The Hindu Business Line : A housewife with capital gains on sale of house

I AM a housewife with no regular or other source of income. I purchased a house in 1995-96 for Rs 2.30 lakh, which I sold in 2004-2005 for Rs 8 lakh. What is my tax liability?

Kanaka Parthasarathy, email

Having held this property for more than three years, you have vested it with the character of a long-term capital asset and so eligible for numerous tax concessions. First, your capital gain will not be the difference between the selling price and the cost of acquisition, Rs 5.70 lakh. Instead, your long-term capital gain (LTCG) will be computed by deducting the indexed cost from the selling price. In 1995-96, the index was 281 and in 2004-05 it was 480. The indexed cost, therefore, is Rs 3.93 lakh — 2.30 multiplied by 480 and divided by 281. Thus, your LTCG is Rs 4.07 lakh. You could have completely avoided tax by taking either or both of the tax shelters under Sections 54 and 54EC. The former requires investment of the LTCG in another house, whereas the latter requires investment in capital gain bonds — such as bonds of NHPC, SIDBI, and so on — of the LTCG within six months.

In case you have not done either, then your tax liability would be 20 per cent of Rs 3.57 lakh — Rs 4.07 lakh less the tax-free limit of Rs 50,000. To this you have to add the education cess of 2 per cent.

School at project site

WE run a school at the project site incurring expenses on salary of teachers among other things. Is it liable to FBT?

Srinivasan, e-mail

While the Department may use the catchall phrase `employee welfare' to rope in the entire school expenses, I think corporates would rise to the challenge by shifting at least the salary expenses on teachers to the salary account which remains immune from FBT. The action then would shift to the courtrooms.

TDS certificate

IS IT necessary for the employer to give TDS certificate even in cases where he has not deducted tax at source on the ground that the salary is less than Rs 1 lakh, the current tax-free limit?

R. Ramesh, Tirupati

No it is not. TDS certificate is obviously not necessary when one has not deducted tax from one's income. But then, the certificate serves as certificate of one's income and may be useful for other purposes, may be for obtaining loans.

However, if the employer wants to effect a small economy, he can suitably instruct his computer not to print out TDS certificates showing nil tax deducted.

Gift, return gift

I MADE a gift of Rs 1 lakh to my mother who in turn gifted the same to the Hindu undivided family (HUF) of which I am a member. What would be the consequences?

Krishnan, email

It would be hit by Section 64(2), which targets indirect transfers as much as it does direct ones. In the event, till there is a complete partition of the HUF, the income from this gift would be added to your taxable income.

Tax sop for marriages ad infinitum

GIFTS received on the occasion of one's marriage are tax-free. Does this include subsequent marriages as well?

Mayur Sisodia, email

As per the language of Section 56, the answer is yes. The subsequent marriage cannot be automatically deemed to be non-est because bigamy is a non-cognisable offence, which means unless the affected party moves the legal process, no action would be taken. Just as WILL can be used to avoid tax on gifts under the income-tax law, the more joyous occasion of marriage can be used for facilitating a smooth inheritance of one's property.

This can be done by gifting only on the occasion of the marriage of one's wards instead of doing this as a family settlement or something like that. This stratagem would work whether the kids are males or females.

(ASK! Send in your queries on accounting, auditing, corporate law and taxationto ask@thehindu.co.in)

S. Murlidharan

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