The Hindu Business Line : Will grandmother be taxed?

My grandmother sold her agricultural land in Delhi. The land was registered in her name. She received the consideration by cheque. After receipt of the consideration she has made out five cheques of equal amount to the extent of the consideration received and given it to each of her sons. Is my grandmother liable to tax on the agricultural land transferred, which is on the border of Delhi and Haryana? What will be the tax liability in the hands of her sons?

Can short/long-term losses arising from the sale of shares of an unlisted company be set off against such gains arising from the sale of shares listed in a recognised stock exchange and sold through the stock exchange or vice versa. S. Bhardwaj

Agricultural land is not a capital asset if it is in India and is located in any area which is not within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of 10,000 or more according to the last preceding Census of which the relevant figures have been published before the first day of the previous year; or in any area in a distance, of eight km or more from the local limits of any municipality or cantonment board referred to in item (a), as the central government may, having regard to the extent of and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette

If in this case, the land is situated within the above referred area, no capital gains tax will be payable since it will not be a capital asset. On the other hand, capital gains tax will be payable if the land is located outside the above referred area. There will be no tax liability in the hands of her sons.

Long-term capital gains on sale of shares of a listed company sold through a recognised stock exchange will be exempt from tax under Section 10(38). Consequently, any loss arising from the sale of such shares will also have to be ignored and, therefore, the question of setting off such loss against other capital gains does not arise. Short-term capital loss can be set off against short-term capital gains or long-term capital gains. Long-term capital loss can only be set off against long-term capital gains. It will make no difference whether the shares are listed or unlisted except to the extent stated earlier.

Also, the question of setting off of losses against long-term capital gains from sale of listed shares through a recognised stock exchange does not arise since the gain itself is exempt.

My friend's father expired on May 17, 2005. For the year ended March 31, 2006, my friend received interest of Rs 32,858 from bank deposits and Rs 7,867 as interest on post office monthly scheme. The deposits are in his father's name. My friend is the only legal heir. Will the income mentioned above be taxable along with his other income or is he required to file a separate return in respect of these incomes for the financial year 2005-06? What will be the tax implications when he receives the principal amount invested by his father? Sarita A. Sahu

The interest income accruing up to the death of your friend's father will be taxable in the hands of his father. Your friend will have to file a return of income in his capacity as a representative assessee of his father in respect of the income up to the date of death. The interest accruing after the date of death of your friend's father will have to be included in your friend's return of income and assessed to tax along with his other income which he may have. On receiving the principal amount invested by your friend's father, there will be no tax implications.

I am employed in a company. My income falls in the highest tax slab. I propose to start a business. If I incur loss in the business, will I be able to set off the loss against the business income? Nikhil Mittal

It will not be possible for you to set off the business loss against the salary income. Section 71(2A) specifically prohibits the set off of business loss against salary income. You may, however, carry forward the business loss and set off such loss against the business income within a period of eight assessment years immediately succeeding the assessment year in which the loss was first computed. There will, however, be no such prohibition on the set off of unabsorbed depreciation against salary income. If the loss represents unabsorbed depreciation you will be able to set it off against the salary income.

I am a software professional. I left India on an assignment on May 17, 2006. I am scheduled to be abroad for a year. I am being given a daily allowance. Will this be taxable in India? If I remit part this fund to India, will it be taxable in India? What will be the tax implications of the salary that I receive in India? Tina

Since you have left India on May 17, 2006, and will be abroad for the full year, for the financial year 2006-07 you will be a non-resident in accordance with Section 6 of the Income Tax Act. Irrespective of this residential status, you may take it that your daily allowance will not be subject to tax in India. The Board through Circular No 8, dated August 29, 2005, has in answering query No 79 clarified that per diem allowance given to employees by an employer while on tour abroad will not be taxable in the hands of employees even if the same is not fully spent by employees. It has, however, clarified that the allowance will be subject to fringe benefit tax. The Board has also clarified that the surplus remaining in the hands of the employees will not be taxable in their hands. You can, therefore, remit the surplus without any tax implications. The salary received by you in India will, however, be taxable in your hands irrespective of your residential status since it is first received in India.

My husband and I have jointly purchased a house. For this purpose, we took a housing loan. The interest on the loan works out to Rs 1,40,000 for the current year. We have decided to claim Rs 70,000 as a deduction. Please advise. Radha

You and your husband can claim the interest as a deduction in the proportion in which you are owners of the property. It is not for you to decide on a year-to-year basis the proportion in which you will claim the interest as a deduction.

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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