The Hindu Business Line : How taxing my inheritance?

I inherited shares worth Rs 5 lakh on the death of my father and land, which was inherited from my grandfather. I have realised Rs 6 lakh on the sale of the land and Rs 5 lakh from the sale of shares so inherited. I paid the Securities Transaction Tax at the time of sale of the shares. Is there any tax liability on the inheritance of the land and the shares? What will be the liability on sale of the land and the shares? — Dhanamjaya

There will be no tax on the inheritance of land and shares by you. On the sale of land, capital gains will arise for which you may be liable to pay tax. The sale of shares may be exempt if the gain is long term, and will be taxed at 10 per cent if the gain is short term. The gain will be taken as long term if the shares have been held for a period exceeding 12 months else the gain would be short term. In the case of land, it will be taken as long term if the same has been held for a period exceeding 36 months, else the gain would be short term.

In computing the period of holding, the period for which the shares/land was held by the previous owner will also be taken into account as the shares/land have been acquired by you through inheritance.

How is capital gain computed on bonus and split shares? Are short- and long-term periods computed in the same manner as in the case of regular shares? — J. P. Tungare

Insofar as bonus shares are concerned the cost of acquisition is to be taken as nil in computing the capital gain. If the bonus shares are held for a period exceeding 12 months, the gain is to be treated as long term. If held for 12 months or less the gain is to be treated as short term. By split shares it is understood that you are referring to shares of Rs 100 split into shares of Rs10. In such a case, when the shares are sold, post split, the cost of acquisition will have to be reckoned on a proportionate basis. The period of holding will have to be considered from the date on which the original shares were acquired/held. If the original shares have been held for more than 12 months, the gain would be long term and if it were held for a less than 12 months, the gain would be short term.

I am employed in a bank and my annual salary is Rs 3 lakh. My wife is a government school teacher and her annual salary is Rs 1.30 lakh. Both of us are income-tax assesses. In December 2006 I took a loan of Rs 3.25 lakh from the bank where I am employed and purchased shares of IFCI using this amount. The shares were purchased in the name of my wife. The shares were sold in January 2007 and a gain of Rs 1 lakh was earned. The transactions of purchase and sale were routed through a savings account, which is in the joint name of my wife and myself. How will the tax be computed and when is the tax to be paid? — Dheeraj

From the facts given by you, you have purchased the shares out of a loan taken by you though the shares have been purchased in the name of your wife. The gain should therefore be assessed in your hands and not in the hands of your wife.

You may note that the interest on the loan taken can be treated as part of the cost of acquisition while computing the capital gain. The gain apparently would be short term as the shares have been held for 12 months or less. The capital gains tax will be payable at 10 per cent (as increased by the additional surcharge of 2 per cent).

The capital gains tax will have to be paid by way of advance tax but as the capital gain in your case has been earned only after December 15, 2006 the advance tax should have been paid in full on such capital gains on or before March 15, 2007. A delay in payment beyond this date will lead to a levy of interest.

I am a pensioner getting a pension of Rs 8,000 a month. I also have `other incomes'. I live in a rented house and pay a rent of Rs 2,400 a month. I am not in receipt of any House Rent Allowance. Can I get any benefit on the rent paid? I had filed a return for the assessment year 2004-05 in July 2004. Though I had claimed a refund, none was granted but a demand was raised. I went in appeal and as a result of getting a favourable appellate order, the refund was granted to me in April 2006. The Assessing Officer has, however, not paid any interest on the refund. Is he right in doing so and what is my remedy if he were wrong? — B. Dathatreya

If you are not in receipt of HRA you may be able to claim the deduction under Section .80GG in respect of the rent paid by you. The deduction under Section .80GG would be available to you if you are not in receipt of HRA and where an accommodation is not owned by you or your spouse or minor child. The deduction under this Section would be the least of

Rs 2,000 per month,

25 per cent of the adjusted total income, or

Rent paid less 10 per cent of adjusted total income.

For the purpose of this Section, `adjusted total income' means the income after all deduction under Chapter VI-A (Sections 80CCC to 80U) but before deduction under this Section.

The Assessing Officer is apparently not justified in not granting you the interest on refund unless the refund is less than 10 per cent of the tax on the assessed income. The remedy available to you may be to make an application for rectification of the mistake apparent on record under Section .154 before the Assessing Officer, asking for the grant of interest and if this is denied to go in appeal against such denial of interest.

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