Enrolment schedule for your State

Enrolment schedule for your State

Quick Enrolment Summary under GST on GST Common Portal (www.gst.gov.iin)

• State VAT department will provide provisional ID and password as per schedule.
• Open www.gst.gov.in
• Access The GST Common portal using provisional ID and password and create permanent username and password
• Login by using permanent username and password
• Fill the enrolment application form
• Verify the detail
• Sign with DSP or e-sign
• Submit the emrolment application and necessary attachment
• Done

Step by Step Filing the Enrolment Application

Step 1: Open www.gst.gov.in login by provisional ID and password given by State VAT department. (You can contact your state VAT department for provisional ID and password after schedule given to that state). Check schedule for enrolment state wise here.
Step 2: Create your own username and password after login provisional ID and password. Now, it will become your permanent user ID and password for further logins.

Step 3 (Optional) : The dealers can provide their authorized representative email ID and phone number, if any.

Step 4: After entering your email and phone number, the system will send you an OTP. The OTP will valid only up to 10 minutes. So, you must enter OTP within 10 minutes. Otherwise you have to regenerate OTP.

In case if you have not received OTP in your email check Spam folder also. Make ensure once again that your email ID and phone number entered is correct. If it is correct then again click on Resend OTP.

Step 5: Enter the OTP that you received in your email ID in the column of Email OTP and Enter the OTP received on your mobile number in the column of Mobile OTP.

Step 6: Fill all the required information in application which is denoted as Red Asterisk (*)

Step 7: After filing each page, you have to click on save given below of the page.

Step 8: After competing the enrollment form, you have to e-sign it.

Step 9: After submitting and e-signing application form, the system will general Application Reference Number (ARN).

After submitting the application and approval of application, the Provisional Registration Certificate will be available on the appointed date. The final registration certificate will be issued within 6 months of verification of documents by state official after the appointed date.

How to Do e-signature on GST Common Portal while Doing Enrolment?

E-signature is mandatory for all taxpayer who are submitting enrolment application. There are two options available to do e-signature as follow:

• DSC
• E-sign

DSC: DSC is mandatory for Companies, Foreign Companies, Limited Liability Partnership (LLP) and Foreign Limited Liability Partnership (FLLPs). DSC is option for other taxpayers. DSC must registed with GST common portal to e-sign on enrolment form. To register DSC, you have to click on Register DSC.

E-sign: E-sign is must for other taxapers who does not come under DSC option. E-sign is an online electronic signature service that permits an Aadhaar Card holder to digitally sign a document. The following steps helps to understand how to e-sign a document under GST common portal.

• Click on E-sign button.
• Enter Aadhaar Card number.
• The system will send you an OTP to email address and mobile number which is registered with AAdhar card.
• Enter the OTP, the system will verify OTP. The e-signing process is completed.

Note:

You can not change your prefilled information which is auto populated by VAT department.

Documents to Upload on GST Common Portal

Documents Required to Enrol under GST

The following documents are required to enroll/ register under GST. If you have missed any one of the following documents, the enrollment is not possible. So make ensure you have all the following document ready before opening the website www.gst.gov.in.

• Provisional ID received from State/Central Authorities
• Password Received from State/Central Authorities
• Valid Email Address
• Valid Mobile Number
• Bank Account Number
• Bank IFSC

Enrolment Overview Under GST

• All the existing taxpayer must enroll under GST by submitting the required information under GST enrollment Application Form.
• All existing taxpayers here means who are already registered under Central Excise, Service Tax, State Sales Tax or VAT, Entry Tax, Luxury Tax, Entertainment Tax should enroll under GST Act.
• All existing taxpayers should enroll only through online mode via GST Common Portal i.e. www.gst.gov.in. No offline mode is available to enroll.
• The enrolment is totally free. No government fees and other charges will be levied while registering under GST common portal.
• The VAT registered dealer enrollment starts from October 2016 and for service tax dealer it will start on later date.
• The enrollment is same for Central and State GST. No separate registration is required for enrollment.
• The format of provisional ID is as given in the following picture 

What is GST Common Portal?

GST Common Portal is a official website (www.gst.gov.in) design and developed by GSTN to provide online facility for the dealers. The taxpayers can use GST Common Portal to enroll under GST Act, filing GST Returns, paying due taxes under GST, check status and communication with officials.

Pension Funds

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh. This also means that your investment in pension funds upto Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50 Lakh. - See more at: http://taxguru.in/income-tax/all-about-deduction-under-section-80c-and-tax-planning.html#sthash.YBHRZZlY.dpuf

Penalty on Cash deposit of Rs.500/1000 note in Bank Account in India

The ban of Rs.500/1000 note in India is creating havoc in the Indian markets. Everybody is either rushing towards banks or towards jeweler market to safeguard the black money.

In this article, we will discuss how government will levy penalty or tax on the cash deposit in bank account of the public. We will also discuss the possibilities of action that government may take depending upon the size of the money deposited.

Everybody is living with the fear that government will slap 200% penalty for sure. However, this is not the case. Government works under a system and make laws for everything. Everybody works under the ambit of law even the government. So if they have to slap any sort of penalty, they levy it under income tax act, 1961 by following a proper procedure. Hence, let us understand the type of depositors and the chances of penalty imposition upon them.

