The Hindu Business Line : Are doctors professionals or businessmen?

Will a doctor running a nursing home be considered as a professional or a businessman for the purpose of determining turnover limits under Section 44AB?

Arjun Khumbar, email

For a businessman the specified threshold triggering tax audit requirement is Rs 40 lakh and for a professional it is Rs 10 lakh. Obviously, a doctor running a nursing home falls under the category of professional. The lower threshold for a professional is understandable. He after all enjoys a considerably higher profit margin vis-à-vis his business counterpart, which as a rule of thumb in the perception of the lawmakers seem to be four times. While the gulf may not be this much invariably in all cases, it can be generally said that professionals do enjoy considerable surplus at the end of the day after meeting expenses. They after all have no cost of goods to reckon with and the consumables they use are but a fraction of their receipts.

Taxing bonus shares

How is taxation of bonus shares done? For example, I bought 10 Shares of TCS at Rs 1,800 in April 2006. Later TCS announced bonus shares in July 2006 and I received 10 bonus shares, effectively 20 shares for Rs 1,8000. Now, if I want to sell 10 shares @ 1100 per shares, how the tax will be calculated?

Pramod Kushwaha, email

Bonus shares are treated as costless with the principle of spreading over of the cost of original shares on both original and bonus shares being given up. Under our income-tax law where shares are held in demat form, the norm is first-in-first-out. Accordingly, when you sell the 10 shares, the assumption would be you have sold the original shares, which you bought at Rs 1,800 thus giving rise to a short-term capital loss of Rs 700 per share. This can be set off against any other capital gains now or within the next eight years.

And when you sell your bonus shares they would be costless. But if you sell after one year of acquiring them there would be no tax in any case because when shares are held for more than 12 months, they qualify as long-term capital assets and long-term capital gains earned through Indian bourses is completely tax-free except for the soft securities transactions tax. Postpone the sale of original shares also so that one-year passes before you sell them unless you have reasons to apprehend that now is the time to sell.

Split shares

I purchased 10 shares of RIL at Rs 800, but later due to split of RIL shares, I got shares of five companies. How will the same be accounted from taxation perspective if I sell them in short term?

Pramod Kushwaha, email

I would like, at the risk of sounding pedantic, to make a small correction. You have got additional shares on demerger and not on stock split. On demerger, the cost of shares in the demerged company are apportioned on demerged and resulting companies in the ratio of their respective net worth which was published by RIL on the eve of demerger. You would get this ratio from RIL's Web site.

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

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