Income tax: Hold stocks for 12 months for them to qualify as long-term capital asset

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Published: May 12, 2015 12:04:21 AM

As per the Income Tax Act, the holding period required for listed securities to be classified as a long-term capital asset is 12 months.

I have been purchasing shares at stock exchanges for the last two years. Now I plan to sell these and purchase jewellery for my daughter’s wedding. What would be the tax implications of selling these shares? Are any exemptions available?
—Vipul Sharma

As per the Income Tax Act, the holding period required for listed securities to be classified as a long-term capital asset is 12 months. Long-term capital gains arising from sale of shares purchased through stock exchange on which STT is paid are tax-exempt under section 10(38). There will be no tax implications on purchase of jewellery out of the proceeds from sale of listed shares held for more than 12 months.

A couple of months ago, I sold a plot and invested the proceeds in my house’s renovation. Can I claim exemption from capital gains tax under Section 54F?
—Saurabh Seth

Section 54F of the Income Tax Act, 1961, provides exemption in respect of gains on sale of any capital asset in case 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 the new residential house is purchased/constructed. A new house should neither be an extension nor addition made to an existing structure. Thus, you will not be able to claim capital gain exemption under Section 54F for investment in modification or renovation of an existing house.

I own a house property from which I derive an income of R3.80 lakh per year. Now, I wish to convert this property as property of an HUF, of which I am a member. What will be the tax implications?
—Srikant Kumar Singh

As per Section 64 (2) of the Income Tax Act, where an individual, who is a member of an HUF, converts his separate property into the property of the HUF, or throws the property into the common stock of the family, or transfers his individual property to the family, otherwise than for adequate consideration, then the income from such property shall continue to be included in the total income of the individual. In your case, although the income shall henceforth be received by the HUF, but it shall be deemed to be the income in your hand and included in computation of your total income under ‘Income from House Property’.

How does one cancel the PAN card of a deceased?
—Vikas Arora

There is no specific procedure to cancel the PAN. You can write a formal letter to the income tax ward officer concerned , stating that the person has died. Also provide a copy of the death certificate and the PAN card.

I am a Chennai-based manufacturer of plastic products. Recently, I let out one of my properties on rent along with the machinery for a monthly rent of R60,000. Under which head of income will the rent income will be taxable?
—S Rama Rao

The rent earned by you will be in the nature of composite rent as rental incomes from building and machinery are not separable. As the letting out of the machinery and the property constitute a single, composite and inseparable letting income, it will be assessed as ‘income from other sources’. This was also upheld in a Delhi High court case —  it was concluded that the letting out of building and furniture, etc., when inseparable, the rental income will be assessed as ‘income from other sources’.

I sold my house in July last year and made a long-term capital gain of R15 lakh. I wish to claim exemption from capital gains tax under Section 54. What is the time limit to purchase another residential house?
—SK Mahapatra

As per the provisions of section 54, you can purchase a residential house within two years from the date of transfer.

If you wish to construct a residential house, then the time limit is three years from the date of transfer.

In case you are not able to utilise the capital gain for purchase or construction of the new house before the date of furnishing of the return of income, you can deposit the same under the Capital Gains Deposit Accounts Scheme. The amount so deposited should be utilised for the purchase or construction within  the period mentioned above.

The writer is founder of RSM Astute Consulting Group

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