#Point 1 – Cash Deposited Up to 2.5 lakh: The first category of person is those who have deposited cash up to 2.5 lakh. This category doesn’t have to worry about. As, finance minister in his speech has also said that we will not going to disturb or ask any question on deposit up to 2.5 lakh.

Hence, if have money up to 2.5 lakh, then go ahead and deposit the same without any fear.

#Point 2 – Cash Deposited Up to 10 Lakh: Most of the middle class are covered under this point. They save their hard earned money and secure it in their lockers. They have saved this money over the years. It is all legitimate money which they have earned and saved by working hard over the years like someone has saved it for daughter marriage or someone may have saved it purchase a small house.

Though the government will be keeping an eye on this category as well, however there are little chances that government will interfere in this category. Nowadays the value of 10 lakh is no more considered as superior.

The current practice

Also, people may deposit this sum breaking into smaller sum of 2.5 lakh and may deposit it in the name of family members which is also a lot of people may already be doing.

Further, government also understands this fact and they will not interfere with this needy money of the middle class.

#Point 3 – Cash Deposited Up to 50 Lakh: Anything over and above 10 Lakh will catch the eye of the taxman. If your returned income does not match with the amount you deposit, then you might be in trouble.

E.g. suppose, you regularly file the ITR with 5 lakh income. Now suddenly you deposit the sum of 40 Lakh in your account which cannot be justified with a small income. Hence, department may treat this income as unexplained credits and may tax the income at 30% with 200% penalty under section 270A.

This point is very important; hence we must understand this point well.

– Cash credit: Once you deposit the sum into the bank account and under scrutiny proceedings, you were unable to justify the sum, then IT department will deemed that deposit as unexplained credit or cash credit under section 68 of Income tax act, 1961.

– Section 115BBE: This section is one of the harsh sections of the income tax act. Once it is proved that the cash deposit is cash credit under section 68, and then it shall levy the tax rate of flat 30% without even providing the basic exemption limit.

E.g. if you have cash credit of Rs.40 lakh, then 12 Lakh will be the tax amount.

– Penalty under section 270A: Once it is proved that you are a mischief, then penalty provision under income tax act would automatically comes into picture. The AO shall use the section 270A, to levy the penalty of 200%.

However, the penalty of 200% under section 270A can only be levied if any of the conditions is fulfilled:

a) Misrepresentation or suppression of facts.

b) Failure to record investments in the books of account.

c) Claim of expenditure not substantiated by any evidence.

d) Recording of any false entry in the books of account.

e) Failure to record any receipt in books of account having a bearing on total income;

f) Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply. (ignore, applicable in case of international transaction).

Hence, the above three sections will play a big role under IT department scrutiny.

Important Point

“The most important point of this whole process starts from non justification. Hence, if you can justify the deposits and has already paid the full taxes, then no penalty can be imposed upon you.”

#Point 4 – Cash Deposited more than 50 Lakh: Anything over and above 50 Lakh will require a strong justification otherwise there will be very less chances that penalty can be saved. However, if you plan well, justify your income and the deposits thereof, and then you don’t need to worry.

Demonetisations of Rs. 500 & 100 Notes– Consequence & Duties

Demonetisations of the Higher Denomination Notes by Government of India – synopsis, consequence and duties

Introduced on the evening of 8th November 2016, the Government announced the decision to scrap the Rs. 500/- and Rs. 1,000/- notes with the aim of combating Corruption, black Money and cross border terrorism via counterfeiting. Prime Minister Narendra Modi was quoted to be saying that the above mentioned notes will only be “worth the paper they are printed on,”

Further, the Reserve Bank of India as approved and cleared a proposal for a new Rs. 500/- and Rs. 2,000/- currency notes abandoning Rs. 1,000/- currency notes for the time being.

On a broad basis, it should be noted that all other transaction, such as those done via cheque, DD, payment via credit or debit cards does not have any restrictions and will thus not be affected.

The Government has issued a timeline within which they aim to remove the old Rs. 500/- and Rs. 1000/- notes from circulation, of which the important parts are as follows.

A brief summary of the dates, events and remarks are given below for a glance

Start Date	Particulars	End Date	Limits (Rs.)	Remarks
8-11-2016	Old Currency notes are no longer valid. Certain specified outlets still accept the old currency till the end date.	11-11-2016	–	will still be accepted in Petrol Pumps, government hospitals, Railway, airline, government bus ticket booking counters, Consumer co-operative stores run by state or central government, Milk booths authorized by state governments, Crematoriums and burial grounds till 11th November 2016.
9-11-2016	ATMs shut down and Banks closed to public.	10-11-2016	–	ATMs will not work and banks will not be accessible to public  to adjust to the changes made.
10-11-2016	Old Notes can be deposited in banks	30-12-2016	–	Valid Bank Account or Post Office saving account
10-11-2016	Old Notes can be exchanged for new ones.	24-11-2016	4,000/-  amount to be reviewed later	Original Identity Proof with a copy in the form of Aadhaar card, PAN Card, ration card, passport, driver license.  Exchange can be made in all branches of commercial banks/RRBS/UCBs/State Co-op banks or at any Head Post Office or Sub-Post Office and all Issue Offices of RBI
10-11-2016	Money can be withdrawn from ATMs.	18-11-2016	2,000/- per day	–
10-11-2016	Money can be withdrawn from Banks	–	10,000/- per day limited to 20,000/- per week	Weekly amount includes amount withdrawn from ATMs.
19-11-2016	Amount that can be withdrawn from ATMs is increased.	–	4,000/- per day	–
31-12-2016	Old Notes can be deposited in cases where depositing before 30-12-2016 was not possible.	31-3-2017	–	ID Proof, Pan & Declaration Form
Foreign Tourists		within 72 hours after the notification	foreign exchange equivalent to Rs. 5,000/-	provide proof of purchasing the old notes
Person not in India	authorize in writing enabling another person in India to deposit the notes	Same as for any Indian	Same as for any Indian	person so authorized has to come to the bank branch with the old notes along with the authorization letter and a valid identity proof
NRIs		Same as for any Indian	Same as for any Indian	deposit the old banknotes to their NRO account.

