The Hindu Business Line : To parents, with offshore love

I am an NRI and I want to gift some money to my parents. This money they would deposit in post office, invest in equity shares and purchase agricultural land. Will there be any tax implication on such gifts?

Suresh

There will be no tax implications on either you or your parents in respect of such gifts. You may note that no gift tax is leviable on the donor at the time of making a gift. You may also note that though a gift could be charged in the hands of the recipient, since there is a specific exclusion where the gift is from the son, among other relatives specified, there will be no tax payable by your parents either.

Section 80DDB allows a deduction in respect of medical treatment incurred by a resident individual for himself or a dependent in respect of certain prescribed diseases or ailments. What are the prescribed diseases and ailments? G. Chandran

The prescribed diseases and ailments for the purpose of claiming deduction under Section 80DDB are contained in Rule 11DD which are as follows:

Neurological diseases where the disability level has been certified to be of 40 per cent and above: Dementia, Dystonia Musculorum Deformans, Motor Neuron Disease,

Ataxia, Chorea, Hemiballismus, Aphasia, Parkinson's Disease, malignant cancers, full-blown acquired immune deficiency syndrome (AIDS), chronic renal failure, haematological disorders, haemophilia, Thalassaemia.

I am a salaried employee and I fall in the highest tax slab. I am considering three alternatives for acquiring a house. What are the implications of buying:

A 20-year-old house for Rs 35 lakh,

A 20-year-old house for Rs 30 lakh and spending Rs 5 lakh on renovation,

An eight-year-old house for Rs 30 lakh.

I will be taking a housing loan for Rs 15 lakh. Kamlesh Sanghavi

The tax benefits will depend on whether the house to be purchased is self-occupied or let out. If let out, the interest on the loan can be claimed without any ceiling. If the property is self-occupied, the interest can be claimed subject to a ceiling limit of Rs 1,50,000 per annum. You may, however, note that in the second alternative if borrowed funds are used for renovation, the deduction can be claimed only up to a maximum limit of Rs 30,000 in respect of so much of the funds that is borrowed and used for the renovation. You may also note that the total deduction cannot exceed Rs 1,50,000 in respect of the property which is self-occupied.

Insofar as the principal is concerned whether the property is let out or self-occupied, a deduction can be claimed in respect of the repayment up to the limit specified by Section 80C. In such a case also you may note that the principal repayment of that portion of the loan taken for renovation will not qualify for the deduction. In your case, the amount taken as loan by you is much lesser than the total investment. You can, therefore, try to organise your affairs to ensure that borrowed funds are used for the purchase and own funds are used for renovation in the event of your choosing to go with the second alternative.

I am an NRI living in the US. I left India as a student and have never earned income chargeable to tax in India. I purchased shares in Indian companies through an RBI sanction portfolio investment scheme. The shares were purchased in July 2004, before the introduction of the Securities Transaction Tax. I sold the shares sometime in January, after holding them for nearly 18 months. The STT was paid at the time of sale. I earned capital gains of around Rs 25 lakh. Do I have to file a return of income in India? If so, at what rate would the income be chargeable to tax? Mathew John

It is not clear whether the shares were acquired by investing in convertible foreign exchange. If that is so, there will be no requirement to furnish a return since Section 115G would specifically exclude you from having to file a return so long as tax has been deducted at source which will not be required in your case. At any rate, Section 139(1) requires an individual to file a return of income only if his total income exceeds the maximum amount not chargeable to tax. The capital gain arising will be long-term since it arises from the transfer of shares held for a period exceeding 12 months. Since the STT has been paid at the time of sale of the shares, the capital gains will be exempt under Section 10(38). If you have no other income chargeable to tax in India, you will not be required to file a return of income in India since the exempt income will be excluded in computing the total income.

For the financial year 2005-06, I have earned a short-term capital gain of Rs 3,00,000 from sale of shares and a speculation income of Rs 2,50,000. The short-term capital gain is arising from transactions on which the STT has been paid at the time of sale of the shares. Will it be possible for me to claim the entire basic exemption of Rs 1,00,000 against the speculation since such income suffers tax at a higher rate? Amit Khatri

There should be no difficulty in your claiming the basic exemption from the speculation income in computing the tax that will be payable by you. In fact Section 111A specifically provides that if the total income reduced by the short-term capital gains is less than the maximum amount not chargeable to tax then, the unexhausted portion of the basic exemption will be reduced from the short-term capital gains in computing the tax payable. This provision will only go to support your view that the basic exemption is first to be exhausted against other income and only if there is a reminder which is unexhausted, the same should be reduced from the short term capital gains.

You may note that Section 111A provides for a lower rate of tax of 10 per cent on the short-term capital gains if securities transaction tax has been paid on the sale of shares at the time of sale.

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