The Hindu Business Line : No short-term capital gains tax for this senior

I am a senior citizen and my total income for the financial year 2005-06 is less than Rs 1,85,000. This includes short-term capital gains of Rs 60,000, from the sale of shares sold through a recognised stock exchange on which the securities transaction tax has been paid. Will I still have to pay tax on the short-term capital gains? If so, should advance tax be paid on the same?

Manoharan

You will not have to pay tax on the short-term capital gains. Section 111A specifically provides that in the case of an assessee having short-term capital gains arising from sale of shares on which securities transaction tax is paid at the time of sale and where his `other incomes' are less than the maximum amount not chargeable to tax, the unexhausted portion of the maximum amount not chargeable to tax can be reduced from the short-term capital gains.

For example, if your `other income' is Rs 1,20,000, the unexhausted portion of the basic exemption would be Rs 65,000 (since you are a senior citizen and your basic exemption is Rs 1,85,000).

This Rs 65,000 can be reduced from your short-term capital gains arising from the sale of shares on which the securities transaction tax is paid at the time of sale and it is only the balance of the short-term capital gains that will be taxable at 10 per cent. In your case since the total income including short-term capital gains is less than Rs 1,85,000 there would be no balance of short-term capital gains on which tax would need to be paid. The question of payment of advance tax does not arise at all.

I had subscribed for and was allotted shares of Search Chem Industries Ltd on April 24, 1996. When this company merged with United Phosphorus Ltd, I was allotted shares of the latter on December 15, 2003. I sold the shares of United Phosphorus on January 10, 2006.What are the capital gains tax implications? Apurva Jani

The tax implications will depend on whether the amalgamation between United Phosphorus and Search Chem Industries was one within the meaning of Section 2(1B) of the Income-Tax Act. If the amalgamation satisfied all the conditions in the Section, the capital gains on sale of the shares of United Phosphorus will be determined by taking the cost of acquisition of such shares as the price paid for acquiring the shares in Search Chem Industries.

The period of holding of the shares in United Phosphorus will also include the period for which you held shares in Search Chem.

The benefit of indexation will be available from the financial year in which the shares were held by you in Search Chem as held by the Chandigarh Bench of the Tribunal in Smt. Pushpa Sofat v ITO [2002] 81 ITD 1 (Chd).

If the amalgamation did not satisfy the conditions in Section 2(1B), capital gains would have arisen even when the shares of United Phosphorus were allotted in exchange for the shares of Search Chem.

In such a case when the shares of United Phosphorus are later sold, the cost of acquisition of such shares will be the market price of the shares at the time when they were allotted to you.

I stay in a rented house. I have all along been claiming exemption under Section 10(13A) in respect of the rent paid as I receive HRA. This year I bought a house for which I have taken a housing loan. This house is about 80 km from my place of work.

My parents stay in this house, while I continue to live in the rented house. Will I be able to get the benefit of exemption under Section 10(13A) though I have purchased a house in which my parents live? Vinod S. Nair

There should be no difficulty in your claiming tax exemption under Section 10(13A), so long as you live in the rented house and receive HRA.

The issue that would arise may be on whether the property where your parents reside can be treated as self-occupied, in which case the annual value will be taken as nil. A property can be treated as self-occupied if:

It is in the occupation of the owner for the purpose of his own residence.

It cannot actually be occupied by the owner owing to his employment, business or profession being carried on at any other place, he has to reside at that other place, in a building not belonging to him.

Even where the property is occupied by your parents and where you are not able to occupy it due to your employment being in a different place, the annual value can still be taken as nil provided you are not deriving any benefit from the property and further provided that this is the only house owned by you.

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