It seems that baring a very few individuals, almost all in this nation have welcomed the move of the Government.  It seems to have been a well thought out scheme with almost all modalities worked out in detail.

At the time of writing this article, the initial euphoria, shock, surprise, disbelief, fear, etc. have all died down and the citizens have accepted this for many reasons, a few of which are below.

a. This was to be done long before, to root out corruption.  The virus had impacted almost each citizen, right from the local rickshawala to bribe the police constable to the highest level of defense deals etc.

b. There is no other way to handle this menace other than by making the hoarded currencies invalid.

c. This would impact only the hoarders of currency and not the common man.

d. The timing was perfect, 8pm, on a US election eve.

e. There was initial panic and no more. The establishment had made adequate arrangements to handle this.  All banks were properly and sufficiently educated and had a fair amount of money to dispense

The social media also played an effective part in this campaign post announcement by the Honorable Prime Minister.  While tons of satire and comedy made way, many useful and educating tips were also circulated.

Like the Japanese earthquake situation, citizens began to act responsibly, which is generally unseen in Indian scenario in situations like this.  It seems that the general public in fact have realized that they need to withdraw/exchange only that much needed for the time being and wait till the situation eases to withdraw/exchange the balance.  This reflects a healthy understanding of the citizen and maturity in crisis handling.

It is heartening to see that the tales of sacrifice, valor etc. in this time of crisis.  One interesting anecdote is that of my barber.  When went for an haircut, after the cut, he offered me not to pay now saying that his service is not an emergency one, and one could keep the money for immediate purchase of essentials and pay him later.  I was overwhelmed with this and appreciated his social responsibility.  Definitely he has risen very high in my eyes and would always henceforth give him that respect that he deserved for being so empathetic.

Petrol pumps and general grocery shops have been generally open in accepting the OHD notes at least up to 11th November.

It is the duty of every professional and informed citizen to educate the less informed brothers and sisters in the vicinity to prevent any panic satiation.  One good way would be to offer help to the domestic maid, drivers, security watchmen, by educating them.  On other way would be to provide them with short term loans to tide over the situations.  Assist them to exchange the notes they have before 24th November.

Some unscrupulous elements are resorting to giving the legal tender money by taking around 20% commissions.  Ie, for every 500 rupee note, the person is paid only 400/-.  The uneducated and the gullible are being cheated mainly due to their ignorance and insecurity

The senior citizens and the physically challenged are equally insecured so much so that many are rushing to the banks to deposit their little OHD notes, thereby creating tension to themselves and also to the other public who have to withdraw money.  Let us try to educate them on the scheme and the time lines, else allow them to withdraw, as the separate lines for them are not feasible at this point in time.

On the flip side, it has been criticized that the new rules make difficulties for people who keep their cash at home rather than in a bank account and for people with large rupee cash reserves who reside abroad.

However, the Government has given assurances that if legitimate reasons are provided, then there will be few, if no difficulties.

In conclusion, there might be some discomfort or inconvenience here and there for the general public.  When a change of this magnitude is underway, such discomforts are inevitable.  These are definitely not as much as our soldiers face at Siachen Glacier, the Thar Desert or the other border posts guarding our country.  It is time we also take part as citizens in this war against corruption and terrorism and do our bit also for the nation.

200% penalty on unaccounted cash deposited in Bank Account

200% penalty cannot be imposed if tax is paid on unaccounted cash in current year

Hon’ble Prime Minister, Sh. Narendra Modi on November 8, 2016 made one of his boldest move by launching an aggressive assault on black money through demonetisation of existing Rs. 500 and Rs. 1,000 currency notes. Being seen as a surgical attack on black money, fake currency and corruption, the Hon’ble Prime Minister informed his fellow countrymen that the existing Rs. 500 and Rs. 1,000 notes could be deposited in their bank accounts till December 30, 2016.

Following the news, there has been a rush in public towards deposit of existing Rs. 500 and Rs. 1,000 currency notes in their bank accounts. However, Income Tax Department through a series of press releases has warned regarding levy of penalty at 200% of the tax amount in case where amount of deposit is not in line with the income returned.

In this article, the possibility for levy of penalty under section 270A of the Income Tax Act, 1961 (‘Act’) has been analysed in case where a person has deposited his unaccounted cash in his bank account and paid due tax thereon in the return of income for AY 2017-18.

