I am a senior citizen and my total income from other sources inclusive of pension is less than the permissible limit. I have recently sold mutual funds gaining short-term gains. Can I add this to my total income and not pay the 10% income tax separately? Adding this gain will however still remain below Rs 1.85 Lakh.

?Pai

If your total income including capital gains, is below the tax threshold applicable to you, then you do not have to pay any tax.

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 1.10 lakh (Rs. 1.95 lakh (not 1.85 lakh) for senior citizens and Rs 1.45 lakh for non-senior females) the gains would be reduced by the amount by which the total income so reduced, falls short of the threshold and the balance of the gains would be taxed at the rates applicable.

In short, where 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.

Incidentally, as per provisions in Budget 2008 , the basic threshold has been increased to Rs 2.20 lakh per year for senior citizens.

Therefore, if you were to book short-term gains next year, you would have more room to earn such gains.

I have been investing in a pension plan from an insurance company for the past five years. I now want to liquidate this plan. Would there be any tax liability for me? The total value of the plan is around Rs. 80,000. I am in the highest tax bracket. Being salaried if there is a tax liability, what do I have to do?

?Bhatt

Normally in the case of a pension plan, at the end of its term, the commuted value of the proceeds is tax-free and the pension is taxable as an annuity. If you break the plan during its term, the proceeds would be taxable. However, you are requested to check with ICICI Prudential for the exact tax incidence on this particular instrument.

I have invested in monthly SIPS through NRI account in mutual funds. Does the income generated through it attract any kind tax ,if sold after one year of investment?

?Iyer

Yes, any investment made in any scheme of any mutual fund scheme attracts the provision of long-term capital gains after a holding period of one year. Kindly note that at any given time, you will have 11 installments which do not qualify for being long-term assets.

On equity-based schemes:

a) The dividend is tax-free.

b) There is no dividend distribution tax.

c) There is no TDS.

d) Long-term capital gains are tax-free

e) Short-term capital gains are taxed at the concessional rate of 10.3%.

f) The capital is repatriable if the original investment was made through forex remitted from abroad or through NRE accounts.

g) ELSS has an additional advantage of the umbrella of Sec. 80C.

In the case of non-equity based schemes

a) LTCG on debt-based schemes will be charged to tax @10% without indexation or @ 20% with indexation, whichever is lower.

b) STCG is considered as normal income of the assessee, added to the income and taxed at the rate applicable to him. Consequently, the rate depends upon his other income.

I have made around Rs. 40,000 by selling buying and selling a small number of shares many times. How much tax I need to pay and what proof I need to give while filing tax returns? I am working as a software employee.

?Labde

The question is whether your profit will be taxable as short-term gains or trading income. No one including the CBDT, has a firm and objective answer to this question. It all depends upon the facts of the case and the ITO?s view thereon. Since you have bought and sold many times, it is possible that the ITO may classify you as a trader and seek to tax the income as trading income. You don?t need to give any proof while filing returns, but you will have to maintain all contract notes and other documents in case the proof is called for by the IT office.

My wife has no source of income. She trades in shares on loans trom me. How will the income be treated?

?Pandit

Since you have given her a loan and not gifted the money, the trading gains will be taxed in her hands only. Take care to charge a certain minimum interest (say savings bank rate) on the loan. Such interest will be taxable in your hand, however, by adopting this mechanism you will effectively circumvent the clubbing provisions under Sec 64 that are applicable in the case of income earned out of funds transferred in the name of the spouse.

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