Gift from relatives not taxable

While buying and selling shares, we incur long term capital gain/loss, and short term capital gain/ loss. For how many financial years can the long term / short term losses be carried forward? Also, can long term capital gains be adjusted against short term capital losses, and vice versa?

- A.R.Ramanarayanan

According to the provisions of the Income-tax, if the holding period of a share is more than 12 months, it is classified as a long term capital asset (LTCA). Income arising from sale of LTCA is termed as long term capital gain (LTCG) or long term capital loss (LTCL), as the case may be. Similarly, if the holding period of a share is not more than 12 months, it is classified as a short term capital asset (STCA). Income arising from sale of STCA is termed as short term capital gain (LTCG) or short term capital loss (LTCL), as the case may be.

Both the LTCL and STCL can be carried forward to eight assessment years immediately succeeding the assessment year in which the loss was first computed e.g. if LTCL is computed for Assessment Year (AY) 2013-14, the same can be carried forward till AY 2021-22. Further, please note that STCL can be adjusted against any capital gain (short term or long term), however, LTCL can only be adjusted against an LTCG.

My father (aged about 82 years) has given Rs 2 lakh to my son through a cheque. Is this amount taxable in my son’s hand? Is any deed required from my father to avoid any complications in future?

- Rakesh Kaushal

According to the prevailing tax law, if an individual receives any sum of money, as a gift from a relative, then such gift would not be taxed in the hands of such individual. The law also defines the term relative to include, any lineal ascendant or descendant of an individual.

Since, your son received a gift of Rs 2 lakh from his grandfather i.e. from his lineal ascendant, the said sum shall not be taxable in your son’s hands. It is advisable that you take a written confirmation or deed from your father, confirming that a gift of Rs 2 lakh has been given by your father to his grandson, so as to be able to substantiate the nature of the transaction, in case of any tax scrutiny that may happen in future.

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(The author is a practising chartered accountant)