The Finance Act 2016 in order to rationalize and bring objectivity, certainty and clarity in the penalty provisions, replaced the existing section 271 of the Act and inserted a new section 270A of the Act for levy of penalty in cases of under reporting and misreporting of income.

Sub-section (1) of the new section 270A of the Act provides that the Assessing Officer, CIT (Appeals) or the Commissioner may direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. Thus, trigger point for applicability of penalty under section 270A of the Act is under-reporting of income.

Thus, in order to discuss applicability of penalty in cases where tax has been paid, it is important to first analyse what constitutes under-reporting of income.

Under-Reporting of Income

Sub-section 2 of section 270A of the Act provides that a person shall be considered to have under-reported his income, if, inter alia, the income assessed is greater than the income determined in the return processed under 143(1)(a) of the Act.

Thus, there shall be under-reporting of income only in cases where income assessed during the course of assessment proceedings would be greater than income determined in the return processed under section 143(1)(a) of the Act. Since, the income determined in the return processed under section 143(1)(a) of the Act in normal circumstances would be same as the income returned by a person, the penalty under section 270A of the Act could be levied only when income assessed would be greater than income returned by the person. This position is further clarified by sub-section 3 of section 270A of the Act which provides for manner to calculate the under-reported income.

Rates of Penalty

Sub-section 7 of section 270A of the Act provides that the rate of penalty shall be 50% of the tax payable on under-reported income.

Further, sub-section 8 of section 270A of the Act provides in a case where under-reported income is in consequence of any misreporting thereof by any person, penalty levied shall be 200% of the tax payable on such under-reported income.

Thus, even for levy of penalty at 200% of the tax payable, it is important that the there must be an under-reported income which must be in consequence of misreporting.

Levy of penalty where tax has been duly paid

As can be seen from above, for levy of penalty under section 270A of the Act, there must be under-reporting of income. Where there was no under-reporting of income, no penalty under section 270A (whether at 50% or 200%) could be levied.

Assume a person has unaccounted cash on which no tax was ever paid. Such a person deposits this unaccounted cash in his bank account in November 2016 and duly declares such additional income in his return of income for AY 2017-18. Tax at appropriate rate are paid in full on such income for AY 2017-18.

Now, his income determined in the return processed under section 143(1)(a) of the Act would include this unaccounted cash income [assuming there is no other cause for variation under section 143(1)(a) ]. When the case for AY 2017-18 would be picked up for scrutiny by income tax department, the Assessing Officer would not be able to make any addition on account ofthiscash deposited in bank account since the person would have already offered this income to tax in his return of income filed for AY 2017-18.

In such a scenario, the income assessed would not be greater than the income determined in the return processed under section 143(1)(a) of the Act (assuming there is no addition on any other account). Hence, in such cases, there would be no under-reported income. Thus, the basic condition for levying penalty under section 270A of the Act would not be triggered.

Reference is further drawn on Circular No. 25 of 2016 dated June 30, 2016 issued by CBDT while providing clarifications on the Income Declaration Scheme, 2016 (‘IDS’). In question no. 9 of the circular, the CBDT dealt with the question regarding the advantages of the IDS where past undisclosed income is disclosed as current income in the return of income to be filed for AY 2017-18 in place of declaration under IDS. The answer of CBDT, inter alia,provided for the following:-

“If anyone attempts to disclose past undisclosed income in the current year, he will have to explain the source of income and substantiate the manner of earning the said income. In case of disclosure under the Scheme, there is no need to explain the source of income.”

Thus, it may be noted that where income is disclosed in return of income for AY 2017-18, the person making such disclosure would have to explain the source of income and substantiate the manner of earning the said income.

However, even where such person fails to offer the source of such cash deposit, the Assessing Office may only declare such cash deposits to be an unexplained income under section 68 of the Act on which no slab benefit (in case of individual/HUF) or any deduction would be eligible as per section 115BBE of the Act.

However, the Assessing Officer would not be able to make any addition on account of such cash deposit as income in respect thereof would already have been offered to tax. Thus, in the absence of any under-reported income, penalty under section 270A of the Act would not be levied.

The aforementioned legal position is author’s personal view based on reasons set out hereinabove. It is pertinent to mention that litigation on levy of penalty cannot be ruled out specifically in light of the fact that the CBDT has explicitly warned against declaration of past income in current year in its clarificatory circulars on Income Declaration Scheme, 2016. Hence, before resorting to declare previously undeclared money in current year, a person is advised to independently verify the legal position with his tax advisors.

Article on Labour Law Compliance Audit

How to start with Labor Laws audit ?

1) First prepare list of basic labor laws which will be applicable.

2) Prepare few basic details on applicability of various section like requirement of canteen, creche, rest room, etc.

3) Prepare few basic details on appointment of welfare officer, safety officer, etc.

Various Points to be checked:

1) Factories act:

– Factory License, nature of business, validity of license and strength of manpower.

