TAX TALK-17.10.2016-THE HITAVADA
CA. NARESH JAKHOTIA
Categorization of shares income decides its taxability
- I have a query regarding capital gain on agriculture land which is away from city, is in the village. Whether sale of such agriculture land is due for capital gain tax? [Sharad Wabgaonkar- email@example.com]
- I wish to sell our inherited agricultural but now urban land. Whether it is liable for taxation? If yes, please advise us the best way to reduce tax liability. We plan to invest in residential building. I already have our home in joint name with my husband. Is relief available if invested in 2nd or third residential building? [Jayanti singh- firstname.lastname@example.org]
b] On sale of urban agricultural land:
- To ascertain the taxability of profit arising on sale of agricultural land, one needs to ascertain whether it is a rural agricultural land or urban agricultural land. Entire surplus/profit would be tax free if (a) it is from sale of rural agricultural land & (b) it was used for agricultural purpose prior to its sale. The profit on sale of urban agricultural land or N.A. land would be taxable under the head “Capital Gain”.
- An agricultural land is considered as rural agricultural land only if it is not situated in any area within the distance (measured aerially) of not more than:
a] 2 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or
b] 6 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
c] 8 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000.
- The provision is same even on sale of agricultural land received by way of inheritance. Inheritance of a property in India doesn’t have any tax attachmentat the time of inheritance. However, its subsequent sale would be subject to normal taxing provision.
- Tax saving option:
a] On sale of urban agricultural land or non-agricultural land:
LTCG arising on sale of urban agricultural land or non-agricultural land (NA Land) can be commonly saved by claiming an exemption
i] u/s 54EC by investing the amount of LTCG in the bonds issued by NHAI/REC Bonds within a period of 6 months from the date of sale or
ii] u/s 54F, subject to other terms & condition, by investing the amount of net sale consideration for purchase of another residential hose property. [Mrs. Jayanti, in your case, tax saving u/s 54F would be available in respect of second house property. No exemption u/s 54F is available to the taxpayer towards investment in the third house property]
In addition to exemption option u/s 54EC & 54F as mentioned above, LTCG arising on sale of urban agricultural land can be saved u/s 54B by investing the amount of capital gain towards purchase of another agricultural land within the stipulated time frame.
I trade in Shriram insight shares broker p Ltd. Do I have to include LTG from trading in taxable income or it is exempted. [Shiv Dev Gupta, 79 HUDCO, Bhilai-490009. - email@example.com]
- Share trading- Whether Business Income or Capital Gain Income:
You have mentioned that you are trading in shares. Any person who is transacting in shares should understand that income from shares transactions could either be taxed under the head “Income from Business & Profession” or under the head “Income from Capital Gain”. Categorization would depend upon number of factors. The prominent factors that play an important role in determining whether it is a business income or capital gain income are: (a) Volume/Nature of transactions. (b) Intention/Logic behind investments. (c) Holding period of shares (d) Investment of own funds or a borrowed fund. (e) Other business activities of the assessee etc.
- Taxability of Shares Transactions:
Classification of income as business income vis a vis capital gain income is very relevant from the tax perspective, as under:
a] If share trading is taxable as capital gain income, LTCG would be exempt and STCG would be taxable @ 15%, if the transaction of sale is covered by payment of securities transactions tax (STT).
b] If share trading is taxable as business income then, irrespective of the period of holding, it would be taxed as per applicable tax slab of the individual taxpayer.
c] Chapter VI-A deduction (which includes deduction u/s 80C towards LIC/PPF etc) is not available against capital gain income.
d] Business expenditure like petrol, telephone expenses are admissible against business income. No such deduction is admissible while computing capital gain income.
My income from my Pension is bit more than Rs. 3,60,000/-. Please let me know about section 87A in Income Tax. [firstname.lastname@example.org]
Section 87A offers a tax rebate to an individual resident tax payer whose total income doesn’t exceeds Rs. 5 Lacs. The rebate shall be equal to the amount of income tax payable on the total income or Rs. 2,000/- (Rs. 5,000/- from the FY 2016-17) whichever is lower. It may be noted that tax credit of Rs. 2,000/- would be admissible only if the total income of individual taxpayer is not exceeding Rs. 5 Lacs. [Readers may please note that no rebate is admissible u/s 87A to HUF]. Even if the income exceeds marginally over Rs. 5 Lacs, no tax credit of Rs. 2,000/- would be admissible. To be more precise, even if income exceeds by Rs. 10, no tax credit u/s 87A would be available.
In your specific case, rebate u/s 87A would be admissible as your income is less than Rs. 5 Lakh.
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
or email it at email@example.com]