The Hindu Business Line : Deductions for senior citizens

I am a senior citizen. In the financial year 2007-08, (Assessment Year 2008-09) my income by way of pension and interest on deposits is Rs 2,14,228.

I have made an investment of Rs 12,000 under Section 80C and Rs 8,284 under Section 80D.

This makes my taxable income Rs 1,93,944, which is below the maximum amount not chargeable to tax in the case of senior citizen of Rs 1.95 lakh. Will I have to file a return of income? What is the latest cost inflation index?

What is the rate of tax on capital gains? What are the methods available to save on capital gains tax by way of investment in bonds or deposits? — Ramanandan

You will be required to file a return of income though your total income is below the maximum amount not chargeable to tax. Section 139(1) requires an individual to file a return, if his total income exceeds the maximum amount not chargeable to tax before giving effect to the provisions of Section 10A, Section 10B, Section 10BA or Chapter VI-A.

In your case, though your total income, after reducing the deductions available under Sections 80C and 80D, falls below the maximum amount not chargeable to tax, your income before such deductions exceeds the maximum amount not chargeable to tax, which in your case, being a senior citizen is Rs 1.95 lakh for the Assessment Year 2008-09.

You may note that Sections 80C and 80D fall within Chapter VI-A of the Act. The cost inflation index notified for the financial year 2007-08 is 551. In respect of transactions in shares, the capital gain will be taxed at 10 per cent (as increased by the appropriate surcharge and additional surcharge) if the gain is short term and will be exempt if the gain is long term, provided securities transaction tax is paid at the time of sale.

On the other hand, if no securities transaction tax is paid at the time of sale, the gain, if short term, will be charged at normal rates applicable to you, while the gain, if long term, will be taxed at 20 per cent (as increased by the appropriate surcharge and additional surcharge).

The long-term capital gains from transfer of any other capital asset will be charged to tax at 20 per cent (as increased by the appropriate surcharge and additional surcharge), while short-term capital gain from transfer of any other capital asset will be charged to tax at the normal rates applicable to you.

Exemption may also be claimed by reinvestment under Section 54EC.

The exemption under Section 54EC is available subject to satisfying the following conditions

The asset transferred is a long term capital asset.

The investment is in bonds of the National Highway Authority of India or the Rural Electrification Corporation

The bonds are redeemable after a period of 3 years

If the exemption should be claimed under Section 54EC, the investment should be made before the expiry of six months from the date of transfer of the capital asset.

During the financial year 2007-08, I purchased and sold shares through a recognised stock exchange. All the shares were sold within a week of its purchase. The total value of sale of shares in the financial year does not exceed Rs 40 lakh.

All purchases and sales were through a recognised stock exchange and the securities transaction tax has been paid on both purchases and sales.

Will the income or loss be treated as short-term capital gain or loss or as a gain or loss arising from a business?

If the gain or loss is treated as arising from a business, will I be required to get my books of accounts audited, even though the turnover is less than Rs 40 lakh, which is the limit set-out in Section 44AB? This query is posed particularly in the light of Section 44AF, which provides for treating the profits from retail trade at 5 per cent unless a tax audit report is furnished. — P.R.K. Murthy

In so far as the buying and selling of shares is concerned, the issue of whether the same should be treated as giving rise to capital gains or business income is one which will have to be determined on the facts and circumstances of the case.

Broadly speaking, the issue of whether such income will be treated as business income or capital gains can be decided based on the period of holding, the frequency of such transactions, the motive of the transaction, which is to be examined on facts, the entries in the books, the infrastructure deployed such as employees, nature of systems monitoring, the source of funds — whether own funds or borrowed funds.

None of these factors in isolation can be taken in determining whether the transactions by way of buying and selling of shares are in the nature of business or in the nature of investment.

There can be no one answer to this query, as it will have to be decided in the facts of each case.

Assuming that the profit or loss from your dealing in shares is to be treated as business income, there would be no requirement for a tax audit under Section 44AB, since your turnover is less than Rs 40 lakh.

Your apprehension on the provisions of Section 44AF also appears to be unwarranted, since you cannot be called a retail trader and since Section 44AF would apply only to a retail trader.

It may be noted that a retail trader is one who normally buys in small quantities and sells it to the end consumer. In case of shares, the question of sale to an end consumer should normally not arise and, therefore, it is felt that your apprehension is unwarranted.

I am engaged in the buying and selling of shares through a recognised stock exchange.

I normally sell the shares within a short period of time, say, within two months. Will the gain be treated as capital gains or as business income?

I also have other income such as interest from banks. I am a senior citizen. I would like to know whether I would be able to enjoy the full basic exemption of Rs 2.25 lakh for the assessment year 2009-10? — Chandriga

The issue of whether the gain should be treated as capital gain or business income is addressed elsewhere in this column.

As regards the claim of full basic exemption, the same can be done whether the income is assessed as capital gains or as business income. In this context, you may note that the Section 111A, which provides for the rate of tax on short-term capital gains, where the gain is from sale of shares through a recognised stock exchange, makes a specific provision that the basic exemption that is not exhausted against the other income of an individual of HUF can be reduced from such short-term capital gain and the tax computed on the gain as so reduced.

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