– Factory Layout cover each and every department of factory

– Annual returns and half year returns submitted on time with correct details

– All story statutory registers are maintained

– Appointment of Safety Officer, Welfare Officer, if applicable, and its qualification matching as per the act

– Canteen, Creche, rest room facilities are available

2) Contract Labor Act:

First check if this act is applicable to factory and to contractor. General rule say it is applicable for more than 20 contract workers. But it differs differs from state to state, like 10 in Gujarat, 5 in Delhi, 10 in WB.

– Principal Employer Registration, all contractor are listed on RC

– Contractor have valid License

– Contractor have submitted all dues like PF, ESIC, PT, and LWF on time.

3) PF, ESIC and PT

– Company have issued UAN, ESIC card to all employees

– All dues are deposited on time

4) Payment of Gratuity Act:

– Gratuity are paid to left employees who have completed 5 years

– Company have authorized one managerial personnel in organization to receive all notice, letter, communication, etc.

5) Payment of Bonus Act:
– Bonus are paid on time. Returns in Form D is submitted, register are maintained

6) Payment of Wages and Minimum Wages Act:

– All registers are maintained

– Payment of Wages are done on time.

– Wages are paid above minimum wages.

7) Industrial Standing Order:

– Standing orders are certified from Certifying officer

– All the provision of standing order are complied with.

8) Check minutes book of various committees and check if any important complaints raised, whether it is resolved.

9) Maternity Benefit Act: Compliance with provision are complied with

Maharashtra Value Added Tax (Fifth Amendment) Rules, 2016

FINANCE DEPARTMENT

Madam Cama Road, Hutatma Rajguru Chowk,
Mantralaya, Mumbai 400 032, dated the 6th August 2016

NOTIFICATION

MAHARASHTRA VALUE ADDED TAX ACT, 2002.

No. VAT. 15 16/CR-86/Taxation-1.—Whereas, the Government of Maharashtra is satisfied that circumstances exist which render it necessary to take immediate action further to amend the Maharashtra Value Added Tax Rules, 2005 and to dispense with the condition of previous publication thereof under the proviso to sub-section (4) of section 83 of the Maharashtra Value Added Tax Act, 2002 (Mah. IX of 2005);

Now, therefore, in exercise of the powers conferred by sub-sections (1), (2) and (3) read with the proviso to sub-section (4) of section 83 of the said Act, and of all other powers enabling it in this behalf, the Government of Maharashtra hereby, makes the following rules further to amend the Maharashtra Value Added Tax Rules, 2005, namely : —

1. (1) these rules may be called the Maharashtra Value Added Tax (Fifth Amendment) Rules, 2016.

(2) Except as otherwise provided in these rules, they shall come into force with effect from the 6th August 2016.

2. In rule 17A of the Maharashtra Value Added Tax Rules, 2005 (hereinafter referred to as “the principal Rules), after sub-rule (1A), the following sub-rule shall be inserted, namely:—

“( 1B) With a view to promote effective compliance and ensuing capability with automated system, the Commissioner may, by notification published in the Official Gazette, provide that in respect of the period starting on or after the date specified in the said notification any order, certificate, notice, intimation or any other document which may be specified in the notification, may be issued in an electronic form with or without digital signature, as may be specified, in the manner laid down in the notification. If the Commissioner has issued any notification under this sub-rule, then the Commissioner may by publication in the Official Gazette, provide for amendments to be made to such order, certificate, notice, intimation or any other document. Such notification, may be issued from time to time.”

3. In rule 21 of the principal Rules, after sub-rule (1) the following sub-rule shall be inserted, namely:—

“(1A) the intimation under sub-section (5A) of section 23 shall be in Form 604B.”

4. After rule 21 of the principal Rules, the following rule shall be inserted and shall be deemed to have been inserted with effect from 1st April 2011, namely :—

“21 A. For the purpose of section 28A, the ‘fair market price’ shall be determined, in the manner specified in column (5) of the Table hereunder, in respect of the class of dealers specified in column (4) for the sale of commodities specified in column (2) of the said Table,–

5. For rule 23 of the principal Rules, the following rule shall be substituted, namely :-

“23. Forms of order of assessment.—The assessment order under section 23 or, as the case may be, confirmation order under sub-section (5A) of section 23 shall be in Form 303 compatible with the type of the Form of return :

Provided that, where the dealer is liable to file more than one form of return then separate orders pertaining to such different forms of returns, may be issued.”.

By order and in the name of the Governor of Maharashtra,

R. D. BHAGAT,

Deputy Secretary to Government.

Tax on Long Term Capital Gain Under Income Tax Act, 1961

Introduction:-

The Article Discusses about Tax Treatment of Long Term Capital Gain arising from Transfer of Capital Assets under Income Tax Act, 1961. Articles  discusses Meaning of Capital Assets, What Constitutes a Capital and what is not a capital Asset, How to Apply Indexation Provisions, Period for Computation of Long Term Capital Asset, Tax on long-term capital gain @ 10% in certain special cases, Adjustment of LTCG against the basic exemption limit and Deductions under sections 80C to 80U and LTCG.

Meaning of Capital Gains

Profits or gains arising from transfer of a capital asset are called “Capital Gains” and are charged to tax under the head “Capital Gains”.

Meaning of Capital Asset

Capital asset is defined to include:

(a) Any kind of property held by an assessee, whether or not connected with business or profession of the assesse.

(b)Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI Act, 1992.

