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  1. Set off short-term capital loss from equity against short-term gain

Set off short-term capital loss from equity against short-term gain

Income tax laws allow exemption from capital gain on sale of house property if the capital gain amount is re-invested in another new house property within the specified period (2-3 years)

By: | Published: July 5, 2016 6:02 AM

I am planning to buy a car for my personal use. Is newly introduced TCS provision of 1% applicable? Is TCS applicable only in case of a luxury car and is it applicable only if the payment is made in cash?
— Ashish Chopra

As per sub-section (1F) of section 206C of the Income Tax Act inserted by the Finance Act 2016, the seller is required to collect the tax at the rate of 1% of the sale consideration received from the buyer on the sale of any motor vehicle of the value over R10 lakh. This amendment is applicable from June 1, 2016. The TCS is applicable irrespective of the mode of payment.

I am an NRI residing in the US. I am planning to sell my residential house (long term capital asset) in India. Whether the gain on sale is taxable? Is there any way to save tax?
— Deepak Kumar

As per the Income Tax Act, any profit arising on sale of a capital asset (residential house) which is situated in India is taxable. You have mentioned that you are residing in the US and therefore I presume that you are a tax resident of the US. Under the India-USA DTAA, there is no relief with respect to capital gains tax.

Accordingly, the capital gain on sale of the residential house shall be subject to withholding tax (TDS) under Section 195 even though the Tax Residency Certificate (TRC) or PAN is furnished.

There are certain aspects which are relevant regarding the capital gain tax:

If the house was purchased / constructed before 1.04.1981, you can choose cost or fair market value whichever is higher. Indexation benefit is available i.e. the cost of house is to be indexed starting from the year in which it was purchased. Net capital gain is taxable @ 20% plus applicable surcharge and education cess.

In the year of sale, you need to share the cost of the house, year of purchase, PAN details with buyer of house property, so as to enable him to determine the withholding tax under section 195 of the Income Tax Act, 1961 in India. However, Indian income tax laws allow exemption from above capital gain on sale of house property if the capital gain amount is re-invested in another new house property within the specified period (2-3 years).

Thus, to get wavier from tax in India, you may have to re-invest the capital gain amount in another house property in India within the specified period.

In case of long-term capital gains from equity shares /equity mutual fund do I have to show them when filing the ITR? Also, can short-term loss from equity be set off against short-term gain from equity shares?
— Akash Gupta

Any income arising from the transfer of long-term capital asset being equity shares or units of an equity oriented fund through a recognized stock exchange (where STT is paid), is exempt from tax under section 10(38) of the Income Tax Act. Therefore in the instant case, long-term capital gains from equity/mutual funds satisfying the conditions mentioned in section 10(38) are exempt from tax. Such exempt income is required to be reported under the schedule of Exempt Income (EI) of the Income Tax Return.

Further, the short-term capital loss is allowed to be set off against any other short term or long term capital gains during the current year. Therefore, you can set off the short-term capital loss from equity against short-term gain from equity. The loss which could not be set-off during the current year, can be carried forward for a maximum of 8 years (provided the tax return is filed within the prescribed due date) and can be set-off against any capital gains (short-term / long-term capital gain) arising in future years.

About five years ago, I had transferred a plot of land to my wife without any consideration. In May 2016, this land was sold by her. Kindly advise on the taxability of capital gains. Will such gain be clubbed in my hand?
— Pramod Rao

As per section 64(1)(iv), any income arising to the spouse of an individual from assets transferred to the spouse without consideration or inadequate consideration shall be clubbed in the hands of the individual. Thus, in your case, capital gains arising with respect to land shall be taxed in your hands. However, the capital gain shall be first computed in the hands of your wife and she will be eligible for exemption under sections 54 EC, 54F, as may be applicable provided the prescribed conditions are complied with and the balance if any shall be taxed in your hands.

(The writer is founder of RSM Astute Consulting Group)

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