My wife wishes to open an account under PMVVY (Pradhan Mantri Vaya Vandana Yojana) in LIC. LIC officials orally state that there is no TDS even if pension amount of ₹1.20 lakh is received under the scheme per annum. Neither the scheme details provided on the LIC website nor the application form indicate that TDS will not be deducted. Kindly clarify the correct position.

R Sridharan

As per the provisions of the Income Tax Act, Chapter XVII-B deals with the provisions of tax deduction at source. The same does not provide for any specific provision for deduction of tax at source for pension plans. Accordingly, no TDS should be deducted on the pension received under PMVVY.

Further, any amount of commuted pension received is considered to be exempt from tax under the provisions of Section 10(10A)(3) of the I-T Act.

Any annuity of pension received shall be taxable at the applicable tax slab rates for the respective years in which the pension is received and you would be required to pay taxes accordingly.

I read a very useful Q&A in BusinessLine dated September 16, 2019, with regard to long-term capital gains (LTCG). Query by NR Krishnaswami and answer by Sanjiv Chaudhary. In this regard, I have a small doubt which is as follows. Cost of acquisition is considered to be higher of the following two: 1) original purchase price per unit, or 2) lower of fair market value (FMV) as of January 31, 2018, or the sale price per unit.

Suppose a sale in done in the current financial year, 2019 -20, and the original purchase price per unit is ₹10, FMV is ₹11 (as of January 31, 2018) and sale price per unit is ₹12. From the above, the cost of acquisition is ₹11 and the sale price is ₹12 — ₹1 is the capital gain. Here is my doubt: Why is cost inflation index not allowed to be applied for FY2018-19 and FY 2019-20 from the base date of January 2018? Why is FMV as of January 31, 2018, alone taken without indexation as per the I-Tax Act? This makes the assessee pay more tax.

Mohan R

As per the provisions of Section 112A of the I-T Act, LTCG (in excess of ₹1 lakh) arising from sale of listed equity shares would be taxed at 10 per cent (without surcharge and cess), provided certain conditions are satisfied. Before the introduction of the said section, LTCG arising from sale of listed equity shares was exempt from tax.

The Budget 2018 was announced on February 1, 2018. Hence, the grandfathering of the costs as of January 31, 2018, was provided in the said section while calculating the LTCG on sale of listed equity shares.

Accordingly, the cost of acquisition is higher of the following two: 1) original purchase price per unit, or 2) lower of FMV as of January 31, 2018, or the sale price per unit.

Further, the section does not allow indexation benefit vis-à-vis the cost of acquisition.

Thus, LTCG arising till January 31, 2018 will be exempt from tax. Taking your example, if the cost price is ₹10, and FMV as of January 31, 2018, is ₹11, ₹ 1 (being the LTCG till January 31, 2018) will not be taxed. Only the additional LTCG arising after January 31, 2018, will be taxed.

The LTCG of ₹1 (the difference between sale price and FMV as of January 31, 2018) will be taxed @ 10 per cent (without surcharge and cess).

I am a retiree from the Central government. I received an enhanced gratuity of ₹10 lakh in September 2019. Will this amount be taxable in my hand in FY2019-20 or will it be tax-free in my hand like the earlier amount of ₹10 lakh received in FY2015-16?

Ramesh Yadav

As per the provisions of the I-T Act, any death-cum-retirement gratuity received under the revised Pension Rules of the Central government is exempt from tax.

The I-T Act does not differentiate between gratuity received in lump-sum, or in instalments, or a gratuity that has been enhanced subsequently.

In your case, assuming that you have received gratuity under the revised Pension Rules of the Central government, the same shall be exempt from tax under Section 10(1)(i) of the I-T Act.

The writer is a practising chartered accountant.

Send your queries to taxtalk@thehindu.co.in

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