Income Tax: Capital gains on transfer of debt-oriented mutual funds are taxable

Suresh Surana Posted online: Tuesday, Feb 11, 2014 at 0000 hrs
A couple of months ago, I sold a plot of land and used the proceeds for renovating my house. Can I claim capital gain exemption under Section 54F?

— Anurag Kumar

Section 54F of the Income-Tax Act, 1961, provides exemption on capital gains on sale of any capital asset if a taxpayer constructs or purchases a residential house (new asset) within the prescribed period. The objective of this section is to exempt the capital gain on sale of any capital asset, provided a new house is purchased/constructed. A new house can neither be an extension nor an addition made to an existing structure. Thus, in your case, capital gains exemption won’t be available.

I am an NRI based in Dubai. Recently, I sold some units of debt-oriented mutual funds and earned capital gain. Will such capital gains be taxable in India?

— Ramesh Ojha

Under the Income-Tax Act, capital gains on transfer of debt-oriented mutual funds are taxable. However, as you are a tax resident of UAE, you can claim relief available under the India-UAE tax treaty, subject to certain conditions. Article 13 of the treaty deals with taxability of capital gains arising on transfer of different types of assets. As per Article 13(4), gains arising from the sale of shares in a company, which is a resident of India, can be taxed in India.

However, units of mutual funds cannot be considered as shares of a company. Further, the I-T Act has given different treatment to shares and units of mutual funds. Therefore, the capital gain arising from sale of units of MFs will not be taxable in India as per Article 13(5) of the treaty. The relief under the treaty can be availed only on furnishing of a Tax Residency Certificate (TRC) and certain additional information in Form 10F.

I took a home loan for buying a flat about five years ago. Since then, I have been claiming deduction on loan repayment (interest and principal) in ITR. This year, besides interest, I have paid certain amount as pre-payment charges for closure of my home loan account. Will I be eligible to claim deduction on that?

— Purav Gupta

As pre-payment charges have direct linkage with the obtaining of a loan that was availed for acquisition of the property, you can claim the deduction on the amount paid for prepayment under Section 24(b) while computing the income under the head “income from house property’’.

I had filed my return of income for FY13 in October 2013. I treated profits from share trading as business income rather than capital gain. Now I wish to revise the return by showing them as capital gain. Can I do so?

— Suraj Kumar Singh

As per Section 139(5) of the Income-Tax Act, a person is permitted to file a revised return of income if he has filed the original one within the prescribed due date. For FY13, the due date of filing return of income was July 31, 2013 (which was later extended to August 5, 2013). As you filed your return of income in October 2013, i.e., after the due date, you can’t file a revised return.

Last week, I sold a flat that I bought in 1999. I am planning to buy a new flat in the name of my daughter (who is married) from the sale proceeds. Can I claim capital gain exemption?

— Prakash Mahindroo

Under Section 54 of the Income-Tax Act, an individual can claim capital gain exemption if he purchases a residential house within the prescribed time-limit by utilising the amount of capital gain arising on sale of a residential house. Since you are planning to purchase a residential house in the name of your married daughter, you will not be eligible to capital gain exemption.

If you purchase the new house property in joint ownership with your daughter, then you may be able to claim the exemption based on certain court rulings.

The writer is founder of RSM Astute Consulting Group

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