However, the following items are excluded from the definition of “capital asset”:

(i) any stock-in-trade (other than securities referred to in (b) above), consumable stores or raw materials held for the purposes of his business or profession ;

(ii) personal effects, that is, movable property (including wearing apparel and furniture) held for personal use by the taxpayer or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

“Jewellery” includes—

a. ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel;

b. precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;

(iii)Agricultural Land in India, not being a land situated:

a. Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000;

b. Within range of following distance measured aerially from the local limits of any municipality or cantonment board:

i. not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;

ii. not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or

iii. not being more than 8 KMs , if population of such area is more than 10 lakhs. Population is to be considered according to the figures of last preceding census of which relevant figures have been published before the first day of the year.

iv. 61/2 per cent Gold Bonds,1977 or 7 per cent Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government;

v. Special Bearer Bonds, 1991;

vi.  Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015.

Following points should be kept in mind:

• The property being capital asset may or may not be connected with the business or profession of the taxpayer. g. Bus used to carry passenger by a person engaged in the business of passenger transport will be his capita asset.
• Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 will always be treated as capital asset, hence, such securities cannot be treated as stock-in-trade.

Illustration

Mr. Kumar purchased a residential house in January, 2015 for Rs. 84,00,000. He sold the house in April, 2016 for Rs. 90,00,000. In this case residential house is a capital asset of Mr. Kumar and, hence, the gain of Rs. 6,00,000 arising on account of sale of residential house will be charged to tax under the head “Capital Gains”.

Illustration

Mr. Kapoor is a property dealer. He purchased a flat for resale. The flat was purchased in January, 2015 for Rs. 84,00,000 and sold in April, 2016 for Rs. 90,00,000. In this case Mr. Kapoor is dealing in properties in his normal business. Hence, flat purchased by him would form part of stock-in-trade of the business. . In other words, for Mr. Kapoor flat is not a capital asset and, hence, gain of Rs. 6,00,000 arising on account of sale of flat will be charged to tax as business income and not as capital gain.

Meaning of long-term capital asset and short-term capital asset

Short-Term Capital Asset

Long-Term Capital Asset

Any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer will be treated as short-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months. Note: With effect from Assessment Year 2017-18, period of holding to be considered as 24 months instead of 36 months in case of unlisted shares of a company.

Any capital asset held by the taxpayer for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months. Note: With effect from Assessment Year 2017-18, period of holding to be considered as 24 months instead of 36 months in case of unlisted shares of a company.

Mr. Kumar is a salaried employee. In the month of April, 2010 he purchased a piece of land and sold the same in December, 2015. In this case, land is a capital asset for Mr. Kumar. He purchased land in April, 2010 and sold in December, 2015 i.e. after holding it for a period of more than 36 months. Hence, land will be treated as long-term capital asset.

Illustration

Mr. Raj is a salaried employee. In the month of April, 2014, he purchased a piece of land and sold the same in December, 2015. In this case land is a capital asset for Mr. Raj. He purchased land in April, 2015 and sold it in December, 2015, i.e., after holding it for a period of less than 36 months. Hence, land will be treated as short-term capital asset.

Illustration

Mr. Raj is a salaried employee. In the month of April, 2013 he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in December, 2015. In this case shares are capital assets for Mr. Raj. He purchased shares in April, 2013 and sold them in December, 2015, i.e., after holding them for a period of more than 12 months. Hence, shares will be treated as long-term capital assets.

 Illustration

Mr. Kumar is a salaried employee. In the month of April, 2015 he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in January, 2016. In this case shares are capital assets for Mr. Kumar. He purchased shares in April, 2015 and sold them in January, 2016, i.e., after holding them for a period of less than 12 months. Hence, shares will be treated as short-term capital assets.

Illustration

Mr. Kumar is a salaried employee. In the month of April, 2015 he purchased un-listed shares of XYZ Ltd. and sold the same in January, 2016. In this case shares are capital assets for Mr. Raj and to determine nature of capital gain, period of holding would be considered as 36 month as shares are unlisted. He purchased shares in April, 2015 and sold them in January, 2016, i.e., after holding them for a period of less than 36 months. Hence, shares will be treated as Short Term Capital Assets.

Illustration

Mr. Raj is a salaried employee. In the month of April, 2011 he purchased un-listed shares of XYZ Ltd. and sold the same in December, 2015. In this case shares are capital assets for Mr. Raj and to determine nature of capital gain, period of holding would be considered as 36 month as shares are unlisted. He purchased shares in April, 2011 and sold them in December 2015, i.e., after holding them for a period of more than 36 months. Hence, shares will be treated as Long Term Capital Assets.

Illustration

Mr. Vikas is a salaried employee. In the month September, 2013 he purchased unlisted shares of ABC ltd. and sold the same in May 2016. In this case, shares are sold in assessment year 2017-18. Hence, period of holding for unlisted shares to be considered as 24 months instead of 36 months.

Mr. Vikas purchased shares in September 2013 and sold them May 2016, i.e. after holding them for a period of 24 months or more. Hence, shares will be treated as Long Term Capital Assets.

Meaning of short-term capital gain and long-term capital gain

Gain arising on transfer of short-term capital asset is termed as short-term capital gain and gain arising on transfer of long-term capital asset is termed as long-term capital gain. However, there are few exceptions to this rule like gain on depreciable asset is always taxed as short-term capital gain.

