STT is not eligible for tax exemption

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I had purchased a residential house in 2005, whose agreement for sale was made on June 15, 2005. The possession was taken in December 2006. I am currently residing at this house. Now I wish to sell this house to purchase another residential house, and while doing this I would like to avail of the benefit of the clause about long term capital gain.My query is, for the purpose of qualifying for long term capital gain, the three year term is calculated from the date of agreement of a property or from the date of possession? Kindly do let me know.

—Ankit Dubey

The three-year term would be calculated from the date of possession and not from the date of agreement for sale.

Consequently, if you wish to avail of the long-term capital gains tax benefit, you will have to sell the house only after December 2009.

1) Can you confirm whether money gifted to our retired parents (both senior citizens) is exempted U/S 56 of Income Tax Act, 1961, because tax treatment for such cases varies from company to company?

2) Please also confirm if Security Transaction Tax (STT) paid by me on purchase of shares is eligible for tax exemption u/s 88E.

—S Julka

Money gifted to parents is tax-free for both donor and receiver as per Sec 56. This cannot change from company to company as this is the law. However, we hope you aren’t confusing it with the gift being tax deductible. The gift is not tax deductible. In fact, it has to be (will be) made out of your after tax income. It is the transaction of gift that is tax-free and has no tax incidence.

STT is not eligible for tax exemption but is tax deductible from the tax on profits from your securities transaction. But for this you will have to classify yourself as a trader in securities and hence be taxed at slab rates applicable --- this means long term tax exemption and short term tax at 10% will not be available.

I returned back to India in mid-October after working abroad for over 9-10 years. I used to visit India every year for roughly 40-50 days. Kindly confirm the following :

1. No tax will be levied on my income abroad for FY 2007-2008 (i.e. for the period from April 1, 2007 to March 31, 2008) as for FY 2007-2008 my residential status should be NRI?