Tax , 
LTCG, 
Debt Funds
Tax , LTCG, Debt Funds

Tax Is Applicable On Full Amount Of LTCG On Debt Funds

Tax-free LTCG is available only on listed equity and equity-oriented funds. Benefit to set-off shortfall of regular income against LTCG, STCG on listed shares and equity-oriented schemes is not available to NRIs. Interest income on investment made by wife on money paid by husband will be added to the latter’s income under the clubbing provisions
Q

Is tax on long-term capital gains (LTCGs) applicable on profit above Rs. 1 lakh for debt mutual fund and fund-of funds (FoFs) also?

A

Section 112 of the Income-tax Act, 1961 provides for taxation of LTCG on listed equity shares and equity-oriented schemes. It says that the first Rs 1 lakh of LTCG shall be taxed at nil rate making them fully tax-free, with the balance taxed at a flat rate of 10 per cent.

The taxation provisions for debts funds and FoFs, where the equity component does not exceed 35 per cent were changed in the last budget. Profits on sale of debt fund units purchased after March 31, 2023, irrespective of their holding period, will be taxed at your slab rate. The benefit of indexation and concession rate of tax of 20 per cent shall continue to remain available for the units of such schemes bought before April 1, 2023.

Do note that tax-free LTCG is available only on listed equity and equity-oriented funds and not on units of other mutual fund schemes. Tax is applicable on the full amount of LTCG on debt funds.

Q

Can a non-resident Indian (NRI) claim refund of tax deducted at source (TDS) on capital gains in non-resident external-portfolio investment scheme (NRE-PIS) account, if the only income in India is from capital gains in that NRE-PIS account and this amount is less than the amount of basic exemption allowed?

A

All LTCGs and short-term capital gains (STCGs) on listed equity shares and equity-oriented schemes of mutual funds are taxed at a flat rate unlike your regular income, which is taxed at the slab rate. The benefit to set-off any short fall of regular income in your basic exemption limit against any LTCGs or STCGs on listed shares and equity-oriented schemes is available only to resident taxpayers and is not available to non-resident taxpayers.

Also, you cannot claim any refund, as tax is deducted based on your tax liability in respect of your share transactions in NRE-PIS. If the tax deducted is higher than your tax liability due to set-off of losses, only then can you claim refund by filing your income tax return (ITR).

Q

I am a defence personnel and had invested in a plot of land in my wife’s name 16 years ago. As the plot was not allotted, the matter went to the real estate regulatory authority (Rera). I got a Rera judgement in which my wife was awarded a refund of Rs 13 lakh with interest of around Rs 20 lakh. The interest has been partially received in the last financial year and the balance will be received this year. My wife has negligible income as a housewife. How can I reduce the tax liability on interest awarded to my wife? The money has been credited in a joint account I have with my wife.

A

Since the money was paid by you for the investment made in the name of your wife, the clubbing provisions will apply and the interest income will be added to your income. You can offer the interest income either on a receipt basis or on an accrual basis. Do note that the basis on which the

interest income is offered during the current year should be the same as was being followed by you in the past.

The author is a tax and investment expert and can be reached at jainbalwant@gmail.com

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)

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