Illustration

In April, 2016 Mr. Raja sold his residential house property which was purchased in May, 2001. Capital gain on such sale amounted to Rs. 8,40,000. In this case the house property is a long-term capital asset and, hence, gain of Rs. 8,40,000 will be charged to tax as long-term capital gain.

Illustration

In April, 2016 Mr. Rahul sold his residential house property which was purchased in May, 2014. Capital gain on such sale amounted to Rs. 8,40,000. In this case the house property is a short-term capital asset and, hence, gain of Rs. 8,40,000 will be charged to tax as short-term capital gain.

Reason for bifurcation of capital gains into long-term and short-term gains :–

The taxability of capital gains depends on the nature of gain, i.e., whether short-term or long-term. Hence, to determine the taxability capital gains are classified into short-term capital gain and long-term capital gain. In other words, the tax rates for long-term capital gain and short-term capital gain are different.

Computation of long-term capital gains

Long-term capital gain arising on account of transfer of long-term capital asset will be computed as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales consideration of asset)	XXXXX
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, advertisement expenses, etc.) .	(XXXXX)
Net sale consideration	XXXXX
Less: Indexed cost of acquisition (*)	(XXXXX)
Less: Indexed cost of improvement if any (*)	(XXXXX)
Long-Term Capital Gains	XXXXX

(*) Indexation is a process by which the cost of acquisition is adjusted against inflationary rise in the value of asset. For this purpose, Central Government has notified cost inflation index. The benefit of indexation is available only to long-term capital assets. For computation of indexed cost of acquisition following factors are to be considered:

• Year of acquisition/improvement
• Year of transfer
• Cost inflation index of the year of acquisition/improvement
• Cost inflation index of the year of transfer

Indexed cost of acquisition is computed with the help of following formula :

Cost of acquisition × Cost inflation index of the year of transfer of capital asset= not in short term

Indexed cost of improvement is computed with the help of following formula :

Cost of improvement × Cost inflation index of the year of transfer of capital asset = not in short term

Cost inflation index of the year of improvement

The Central Government has notified the following Cost Inflation Indexes:-

Fin. Year	Index	Fin. Year	Index
1981-82	100	1999-00	389
1982-83	109	2000-01	406
1983-84	116	2001-02	426
1984-85	125	2002-03	447
1985-86	133	2003-04	463
1986-87	140	2004-05	480
1987-88	150	2005-06	497
1988-89	161	2006-07	519
1989-90	172	2007-08	551
1990-91	182	2008-09	582
1991-92	199	2009-10	632
1992-93	223	2010-11	711
1993-94	244	2011-12	785
1994-95	259	2012-13	852
1995-96	281	2013-14	939
1996-97	305	2014-15	1024
1997-98	331	2015-16	1081
1998-99	351	2016-17	1125

Illustration

Mr. Raja purchased a piece of land in May, 2004 for Rs. 84,000 and sold the same in April, 2016 for Rs. 10,10,000 (brokerage Rs. 10,000). What will be the taxable capital gain in the hands of Mr. Raja?

Computation of capital gain will be as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales consideration of asset)	10,10,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (brokerage)	10,000
Net sale consideration	10,00,000
Less: Indexed cost of acquisition (*)	1,96,875
Less: Indexed cost of improvement, if any	Nil
Long-Term Capital Gains	8,03,125

(*) The cost Index notified for the year 2004-05 is 480 and for the year 2016-17 is 1 125.Hence, the indexed cost of acquisition, i.e., the inflated cost of acquisition will be computed as follows:

Cost of acquisition × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of acquisition

Rs. 84,000 × 1125 = Rs. 1,96,875

480

Long-term capital gains arising on account of sale of equity shares listed in a recognised stock exchange, i.e., LTCG exempt under section 10(38)

As per section 10(3 8), long-term capital gain arising on transfer of equity share or units of equity oriented mutual fund (*) or units of business trust is not chargeable to tax in the hands of any person, if following conditions are satisfied:

• The transaction i.e. the transaction of sale of equity shares or units of an equity oriented mutual fund or units of business trust should be liable to securities transaction tax.
• Such shares/units should be long-term capital asset.
• Transfer should have taken place on or after October 1, 2004.

(*) Equity oriented mutual fund means a mutual fund specified under section 10(23D) and 65% of its investible funds out of total proceeds are invested in equity shares of a domestic company.

In other words, if LTCG is covered under section 10(3 8), then it is exempt from tax.

Exemption from long term capital gains under section 10(3 8) shall be available w.e.f April 1, 2017 even where STT is not paid, provided that –

• transaction is undertaken on a recognised stock exchange located in any International Financial Service Centre, and
• consideration is paid or payable in foreign currency

Illustration

Mr. Janak is a salaried employee. In the month of January, 2014 he purchased 100 shares of X Ltd. @ Rs. 1,400 per share from Bombay Stock Exchange. These shares were sold through BSE in April, 2016 @ Rs. 2,000 per share (securities transaction tax was paid at the time of sale). What will be the nature of capital gain in this case?

