The Hindu Business Line : Taxing inheritance

I am a nominee for a Post-Office senior citizen scheme account of my aunt. My aunt died recently and left a will whereby the amount in the Post- Office Scheme has been left to me. My aunt did not have an income exceeding the maximum amount not chargeable to tax. Kindly confirm whether the amount received from the post-office will be chargeable to tax in my hands. — P. Jose

The principal amount invested by your aunt will not be taxable in your hands. The interest accrued up to the date of your aunt's death will be her income and should be charged to tax in her hands but will have to be assessed in the hands of her legal heirs. If, however, your aunt's income is less than the maximum amount not chargeable to tax after including the interest, the same will not be taxed. The interest accrued after her death will however be treated as your income and assessable in your hands.

I booked a flat for Rs 8 lakh in March 2005 and took possession of the same only in December 2005. I also booked another flat for Rs 14 lakh in March 2007 and possession of the same is likely to be given only in January 2008. I now propose to sell the flat which I had taken possession of in December 2005 for Rs 19 lakh. What would be my capital gains? Will the capital gains be long term or short term? Can I make an investment in another house property to get an exemption? — Kuldeep Belawat

Since you took possession of the flat only in December 2005, on sale of the same the gain will be short-term capital gains and no exemption can be claimed by you by investing in another house property. The gain will be short term as the flat has not been held by you for more than 36 months. The capital gains will be Rs 11 lakh, that is, the sale consideration of Rs 19 lakh reduced by Rs 8 lakh, being the cost of acquisition. Such capital gains will be chargeable to tax at the normal rates applicable to you.

My father owns a house property. He now proposes to sell the same to me. For the purchase, I plan to take a bank loan. Will I be able to get the tax benefits on the EMI paid on the loan? — Rupesh

The principal repayment of the housing loan will be eligible for deduction under Section 80C in your hands. Similarly, the interest payable on the housing loan will qualify for deduction under Section 24. The mere fact that you purchased the property from your father will not be an impediment to claiming the deductions.

I had the following transactions in shares:

Purchase of 100 shares of Bharti Airtel Ltd at Rs 341 per share on December 7, 2005;

Sale of 100 shares of Bharti Airtel at Rs 441 per share on August 30, 2006;

Purchase of 100 shares of Bharti Airtel at Rs 464 per share on October 5, 2006;

Allotment of 130 shares of Wire and Wireless at Rs 10 per share in January 2007; and

Sale of 130 shares of Wire and Wireless at Rs 130 per share on January 23, 2007

What will be my capital gains and my tax liability? — Deepak Taneja

Since the shares sold by you have not been held by you for more than 12 months, the gain would be short-term. The short-term capital gains on sale of shares of Bharti Airtel would be Rs 10,000 and on the sale of shares of Wire and Wireless Rs 15,600. Since both the gains have arisen in the previous year, 2006-07, the short-term capital gains of the year will be Rs 25,600. If theses shares have been sold through a recognised stock exchange where the Securities Transaction Tax was paid at the time of sale, the gain will be charged to tax at 10 per cent. If it were not so, the gain will be charged at the normal rates of tax applicable to you. If your other income does not exceed the maximum amount not chargeable to tax in a case where the gain is to be taxed at 10 per cent, the unexhausted portion of the basic exemption can be reduced from the capital gain before computing the tax. The tax rates will have to be increased by the appropriate surcharge and additional surcharge.

I have invested Rs 5 lakh in RBI cumulative bonds. The interest receivable on maturity would be quite a large sum. I would like to reflect the interest income in my tax returns on a year-to-year basis on accrual system. Can I do so? — Francis A. D'Souza

The interest income will be chargeable to tax in your hands as "Income from other sources". Income under this head and under the head "Profits and gains of business or profession" is to be assessed based on the method of accounting regularly employed by an assessee being the cash or the mercantile system of accounting, as provided for in Section 145 of Income-Tax Act. It may be mentioned that an assessee may choose different methods of accounting for different sources of income. It will be open to you to follow the mercantile system of accounting in respect of the interest from the RBI bonds. In such a case the income by way of interest will have to be offered to tax on accrual on a year-to-year basis. You can, therefore, offer such interest income on accrual on a year-to-year basis if the mercantile system of accounting is followed by you.

I had invested some money in NSS in 1988. I now want to close the account and withdraw the sum standing to my credit. When I approached the post-office I was told that tax will be deducted at source on the same at 20 per cent (as increased by the appropriate surcharge and additional surcharge). Is such deduction of tax at source required? — K. Subramanya Kumar

Section 194EE provides for deduction of tax at source at 20 per cent on withdrawal of funds from NSS. This would be required where the sum which is withdrawn represents the amount on which deduction was claimed under Section 80CCA at the time of investment and also the interest accrued thereon. Such deduction would be required if the amount withdrawn exceeds Rs 2,500 in a financial year. The post-office is therefore right in stating that tax will be deducted at source on withdrawal provided you have clamed deduction under Section 80CCA at the time of investment. You may note that the rate at which tax is to be deducted is to be increased by the appropriate surcharge and additional surcharge.

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