The Hindu Business Line : Income tax on household articles?

No tax will be payable by you on the sale of the household articles. You may note that a capital gains tax can arise only if a capital asset is transferred.

The term capital asset is defined in Section 2(14) to mean property of any kind whether or not connected with the business or profession of an assessee.

This provision, however, makes certain exceptions and one of the exceptions is in respect of personal effects i.e to say movable property (including wearing apparel and furniture but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him.

From the facts given by you, it is clear that the articles sold by you are in the nature of personal effects and hence no capital gains tax will arise on its sale.

This will not be treated as income under any other head as well and hence will not be charged to tax.

I purchased a flat in Mumbai for Rs 74 lakh on March 16, 2001.

I paid a stamp duty of Rs 5.4 lakh and transfer charges of Rs 25,000 aggregating to Rs 79.65 lakh. I sold this property for Rs 1.5 crore during the financial year 2007-08. I would like to know whether I will be entitled to the benefit of indexation and also what will be net capital gain and the tax thereon.

If I do not invest the proceeds in the purchase or construction of another property, can I save tax on the capital gains? — Alok Shorewala

The gains from the sale of the flat will be taxed as long-term capital gains in your hands, since it has been held by you for a period exceeding 36 months.

Since the gain is long term, you will be entitled to the benefit of indexation in computing the capital gains.

The long-term capital gains and the tax thereon will be as indicated in the table.

You may note that the cost inflation index for the financial year 2000-01, which is the year of purchase of the flat, is 406 and the cost inflation index of the financial year 2007-08, which is the year of sale of the flat, is 551.

Capital gains tax can be saved — even without investing in another property — by investing in bonds of the National Highway Authority of India or the Rural Electrification Corporation, within six months from the date of transfer of the capital asset.

Such amount cannot be redeemed or transferred for a period of three years. The maximum investment that can be made in such bonds is Rs 50 lakh. The exemption that can be claimed in respect of such investment will be under Section 54EC.

The exemption that will be available will be the lower of the amount invested or the capital gains.

I am a salaried employee. I would like to transfer some of my money to my wife’s bank account as a loan to her.

If she uses the money to invest in shares and earn capital gains, what will be the tax implications? — Ketan S. Desai

As the money that is transferred by you to your wife is by way of a loan, the clubbing provisions will not be attracted.

Clubbing of income will be attracted only if there is a transfer made to a spouse for inadequate consideration.

In the instant case, there is no transfer since the amount given to your wife is only by way of a loan.

The clubbing provisions under Section 64(1) will therefore not be attracted.

The capital gains that will arise from the investment in shares by your wife will be assessed only in her hands.

I and two of my brothers had a partnership firm, which discontinued its business 10 years ago.

All the assets of the firm other than a building, which has a written down value as per Income Tax Act of approximately Rs 50,000, have been sold on discontinuance of the business.

The building, however, is let out on rent and the income is offered to tax in the hands of the firm, as income from house property.

The net profit after such tax is shared among the partners in the profit sharing ratio.

I propose to gift my share in the partnership firm to one of my brothers, who is also one of the existing partners of the firm.

What will be the tax implications under income tax, wealth tax and gift tax in respect of such gift in my hands and also in the hands of my brother who is the recipient of the gift? — Alpa Dharamshi

No tax implications will arise in your hands or in the hands of your brother who is the recipient of the gift.

You may note that the provisions of the Gift Tax Act have been made inoperative with the charging section providing that such tax will not arise in respect of gifts made on or after October 1, 1998. You may also note that though Section 56 seeks to tax money exceeding Rs 50,000 in a year received without consideration by an individual or HUF from any person as income, the said Section also seeks to provide certain exclusions and one such exclusion is in respect of sums of money received from a relative.

The term relative for this purpose is defined by the Section to include the brother of an individual and in the instant case since the recipient is only receiving the amounts or your share in the firm as a gift from you, no tax will arise in the hands of your brother.