as having been sold first if the shares are in dematerialised form. If the shares are in physical form, it may be possible for you to take the shares purchased later as sold first on the basis of the distinctive numbers borne in the certificate and which have been transferred.

Query

My son and I jointly own a house property. We have promoted a private limited company in which my son, myself and our other family members are the shareholders. We propose to use this house for carrying on the business of the company. Since the company has just started there is no way profit can be earned immediately. We have, therefore, decided not to charge any rent for the property from the company. Can we take the annual value of the property as nil?

K. S. Kadar

Reply

You cannot take the annual value as nil. As per Section 23, the value can be taken as nil only if the property is self-occupied. A property can be treated as self-occupied only if: i) it is in the actual occupation of the owner; and ii) the owner does not derive any benefit from it.

The first of the conditions will not apply if the property is located in a place different from the place where the assessee is employed or carries on business or profession and where such property is the only one owned by the assessee.

In your case, this exception will not apply and, therefore, you cannot claim the benefit of taking the annual value as nil since you are not in actual occupation of the property. It may be remembered that a company is both a separate legal and taxable entity and, therefore, the occupation for the business of the company cannot be treated as occupation by the owners who are the promoters of the company.

Query

My monthly income by way of salary is Rs 21,388, which comprises basic salary of Rs 11,000, HRA Rs 5,500, special allowance Rs 4,088 and conveyance reimbursement Rs 800.

I have taken a personal loan of Rs 70,000 from ICICI Bank, bearing an interest of 18 per cent per annum. I pay an EMI of Rs 2,531 a month towards this loan. I pay a life insurance policy premium of Rs 3,150 per annum. Will it be possible for me to claim these as a deduction in computing my income?

Nagamalla Reddy Iragam

Reply

You will be able to claim deduction under Section 80C in respect of the premium paid on the life insurance policy. No deduction can be claimed by you on the interest or the EMI paid on the personal loan taken by you.

You may be able to claim exemption under Section 10(14) in respect of the conveyance reimbursement and also probably an exemption under Section 10(13A) in respect of the HRA if you are living in a rented house.

You may examine these aspects relating to the exemptions.

Query

In your answer to the query relating to allowability of deduction in respect of interest and principal on loan taken for renovation of a house property (Business Line, January 22), you have stated that the interest and principal will be eligible for deduction under Sections 24 and 80C respectively.

You may note that Section 80C does not allow a deduction in respect of the principal repayment of the housing loan where the loan is taken for renovation of the house property. Please clarify?

Subramanaiam

Reply

You are correct in pointing out that the principal repayment of a loan taken for renovation of a house property will not qualify for the deduction under Section 80C.

While Section 24 allows a deduction in respect of the interest on a loan taken for purchase, construction, repairs, renewal or reconstruction of a house property, Section 80C only allows a deduction in respect of the principal repayment of a loan taken for purchase or construction of a residential house

Shares splitting

A COMPANY in which I hold shares of the face value of Rs 10 has split the shares into those with face value of Rs 2.

This means that I will get five shares of Rs 2 each for every one share of Rs 10 held by me.

This apart I will be entitled to a bonus share in the ratio of 1:2. Thus for every share of Rs 10 that I hold I will get 500 shares of Rs 2 and a further bonus of 250 shares of Rs 2 each.

How is the capital gain to be computed on the sale of these shares?

Parveen Sarwade

Reply

The cost of acquisition of the 500 shares will be taken to be the cost for acquiring the 100 shares of Rs 10 each. If you are selling only a part of these 500 shares, you can take the proportionate cost of acquisition for computing the capital gains. The cost of acquisition of the bonus shares will be taken as nil. This is specifically provided for in Section 55.

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