If I sell my house and invest both in a new property and in capital gain bonds, could I claim capital gain exemption for both?
Under the law, when an asset is sold, the first step is to determine whether it falls under the category of long-term capital asset (LTCA) or short-term capital asset (STCA). If the asset was held for 36 months or less from the date of acquisition, it is classified as STCA and any gain arising thereon is termed as short-term capital gain (STCG). On the other hand, if the holding period is more than 36 months, the resultant gain is classified as long-term capital gain (LTCG). Section 54 of the Income Tax Act, 1961 ("Act") provides an exemption on taxation of LTCG arising from the sale of a residential house. To claim exemption, the gains must be reinvested in the purchase of one residential house within one year before or two years after the date of sale, or construct one residential house within three years after the date of sale. Section 54EC of the Act provides an exemption on LTCG where the assessee invests the gain in prescribed capital gain bonds within six months of the date of sale, subject to a maximum of Rs 50 lakh per financial year.
To save capital gains tax earned on the sale of your residential house, you can very well invest both in a property as well as in capital gain bonds as per the prescribed limits and manner, and be eligible to claim exemption for both these investments.
My mother is a senior citizen. She has made me joint holder in all the fixed deposits in her name. Will I have to show the interest income earned from these FDs as my income and pay tax on it?
You have not mentioned whether when your mother added your name she gifted you 50 per cent of her deposits or your name was simply added to facilitate easier transfer of the money after her death. In the event that she gifted the amount, you would be subject to tax for your share of interest on such deposits. In the latter case, however, your mother will continue paying tax as she continues to be the owner and your name was added to avoid inconvenience later. If the tax authorities question you, you would need to clarify appropriately why interest is not included in your taxable income. Further, you may be aware that all bank accounts, including fixed deposit accounts, are required to be disclosed in the return. Since you are a joint holder, you should include such account details in your return as well. It is advisable to document the understanding between your mother and you so that in case of queries later on, you may substantiate the tax position adopted by you.
I have a PPF account which I had opened when I started working. It is nearing maturity. Can I extend it? If so, will it be locked for another 15 years? If I continue to invest money in the account, will I continue to get tax exemption? If I can’t get exemption on this, can I open another one in my daughter’s name and claim tax exemption on that?
A PPF account can be extended maximum up to five years only at a time, and this can be done three times. Once the account is extended, contribution made during the extended period will continue to get tax exemption up to Rs 1,50,000 and interest earned would also be exempt. If you have already exhausted the Rs 1,50,000 limit, you may still consider opening a PPF account in your daughter’s name as interest earned on PPF account is tax exempt and it is one of the ways to save money for your children’s future needs.
The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in
Kuldip Kumar, partner and leader, Personal Tax, PwC India, answers your questions
Kuldip Kumar, partner and leader, Personal Tax, PwC India, answers your questions
