Infrastructure bonds are fully taxable

Updated: Oct 30 2005, 05:30am hrs
I am a pensioner and senior citizen. In one of your articles, you have stated that capital gains for plot is different from capital gains from house.

1. How can one claim exemption of capital gains earned from plot of land.

2. Can investment in a residential house grant exemption from capital gain of plot Will the 2 years limit be applicable Can one invest anywhere else to claim similar exemption

3. Is the capital gains to be added to annual income to arrive at tax payable

4. Please suggest the best method of saving tax on capital gains


It appears that you have misunderstood me. One way to claim exemption is to invest within 6 months the amount of capital gains in infrastructure-related bonds of Nabard, NHAI, NHB, REC or Sidbi u/s 54 EC. The lock-in period is 3 years. The current interest rate is around 5.2% and this is fully taxable. Obviously, the interest is quite low and what is given by savings in tax is taken away by earning low interest and the tax on this interest.

The assessee may also claim similar benefit u/s 54 or 54F by investing the LTCG to purchase a residential house within 1 year before or 2 years after the date of sale of the old house. Alternatively, he may construct a residential house within 3 years after the date. Sec 54 is applicable to capital gains arising from transfer (sale) of a residential house and requires the amount of capital gains to be reinvested whereas Sec 54F is applicable for other assets and requires the net sale proceeds (after the related expenses) to be reinvested. In the case of exemption u/s 54F, the assessee should not own more than one house on the date of earning the capital gains. The new house has a lock-in of 3 years.

The indexed cost is computed by multiplying the cost of acquisition with the ratio of the CII of the year of sale and the CII of the year of acquisition.

For a resident individual or an HUF, where the total income as reduced by short-term or long-term capital gains on which tax is exigible falls below the tax threshold of Rs. 1,00,000, the gains would be reduced by the amount by which the total income so reduced falls short of Rs. 1,00,000 and the balance of the gains would be taxed at the rates applicable. In short, where the tax liability arises only because of inclusion of such capital gains in the total income, tax is levied on the excess over the minimum taxable limit.

Tax on Long Term Capital Gains (LTCG) is to calculated separately and added to tax on other income to arrive at total tax payable.

I am a central govt. employee working in Mumbai. I am a taxpayer. My income tax deduction is based upon tax deduction at source. I would like to know about investment in share market.

1.May I purchase stocks at my name

2.May I take demat account at my name

3.If I earn in share-market by selling stocks or by dividend etc. Will I have to pay any tax on that money if yes pl. tell how much

4.My wife is a house-wife. She does not has any income from any source. Will it be beneficial to me to take demat account at her name. In this case how much tax will I have to pay

Ashwani Kumar

You should take the stocks in your name and consequently, the demat account has to be in your name. It is your money and if you purchase the stocks in the name of the wife, it will be construed to be a gift by you to her and clubbing provisions will apply and it is you who is expected to pay tax on the income arising from this source. You may conveniently open a demat account in your and your wife's name.

You have stated that your income tax deduction is based upon tax deduction at source. This statement needs to be modified. The income tax liability is always based on the income on which you have to pay the tax. If the TDS is more than the tax payable, you can claim refund by filing returns. If TDS is less than tax payable, you will have to pay additional tax while filing returns. In other words, you have to file the returns. From the tax point of view, for investments in the market, the following benefits are available.

Equity shares are unique in enjoying the following 4 tax concessions which no other avenue is blessed with

1. Dividend is tax-free in your hands, though it suffers dividend distribution tax @14.0250% before it is paid to you (paid by the company whose shares you own).

2. The long-term capital gains is exempt.

3. The short-term capital gains enjoys the concessional flat rate of tax @10%.

4. There is no TDS if you are a Resident.

If you enter the stocks through a good equity-based mutual fund, the dividend does not suffer the dividend distribution tax @14.0250%.

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