Taxation: Homi Mistry

Last November, I sold off my wife’s ancestral property in Gujarat for Rs 35 lakh. The property was bought in 1935, but we don’t know the purchase price. How will the tax liability on the gains from the sale be computed? And what are our options for saving the tax? Can this tax liability be set-off against the losses incurred on investments in the stock market (Rs 2.5 lakh) in this financial year?
It is not clear whether the property sold is a residential house or land. However, we have provided the responses at a broad level for both.

a) Tax calculation: Since you are not aware of the cost of the property bought in 1935, the capital gains on its sale can be calculated based on the fair market value of the property as on April 1, 1981. It can be indexed further based on the Cost Inflation Index.

b) Options for saving tax: For availing an exemption from capital gains tax, you can either invest the gains earned on sale of the property in notified bonds issued by the National Highway Authority of India and Rural Electrification Corporation (under section 54EC of the Income Tax Act) or in a residential property (under section 54/ 54F). However, the exemption will be available only on satisfaction of certain conditions as specified under these sections.

c) Setting off the gains against capital losses incurred in the stock markets, assuming these investments were in your wife’s name: Section 74 of the IT Act deals with this. In case the shares are held for more than a year, they are considered to be long-term capital assets. Any gains/losses arising on sale of such assets would be termed long-term capital gain/loss (LTCG/LTCL). If the loss on sale of shares is a short-term capital loss, the same can be set off against the LTCG arising on the sale of the property.

My father retired as a public sector employee, expired last year. My mother has been getting a monthly pension of Rs 20,000 for the last six months (Rs 1,20,000 till now) from his employer. She is a retired college professor but takes private tuition, earning about Rs 2 lakh annually from this. Is the pension received taxable? If yes, how can she minimise her tax liability?
Pension received by your mother will be taxable as income from other sources. However, a sum equal to 33.33 per cent of such income or Rs.15,000, whichever is less, can be deducted from this amount. Investments can be made in a tax saving instruments such as a Public Provident Fund, National Savings Certificates, equity-linked savings schemes, life insurance up to a maximum of Rs 1 lakh. An additional investment of up to Rs 20,000 in notified long-term infrastructure bonds which will also be allowed as a deduction from the taxable income. Health insurance premiums and specified donations are also deductible from taxable income subject to fulfillment of prescribed conditions. Lastly, any expenses incurred by your mother for taking private tuitions can be claimed as a deduction from the total fees earned. However, these expenses must be adequately supported with bills/vouchers.

The writer is a tax partner at Deloitte, Haskins & Sells. The views expressed above are the personal views of the author and not of the firm