Taxation: Homi Mistry

I am a 24-year-old banking professional and collect paintings as a hobby. I am thinking of selling a part of my collection (paintings). What will be the tax treatment on the proceeds?
Archeological collection, drawings, paintings, sculptures or any work of art have been categorically classified as capital assets under the income tax laws. Hence, transfer of a painting will attract capital gains tax. If you have held a painting for 36 months or less before it is sold, the capital gains would be classified as 'short-term capital gains' and taxed at the regular rates applicable in your case. If you have held the painting for more than 36 months, the capital gains would be considered to be 'long-term capital gains' and taxed at 20.6 per cent, after giving the benefit of indexation of the cost of acquisition.

I started freelancing from June 2012. Earlier, I was working for an IT company. How will my income be taxed? As a freelancer, do I come in the professionals' category under tax laws? What are tax norms for professionals? I earned Rs 4 lakh between June 2012 and January 2013. Please advise.
Income in the case of a professional, unlike salary, is taxed on a net basis. That is, gross receipts minus the allowable expenses you incur in the course of carrying on your profession. If below 60 years of age, you would be liable to pay tax if the net income from freelancing and other taxable income exceeds Rs 2 lakh during the financial year. You would be liable to a tax audit, if the gross receipts from your profession exceeds Rs 25 lakh.

If engaged in a notified profession (including medical, engineering, architectural, accountancy and technical consultancy), you would mandatorily be required to maintain books of account. If you don't belong to the professions mentioned above, you will still have to maintain books of accounts, if your gross receipts exceed Rs 10 lakh or the income from profession exceeds Rs 1.2 lakh. Hence, while your salary up to May 2012 will be taxed under the head 'income from salary', your income from 'freelancing' will be taxed under the head 'profits and gains of business or profession'.

I had bought an under-construction property three years ago, for which I started repaying the bank from the time my loan was approved. I got possession of the house last month. How do I go about claiming deduction for the interest paid in the past years?

The quantum of interest that can be claimed in the year of possession is as under:

a) Interest pertaining to the financial year in which the possession is received.

b) A fifth of the interest paid till the year prior to the year of possession. The balance interest can be claimed in equal installments in the immediate four succeeding tax years.

However, the total interest that can be claimed under (a) and (b) will be restricted to Rs 1.5 lakh per annum in the case of self-occupied property. There is no cap provided for claiming deduction of interest in the case of let-out property.

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

Today, Homi Mistry, tax partner at Deloitte, Haskins & Sells, answers your questions