The Hindu Business Line : Tax deduction on medical treatment

Section 80DDB allows a deduction in respect of expenses incurred on medical treatment either on himself or his relatives. The term relatives as defined under this Section will not include your wife’s brother.

Even otherwise, you may note that this section only allows a deduction in respect of expenditure for certain specified diseases and ailments.

I intend to gift certain sums of money to my wife and father.

Can this sum be deducted from my taxable income? If so, what are the documents required to claim the same as deduction? — Sachin Chaudhari

No deduction can be claimed by you in respect of the gifts that you make to your wife or father.

The only thing is that these gifts will not be treated as the income of your wife or father in view of the specific exclusion made in respect of gifts made to certain relatives in Section 56(2). You may, however, note that any income earned by your wife from the sums gifted by you will be included in your hands, which are provided for in Section 64(1).

We employees were given shares under an employee’s stock option plan.

These shares get vested in us at 20 per cent of the total number of shares over five years. On the date on which the shares get vested in us we are required to pay Fringe Benefit Tax on the difference between the offer price and the market price.

It is after this that these shares get credited into our demat account.

If we were to sell these shares immediately, do we have to pay short-term capital gains tax in addition to the Securities Transaction Tax? If this were so, are we not taxed thrice? — B. Suresh Babu

If these shares were allotted or transferred to you on or after April 1, 2007, Fringe Benefit Tax will be payable by your employer and the Act provides that the same may be recovered by your employer from the employees.

As you have stated, if such shares are allotted to you and are sold immediately thereafter, a short-term capital gain will arise on its sale.

If the sale is through a recognised stock exchange, Securities Transaction Tax will be payable at the time of sale of the shares.

You may, however, note that the Section 49 provides that the fair market value of the shares, which has been taken as the value for determining the Fringe Benefit Tax, will be treated as the cost of acquisition.

You may further note that the short-term capital gain from the sale of shares on which Securities Transaction Tax has been paid at the time of sale will be charged to tax at 10 per cent (as increased by the appropriate surcharge and additional surcharge) in accordance with Section 111A.

It can therefore be seen that there will be no tax charged thrice but is only charged on the difference between the fair market value and the allotment price by way of Fringe Benefit Tax and on the difference between the sale value and the fair market value by way of short-term capital gains. In so far as the payment of Securities Transaction Tax is concerned it is this which brings down the tax rate on short-term capital gains to 10 per cent.

My mother and her three sons, which includes me, are the legal heirs of my deceased father.

My father at the time of his death owned a residential house and also a land.

We the legal heirs have decided to divide the property among ourselves with my mother and one brother taking the house and myself and my other brother taking the residential land. In such a case, what would be the capital gains tax implications?

Would it be better for us to divide the properties as stated above, transfer them in our respective names and thereafter to sell these or alternatively to jointly sell the properties and thereafter to divide it as stated above? — Arasu

From the facts given by you it appears that the house property and land left behind by your father were self acquired and further that he died without leaving a Will i.e. intestate. If so, the property will devolve on his first class legal heirs being his three sons and wife. This would mean that the properties would devolve to the extent of one-fourth on each of the said persons.

The capital gains will therefore arise to the extent of one-fourth in the hands of each of the said four legal heirs.

Dividing the properties in a different manner will not alter the tax implications.

In any case to transfer these said properties jointly and thereafter to share the proceeds would be a better option, since it would save some stamp duty which may otherwise arise if the properties are first registered in your respective names and thereafter sold.

I am holding shares of certain public limited companies for several years. These shares are valued today at about Rs 3 lakh which I propose to gift to my wife.

If my wife sells these shares through a recognised stock exchange, I understand that no tax will be payable by her and further that the capital gain will not be clubbed in my hands. — Saurabh Gandhi

You are correct in your understanding that no tax will be payable by your wife on the sale of the shares.

This will be because Section 10(38) exempts long-term capital gains from sale of shares if Securities Transaction Tax is paid at the time of its sale which will have to be paid if the sale is through a recognised stock exchange.

You are also correct in your understanding that the capital gain will not be clubbed in your hands since the gain is exempt.

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