Tax Talk

I earned Rs 80,000 by teaching at home in FY2012-13. I also earned Rs 1.1 lakh as interest from bank/post office investments. My short-term capital gains from buying and selling of shares on the BSE are Rs 70,000. Thus, my total income is Rs 2,60,000. I made investments in tax-saving bank FDs and paid LIC premium of Rs 1 lakh. After deductions, my net income is Rs 1,60,000. Do I need to pay short-term capital gains @ 15 per cent on profit earned from trading in shares as my income after deduction is below the taxation limit?

- Neetu

Based on the limited facts provided, I understand that the shares were held as investments. Hence, the income arising from the sale of shares shall be computed under the head ‘Capital Gains’. Accordingly, the short-term capital gains shall be taxable at the special rate of 15.45 per cent (including education cess) in case the instrument is equity-oriented on which Security Transactions Tax (STT) has been paid.

For a resident individual, if total income chargeable to tax after excluding income chargeable to tax at special rates (e.g. short-term capital gains on equity-oriented instruments on which STT has been paid and long-term capital gains) is less than the maximum amount exempt from tax, the balance exemption limit can be set off against the short-term gains and the remaining gains shall be taxable at 15.45 per cent.

In your case, the taxable income, including short-term capital gains is less than the maximum amount not chargeable to tax (for FY2012-13, Rs 2,00,000 for individuals below 60 years of age), hence, you will not be liable to pay any tax.

Are the recent guidelines for deducting withholding tax @ 1 per cent on property transfer w.e.f. June 1, 2013 applicable to an under-construction flat costing over Rs 50 lakh where the agreement is entered into prior to the above effective date as above, but the part disbursements to the builder are being made today?

- Venzil Henriques

The Finance Act, 2013 has introduced a provision (section 194-IA) under which the purchaser of an immovable property (other than rural agricultural land) worth Rs 50 lakh or more is required to deduct tax at the rate of 1 per cent from the consideration payable to a resident transferor. Whenever a property is purchased from the developer/builder, the payments are usually made in instalments over the construction period and the possession of the property is given only after construction is completed and the full payment is made.

A plain reading of Section 194-IA indicates that TDS will also be applicable when payment is made to the developer for purchase of property. Therefore, you need to deduct tax while making any payment to the builder post-June 1, 2013, if the consideration for transfer of property is more than Rs 50 lakh.