As per the Income Tax Act, deductions allowed against the sale of shares resulting in short term capital gains, are the cost of acquisition and transfer expenses.
I have earned substantial income doing marginal trading in HDFC Securities. On an average, I have earned Rs 20,000 per month and paid around Rs 6,000 as marginal interest. Can I claim deduction on short term capital gains in the return?
Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP replies: As per the Income Tax Act, deductions allowed against the sale of shares resulting in short term capital gains, are the cost of acquisition and transfer expenses. In the given case, it is presumed that interest expenditure was incurred at the time of buying of shares in the form of a loan. The interest payment being in the nature of expenditure on purchase, apart from cost of acquisition, is not allowed as deduction against the sale of shares resulting in short term capital gains. Further, there is no specific mention about allowing of such interest expenses as a deduction. There are judicial precedents that say interest expenses shall not be allowed as deduction against capital gains income.
I am a senior citizen. I want to know if a house can be purchased within two years of sale of equity shares under Section 54 to save tax arising out of long term capital gains. My son is an NRI and we own a flat jointly since November 2013. His name comes first in the registry. We now wish to sell the flat as he is not likely to return for some time. How do we go about it? What will be the tax implications?
Amit Maheshwari, Partner, AKM Global replies: Sale of equity shares is a sale of capital assets and will attract capital gains, but exemption can be claimed u/s 54F by investing the sale proceeds in purchasing a residential property within 2 years or by constructing a house within 3 years from the sale of equity shares. However, you cannot claim exemption under this section if you own more than one residential property other than the new property at the time of transfer of equity shares. On sale of flat jointly owned by you and your son, the gain shall be long term considering the period of holding and tax on capital gain shall be levied proportionately on the basis of percentage of ownership with the indexation benefit @ 20% plus applicable surcharge and cess. For your share, the buyer will need to withhold at 1% if sale value exceeds Rs 50 lakh. But for your NRI son, the buyer may insist on withholding at 30% (plus surcharge and cess) on gross amount for which he may either need to apply for a certificate of lower deduction or claim refund once he files his tax return in India.
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