The Hindu Business Line : A small investor at the tax portal

I am a small investor. My monthly profit from share market is Rs 5,000 on an average. I don't know whether I am crossing the tax-free limit. Please guide me.

Shashi, email

I take it that this is your only source of income. In that case, you are not liable to any tax. But if you have other sources of income, you must add those income also to your income from share market to see if the aggregate crosses the tax-free limit of Rs 1 lakh, Rs 1.35 lakh or Rs 1.85 lakh according as you are a non-senior citizen male or non-senior citizen female or a senior citizen of either sex.

Further, assuming that the gains from the share market are of the short-term variety — sold within twelve months of purchase — you have to pay tax on such income at a flat rate of 10 per cent provided Securities Transactions Tax (SST) has been paid on these transactions at the time of sale.

Assuming you are a male non-senior citizen, your tax-free limit is Rs 1 lakh. Assuming that in addition to your short-term capital gains from the share market you have an interest income of Rs 50,000, your aggregate income becomes Rs 1.10 lakh. Out this, Rs 1 lakh is tax-free and on the remaining Rs 10,000, which would be short-term capital gain, you would pay a tax of 10 per cent, plus education cess at the rate of 2 per cent on such tax.

Conversion to capital asset

An assessee has converted his flats that were his stock-in-trade into capital assets. And after three years when he sold them, he paid capital gains tax. Is that allowed?

Keyur Patel, email

There should be no objection to this. But the tax authorities may insist on taking the fair market value on the date of such conversion as cost, which of course could be inflated by the increase in the cost inflation index between the date of such conversion and ultimate sale.

While this is not expressly provided for in the law, I think their stand would be fair given the fact that when the reverse happens — when a capital asset is converted into stock-in-trade — the fair market value on the date of conversion is deemed to be the consideration for the purposes of capital gains computation. But this proposition, however, remains to be judicially tested.

Dividend stripping

Kindly throw some light on dividend stripping?

Keyur Patel, email

It refers to the practice of selling shares just prior to the record date set for dividend and buying them back soon after that with a view to avoiding tax on dividend. But with the abolition of tax on dividend, the strategy has lost its sheen.

Computer gifted

I have gifted a computer worth Rs 50,000 to my brother. Does either of us have to pay income-tax on this transaction?

Rishi Pinnamaneni, Jamnagar

No, as it is, only monetary gifts in excess of Rs 25,000 received by a person are taxable in his hands. Even otherwise, gifts from brothers are tax-free under the present dispensation. So both of you can relax.

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