Q : I have been applying for many good IPO shares and selling these immediately after allotment. I have been quite lucky in earning short-term gains of around Rs 1.7 lakh. My other income chargeable to tax is expected to be around Rs 80,000. I have contributed Rs 1 lakh to avenues covered by Sec 80C.
I strongly feel that my total taxable income should be Rs 2.5 lakh and after claiming the deduction u/s 80C, the income chargeable to tax should be Rs 1.5 lakh. Since I am a female, I am eligible to the threshold of Rs 1.45 lakh and therefore, I have to pay tax only on Rs 5,000, and that too at the concessional tax rate of 10.3%.
My accountant who files my tax returns claims that the short-term capital gains from sale of shares do not attract the benefit of Sec 80C and therefore, I will have to pay tax on the entire short-term capital gains at 10.3% on Rs 1.7 lakh. This works out at Rs 17,510! If this is true, suggest some strategy to enable me reduce this heavy tax burden.
?Inderjeet
A : Your accountant has rightly observed that u/s 111A, the benefit of your contribution of Rs 1 lakh is available only on your normal income, which is Rs. 80,000. It is not available on short-term capital gains. Therefore, your normal income becomes nil. The extra Rs 20,000 contributed by you does not attract any tax concessions. Therefore, the short-term capital gains are fully exigible to tax. So far he is right. The amount on which you have to pay tax is another story.
As observed by you correctly, the benefit of the tax threshold of Rs 1.45 lakh is available even on short-term capital gains. Since your normal income has become nil, thanks to your contribution of Rs 80,000 to avenues u/s 80C (the extra Rs 20,000 was not necessary) the short-term gains on which you have to pay tax is Rs 25,000 (=1,70,000 – 1,45,000). The tax payable is Rs. 2,575.
There is no strategy you can adopt to save or reduce this tax. Yes, you can earn short-term loss from shares of equity-based MF schemes and this can be setoff against the short-term capital gains.
Incidentally, any short-term gain or loss you earn from any other source is treated as your normal income and attracts, if it is a gain, the benefit of Sec 80C and if it is a loss, the benefit of setoff. The benefit of the threshold is available in both the cases.
Q : For saving my taxes can I invest in SIPs (systematic investment plans)? What is the tax benefit associated with SIPs?
?Geetanjali
A: SIP is nothing but investing periodically, say monthly, bi-monthly or six-monthly in an MF scheme. In other words, it is akin to what recurring deposit is with respect to investing in fixed deposits. Therefore, SIP per se, does not offer any tax benefit as it is not a product but a strategy for investing. The tax benefit u/s 80C is offered by ELSS schemes of MFs. However, you can invest in ELSS using the strategy of SIPs.
Q : If any return is submitted before May 14, 2007 in old Saral form that is before notification of the new return forms for AY 2007-2008, is that return valid? Are the new forms mandatory?
?Gurmel singh
A : Yes the return is valid and hence the same must have also been accepted by the IT department. The new forms are mandatory in nature and for the current year (FY 07-08) you will have to necessarily use the new forms.
Q : I have been an NRI for the last 10 financial years i.e. from FY 1997-98 till 2006-07.
I am planning to return to India in the current FY 2007-08 and feel I may not be able to satisfy the requirement of 182 in the current FY.
Please advise if my transfers made to India in the current FY 2007-08 so far will be taxable in India.
?Umesh Datar
A : There is a transitional status of RNOR between being an NRI and becoming a full-fledged resident after returning to India permanently.
Resident but not ordinarily resident (RNOR) is a person who satisfies one of the following conditions —
a) He has been a non-resident in India in nine out of the ten previous years preceding that year, or
b) Has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.
An RNOR is not required to pay tax in India on his forex income.
Most of the NRIs will be caught by the requirement of stay in India for 729 days or less during the last 7 financial years.
Consequently, anyone who returns after 7 or more financial years of being an NRI will become RNOR for 2 years. Those returning after 6 years will become RNOR for 1 year only. This is subject to his stay in India during the previous 7 years for 729 days or less.
Since you will be RNOR for FY 07-08 (if your stay in India during the FY is 182 days or more) your forex earnings during the FY 07-08 will be tax-free in India.
The same earnings transferred to India from your account in your host country to your account in India will not be taxable in India.
?The authors may be contacted at wonderlandconsultants@yahoo.com
