Your Taxes

I invested in stocks and booked profit of ₹40,000 in the short term by holding them for only three months during the financial year 2015-2016.

My total income for the year 2015-2016 is ₹1,60,000, including the profit from the sale of stocks, which is lower than the taxable limit.

Please advise if I still need to pay tax on the profit from sale of stocks?

B Suresh Kannan

As per the provisions of the Income-Tax Act, 1961, no tax is required to be paid by an individual if his taxable income does not exceed the maximum amount not chargeable to tax (₹2,50,000 for financial year 2015-16).

The benefit of the aforesaid exemption limit is also available for income under short-term capital gains.

As your taxable income other than short-term capital gain is ₹1,20,000, you can utilise the balance exemption limit (₹130,000, that is, ₹250,000 less ₹120,000) against your short-term capital gain of ₹ 40,000, based on which no tax is required to be paid by you for financial year 2015-16.

When I recently sold some units of an equity mutual fund, the fund house deducted some money as capital gains tax along with service tax, securities transaction tax. 

I wonder whether fund houses are supposed to deduct capital gains tax while making payments against units sold. I am an NRI and all purchases and sales go through my NRE account. 

Rajan

As per the provisions of the Income-Tax Act, 1961, any person responsible for paying any sum to a non-resident which is chargeable to income-tax under the provisions of the Act, is required to deduct tax at the specified rates.

Short-term capital gain from sale of units of equity oriented mutual funds is taxable at 15 per cent whereas long-term capital gain from sale of such units is exempt from tax.

In the light of the limited facts available, I presume that you have earned short-term capital gains and thus the fund house was required to deduct tax at 15 per cent on such capital gains.

Please note that it is only the interest income earned from funds lying in NRE account which is exempt under the Act.

Any income earned out of the investments made through the NRE account shall be taxable subject to other provisions of the Act.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in