I am a senior citizen aged around 68 years. I have during the current year, that is, financial year 2007-08, received Rs 6,600 as bonus from the Post Office Monthly Income Scheme (POMIS) and Rs 45,000 from a life insurance policy with the LIC. Are these sums taxable? — C. Sankaran

The bonus received from POMIS is taxable in your hands under the head ‘income from other sources’. The sums received from the life insurance corporation under a life insurance policy will, however, be exempt in your hands under Section 10(10D).

I am a resident individual and my income structure comprises salary, long-term capital gains on shares, short-term capital gains from shares and profits from dealing in futures and options apart from income from other sources. I have income exceeding Rs 2,50,000 and, therefore, am already in the 30 per cent tax slab. I would like to know whether the profit from dealing in futures and options will be treated as speculative income or business income. I would also like to know what will be the rate of tax either way. Also clarify how the turnover is to be reckoned for the purpose of determining whether a tax audit is required. Can I set off the loss from futures and options against salary income or short-term capital gains? — Subramanya

Section 43(5) deems a transaction to be speculative in nature if the transaction of buying and selling of goods or commodities including shares and scrips is without delivery. The provision provides for certain exceptions. It can be seen that this provision creates a deeming fiction whereby if there is no delivery, the transaction is treated as speculative in nature. The trading in futures and options will normally be considered as a business and be taxed under the head profits and gains of business or profession. Futures and options are transactions done without actual delivery and therefore by virtue of Section 43(5) would be treated as a speculative business.

An exception is, however, created by this section whereby if the transaction is carried on through a registered broker or sub-broker or by banks or mutual funds and where the transaction is carried out electronically on screen-based systems and which is supported by a time stamp contract note which indicates the client identity and the number allotted under the SEBI Act, the SCR Act or the Depositories Act and also gives the permanent account number of the client, the transaction is not treated as speculative in nature and will not constitute speculative income.

In either case, whether the loss is treated as regular business loss or loss from speculative business the same cannot be set off against the income under the head salary due to an express prohibition in Section 71 in this regard. If it is treated as a business loss and not as arising out of a speculative business it can be set off against short term capital gains. If it is treated as arising from a speculative business it cannot be set off against short-term capital gains.

It may be noted that a business loss which cannot be set off against other incomes in the same year can be carried forward and set off against business income within a period of eight assessment years immediately succeeding the assessment year in which the loss was first computed. It may also be noted that a speculative business loss which cannot be set off against income from speculative business in the same year can be carried forward and set off against speculative business income within a period of four assessment years immediately succeeding the assessment year in which the speculative loss was first computed.

The rate of tax in either case would be the same and will be charged at the normal rates of tax applicable to you. You may further note that it is only the net of the selling and buying transactions which should be taken as turnover in case of transactions in futures and options which is done without delivery.

This view is supported by the decision of the Mumbai Bench of the Tribunal in ACIT vs Saumil J. Trivedi (ITA No. 3266 Bom 1995).

I have spent around Rs 1,25,000 to remove blood clots from the upper arm for my wife. As a part of this treatment the doctors had also to remove three fingers from her hand. My employer had reimbursed a part of the medical expenses incurred by me on the treatment of my wife. Will I be entitled to take the benefit of deduction under Section 80DDB and, if so, to what extent can I claim the deduction? — Praveen Kumar Bhagat

Section 80DDB allows a deduction to be claimed only in respect of the medical treatment of such diseases or ailments as may be prescribed.

The prescribed diseases and ailments for the purpose of claiming deduction under Section 80DDB are contained in Rule 11DD which are as follows: Neurological diseases where the disability level has been certified to be of 40 per cent and above; dementia; dystonia musculorum deformans; motor neuron disease; ataxia; chorea; hemiballismus; aphasia; Parkinsons disease; malignant cancers; dull blown acquired immuno deficiency syndrome (AIDS); chronic renal failure; haematological disorders; haemophilia; and Thalassaemia.

It does not appear that the ailment suffered by your wife falls under any one of these categories and, hence, you will not be entitled to any deduction under this section. It may also be noted that the deduction will be restricted to the amount spent as reduced by the amount recovered under an insurance or from the employer.

Therefore, even if you were eligible for the deduction only the net amount spent which is the amount spent as reduced by the amount reimbursed by your employer will qualify for the deduction. You may further note that the deduction is restricted to Rs 40,000 and in case of senior citizen to Rs 60,000 at the maximum.

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