The Hindu Business Line : Wealth is divisible, not tax

I am a retired engineer. I have two sons and one daughter. My parents are no more. My father purchased a plot of land and constructed a house from out of his own funds. In his will, my father bequeathed this property to me. The will is probated. I have now found a buyer for the property. I plan to divide the proceeds from the sale of the property into four equal parts to be shared among my three children and myself. Will tax liability arise in the hands of each of us? I am a Hindu and also that one of my sons is in India while the other is in the US. My daughter is a divorcee living with me and my wife. — S. V. Ramaniah

As your father has left a will bequeathing the property solely to you, you will be is sole owner. The mere fact that you plan to divide the property sale proceeds among your children will not result in tax liability in their hands. The property is owned by you and therefore the capital gains tax will arise entirely in your hands. The fact that your daughter lives with you or that one of your sons is abroad will not make any difference, nor the fact that you are a Hindu.

I have come to learn through this column that when short-term capital gains arise from the sale of land/residential house, an exemption can be claimed if reinvesed in land/residential. Similarly, can the short-term capital gains arising from sale of shares be exempt from tax, if reinvested in shares? — K. Haridas Bhat

At the outset, it is not correct that an exemption can be claimed in respect of short-term capital gains arising from sale of land/residential house by reinvesting in another land or residential house. Such exemption is available only where the gain is long term. No exemption is available in respect of short-term capital gains arising from the transfer of shares when reinvestment is made in shares.

I have been an LIC agent for the last 30 years. On my completing 60 years, I have now received a gratuity of Rs 1 lakh. Is this taxable? — K. M. Seethalakshmi

From the query it appears that you are not an employee of Life Insurance Corporation of India. If that is so, you cannot claim any exemption.

A company in which I hold shares has made an open offer to acquire 20 per cent of the share capital. If I accept the open offer will I be subject to capital gains tax as the sale is not through a recognised stock exchange? — Jayamani

Section 10(38) of the Income-Tax Act only makes an exemption in terms of long-term capital gains where the sale is through a recognised stock exchange and where the Securities Transaction Tax is paid at the time of sale. In an open offer, where the company acquires the shares, the sale is not through a recognised stock exchange and no STT would therefore be payable at the time of sale. The question of exemption in respect of the capital gains arising from such buy-back of shares by the company will therefore not arise even if the gain is long term.

I am a pensioner and a tax payer. To reduce my tax liability on the interest from deposit I propose to gift some of the money held by me in deposits to my wife and unmarried daughters. What will be the tax implication?

I opened a PPF account and also took a life insurance policy in the name of my daughter when she was a minor. She is now a major but still studying. Can I claim deduction under Section 80C in respect of the amounts contributed to the PPF account in the name of my daughter and the premium paid on the life insurance policy taken in her name? — M . Gopal

There will be no tax implication when you make a gift to your wife and children. Under Section 56(v) of the I-T Act any sum exceeding Rs 50,000 per annum received without consideration by an individual or HUF from any person is to be treated as income chargeable under the head "income from other sources". A proviso to the Section, however, provides that the sum received without consideration will not be treated as income if received from a relative. The term `relative' is defined also to include the spouse and children of an individual. The gifts your wife and children receive from you will therefore not be treated as their income and hence will not be taxable in their hands. There will be no tax implication in your hands either. As regards the interest, that earned by your wife will be clubbed in your hands under Section 64(1). That earned by your children will be clubbed with your income if they are minors. If they are majors, the clubbing provisions will not be attracted.

Section 80C allows a deduction to be claimed by an individual where the insurance premium paid or a contribution made to a PPF account is on the life of or on behalf of the individual, the spouse of the person or any child. You can, therefore, claim deduction under Section 80C in respect of both the life-insurance premium and the PPF contribution made by you on the life of or on behalf of your daughter even though she as attained the age of majority.

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