Income accruing to a minor is clubbed with higher-earning parents

Written by Suresh Surana | Updated: Jan 8 2013, 09:15am hrs
My father held equity shares in certain listed companies, which have now been devolved to me on his death. He held these shares for about two years. What will be the tax implications if I sell these shares

Pratip Kar

As per Section 2 (42A) of the Income Tax Act, 1961, if an asset is received by way of inheritance, the period of holding of the previous owner will also be taken into account in determining whether the asset is a long-term or a short-term capital asset. As such, your holding period will be calculated from the period for which it has been held by your father. As such, the gains arising on sale of shares will be treated as long-term capital gains and be eligible for tax exemption under Section 10(38) provided they are sold through a recognised stock exchange and the securities transaction tax is paid on such sale.

I have a minor daughter in whose name there is a fixed deposit for R1 lakh, which was made from a gift received from her grandfather. An annual interest of R9,000 is being earned on the FD. Will this income be clubbed in my hands

Vinay Kumar

As per the provisions of Section 64 (1A), the income accruing to a minor child will be clubbed with the income of the either of the parent whose total income is greater than the other (excluding the income to be clubbed). As such, the income of R9,000 will get clubbed in your hands (assuming you have greater income than your spouse). You will be entitled to exemption under Section 10(32) for income up to R1,500 per minor child.

Last month, I sold jewellery that I had purchased four years ago for profit. Kindly advice me about the capital gain tax.

Komal Sharma

As the jewellery has been held for more than 36 months, it is a long-term capital assets and is eligible for indexation benefit. The cost inflation index for financial year 2012-13 has been notified as 852. The gain arising on transfer of a long-term capital asset is termed as long-term capital gain, liable to tax at the rate of 20.60%.

Please note that if your basic exemption is not exhausted by any other income, then the long-term capital gain will be reduced by the unexhausted basic exemption and only the balance is taxed at the rate of 20.60%. You can avail the exemption benefit available under Section 54EC/54F, subject to fulfillment of certain conditions.

Recently, I earned capital gain on account of sale of some unlisted shares. I wish to invest the gain in residential house to avoid capital gains tax. However, I will continue to stay with my parents in their house and let out this new house. I do not own any other house property. Kindly let me know if I can claim the tax exemption even if I let out the property

Govind Rao

Section 54F of the Act allows exemption from long-term capital gain if the net consideration from sale of the long-term capital asset other than residential house property is invested in the residential house property.

The Section requires acquisition of a residential house property and does not talk about the utilisation of the same thereafter, i.e., mere non-residential use would not render the property ineligible for Section 54F benefit, which is, otherwise, a residential house. As such, you would be entitled to claim the exemption upon acquisition of the house property subject to compliance with certain other conditions of Section 54F of the Act.

The writer is founder of RSM Astute Consulting Group

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