Readers' Corner

Kuldip Kumar, partner and leader personal tax PwC India, answers your questions

I run a small scale fabrication unit and always keep 3-4 lakh cash so that I can pay my workers' salaries, transporters, etc. After demonetisation will I be taxed on the cash if I deposit it entirely in my account? Can I also deposit some money in my wife and mother's account? Since they don’t have any income, will they be taxed on this?
 
In case the cash kept by you for routine expenses of the fabrication unit is duly accounted for in the books of accounts, there is no challenge and you may deposit the entire cash into your bank account. If any question is asked by the tax authorities, that can be duly explained. However, in case the source of such cash lying with you is not explained, the tax authorities may treat the same as undisclosed income and consequent implications would be applicable. As per the clarifications issued by the government, housewives, small artisans depositing cash up to a limit of Rs 250,000 need not worry since it would be below the taxable income threshold and hence, no questioning shall be done by the department in this respect. The thought behind this is that it is well understood that in India housewives do save money which they get from their husband for household expenses, gifts, etc. The intent of the government is not to question them. But where someone is trying to park their cash using such accounts, tax authorities can question such deposits and ask for the source which would need to be explained. If the source cannot be explained, the same may be taxed in their hands and by virtue of section 115BBE of the Income Tax Act, 1961 , it would attract tax at the rate of 30 per cent. In other words, the benefit of basic exemption limit would not be available.

 
I got some shares from my father as gift six months back. He had the shares for several years. If I sell them now, will I have to pay tax on the gains since the shares have been with me for less than a year?
 

Since you received these shares as gift, the cost of acquisition in your hands is "nil". However, in such a situation, the Indian tax laws allows one to consider the acquisition cost to the previous owner  to be the cost of acquisition of existing owner. Further, the holding period of previous owner is also added to the holding period of the existing owner in order to determine whether the resultant gain is long-term or short-term capital gain. Where the previous owner acquired the property prior to April 1, 1981, the current owner even gets the option to replace the cost of acquisition with the market value as on April 1, 1981. Therefore, in your case, where the shares you mentioned in your query are listed on Indian stock exchange and your holding period exceeds 12 months, you will not be required to pay any tax. On the other hand, if the total holding period (including period held by your father) is 12 months or less, the resultant gain would be short-term capital gain and taxable in your hands. If the shares are unlisted, long term capital gains will get taxed at 20 per cent and short term at normal slab rates. It is also important that you preserve all the related documentation showing when your father acquired the shares and at what value, etc., so that if your tax return is selected for scrutiny, you are able to respond to the questions or details sought by the tax authorities even at a later date.

 The views expressed are expert’s own. Send your queries to yourmoney@bsmail.in