The Hindu Business Line : STT in tax computation

I have paid securities transactions tax (STT) on short-term capital gains earned by me. Can I add it to the cost of my shares or reduce it from the selling price or reduce it from my tax liability?

C. K. Singh, e-mail

Sorry to disappoint, you can do none of these. The last proviso to Section 48 rules out any deduction for STT while computing the capital gains, and Section 88E offers rebates for STT only if your profits from shares are assessable as your business income. You are an investor and not a dealer in shares presumably.

Surcharge relief

My friend and I are unable to comprehend the meaning of the term marginal relief in the context of surcharge for those having taxable income in excess of Rs 10 lakh. Please explain the concept in detail. My total income is Rs 10, 5,000 and my friend’s is Rs 10,10,000.

N. Sundar, Hyderabad

Surcharge at 10 per cent on the tax payable becomes payable if one’s total income (taxable income) exceeds Rs 10 lakh. The marginal relief is for people on the borderline. The additional tax payable by them should not exceed the tax payable on Rs 10 lakh by more than the income in excess of Rs 10 lakh. The tax on Rs 10 lakh at the prescribed slab rates is Rs 2,50,000 and obviously there is no surcharge at this level.

Let us take your friend’s case first. His total income is Rs 10,10,000. His tax liability as per the slab rates works out to Rs 2,53,000. Surcharge of 10 per cent takes his total tax liability to Rs 2,78,300. As seen earlier, the tax on Rs 10 lakh is Rs 2,50,000 and the difference between Rs 2,78,300 and Rs 2,50,000 is Rs 28,300.

He makes the grade for the marginal relief as the excess liability does exceed his income in excess of Rs 10 lakh, which is Rs 10,000, by 18,300. Therefore the marginal relief to him is Rs 18,300.

That is from his gross tax liability of Rs 2,78,300, there would be a reduction to the tune of Rs 18,300, thus making his tax bill Rs 2,60,000. To this of course you have to add education cess of 2 per cent which works out to Rs 5,200. Let us take your case. On Rs 10,05,000, the tax at slab rates is Rs 2,51,500 and surcharge of 10 per cent pushes it further to Rs 2,76,650.

Tax on Rs 10 lakh is only Rs 2,50,000 as shown earlier. The difference between the two is Rs 26,650.

This exceeds your income in excess of Rs 10 lakh that is Rs 5,000 by Rs 21,650. You get a marginal relief of Rs 21,650. That is from your gross tax liability of Rs 2,76,650; you get a marginal relief of Rs 21,650 thus making your tax bill before education cess Rs 2,55,000.

Add 2 per cent education cess which works out to Rs 5,100 to get the final figure.

Mumbai as IFC

What advantages would accrue to India if Mumbai becomes an International Financial Centre (IFC)?

Kakoli Mukherjee, Kolkata

The high-powered committee appointed by the Government, aka the Mistry Committee, has made a fervent plea for making Mumbai an IFC.

As it is, New York, London and Singapore are the major IFCs hogging bulk of the business involving financial activities in the run-up to M&A and, in short, everything to do with the world of high finance.

India is moving up the knowledge chain — from BPOs to KPOs — and the Committee feels IFCs would be a crowning glory to this relentless progression.

It wistfully wishes that the huge fee paid to IFCs abroad by the Tatas in the Corus deal would have accrued to India had there been an IFC in Mumbai.

Besides giving employment, taxes to the government and world-class financial infrastructure, IFCs would catapult India into the world of high finance giving Indian corporates as well as our Asian neighbours access to a market on their backyard, as it were.

The Committee rightly feels that full convertibility of the rupee would have to be the humble first step in this direction.

S. MURLIDHARAN

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