**

Shares were purchased in January, 2014 and were sold in April, 2016, i.e., sold after holding them for a period of more than 12 months and, hence, the gain will be long-term capital gain.

In the given case shares are sold after holding them for a period of more than 12 months, shares are sold through recognised stock exchange and the transaction is liable to STT, hence, the LTCG will be covered under section 10(3 8) and will not be charged to tax.

Illustration

Mr. Saurabh is a salaried employee. In the month of January, 2014, he purchased 100 units of ABC Mutual fund @ Rs. 100 per unit. The mutual fund is an equity oriented mutual fund. These units were sold through BSE in April, 2016 @ Rs. 125 per unit (securities transaction tax was paid at the time of sale). What will be the nature of capital gain in this case?

**

Units were purchased in January, 2014 and were sold in April, 2016, i.e., sold after holding them for a period of more than 12 months and, hence, the gain will be long-term capital gain.

In the given case, units were of equity oriented mutual funds which were sold after holding them for a period of more than 12 months. These units were sold through recognised stock exchange and the transaction was liable to STT, hence, the LTCG on sale of such units will be covered under section 10(38) and will not be charged to tax.

Illustration

Mr. Raja is a salaried employee. In the month of January, 2014 he purchased 100 preference shares of ABC Ltd. @ Rs. 100 per share. These shares were sold in April,2016 @ Rs. 125 per share (securities transaction tax was paid at the time of sale). Can the capital gains be claimed as exempt under section 10(38)?

**

Section 10(38) is applicable in case of LTCG arising on transfer of equity shares or units of equity oriented mutual-fund which are transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax.

In the given case, the shares are preference shares and hence, the provisions of section 10(3 8) are not applicable. In other words, Mr. Raja cannot claim exemption under section 10(38) in respect of such gain.

Illustration

Mr. Rahul is a salaried employee. In the month of January, 2011 he purchased 100 units of debt oriented mutual fund @ Rs. 100 per unit. These units were sold in March, 2016 @ Rs. 125 per share (securities transaction tax was paid at the time of sale). Can the capital gain be claimed as exempt under section 10(3 8)?

**

Section 10(38) is applicable in case of LTCG arising on transfer of equity shares or units of equity oriented mutual-fund which are transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax.

In the given case, the units sold are of debt oriented mutual funds (i.e., not equity oriented mutual fund) and, hence, the provisions of section 10(3 8) are not applicable. In other words, Mr. Rahul cannot claim exemption under section 10(38) in respect of such gain.

Illustration

Mr. Jay is a salaried employee. In the month of January, 2014 he purchased 100 shares of ABC Ltd. @ Rs. 100 per share. These shares were sold in April, 2016 @ Rs. 125 per share to his friend. The shares were not listed in any recognised stock exchange. Can the capital gain be claimed as exempt under section 10(3 8)?

**

Section 10(38) is applicable in case of LTCG arising on transfer of equity shares or units of equity oriented mutual-fund which are transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax.

In the given case, the shares were not listed in recognised stock exchange and, hence, the provisions of section 10(3 8) were not applicable. In other words, Mr. Jay could not claim exemption under section 10(38) in respect of such gain.

Tax on long-term capital gain

Generally, long-term capital gains are charged to tax @ 20% (plus surcharge and cess as applicable), but in certain special cases, the gain may be (at the option of the taxpayer) charged to tax @ 10% (plus surcharge and cess as applicable). The benefit of charging long-term capital gain @ 10% is available only in respect of long-term capital gains arising on transfer of any of the following asset:

(a) Any security (*) which is listed in a recognised stock exchange in India;

(b) Any unit of UTI or mutual fund (whether listed or not) ($); and

(c) Zero coupon bonds.

(*) Securities for this purpose means “securities” as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956. This definition generally includes shares, scrips, stocks, bonds, debentures, debenture stocks or other marketable securities of a like nature in or of any incorporated company or other body corporate, Government securities, such other instruments as may be declared by the Central Government to be securities and rights or interest in securities.

($) This option is available only in respect of units sold on or before 10-7-20 14.

In other words, in case of long term capital gain arising on account of aforesaid assets, the taxpayer has following two options:

a. Avail of the benefit of indexation; the capital gains so computed will be charged to tax at normal rate of 20% (plus surcharge and cess as applicable).

b.Do not avail of the benefit of indexation; the capital gain so computed is charged to tax @ 10% (plus surcharge and cess as applicable).

The selection of the option is to be done by computing the tax liability under both the options, and the option with lower tax liability is to be selected.

Illustration

Mr. Kumar (a non resident) purchased equity shares (listed) of Shyamal Ltd. in December 1995 for Rs. 28,100. These shares are sold (outside recognised stock exchange) in April, 2016 for Rs. 5,00,000. He does not have any other taxable income in India. What will be his tax liability.

**

In this situation, Mr. Kumar has following two options:

Particulars	Option 1 (Avail indexation)	Option 2 (Do not avail indexation)
Full value of consideration	5,00,000	5,00,000
Less. Indexed cost of acquisition (Rs. 28,100 × 1125/281)	1,12,500
Less. Cost of acquisition		28,100
Taxable Gain	3,87,500	4,71,900
Tax @ 20% on Rs. 3,87,500	77, 500
Tax @ 10% on Rs. 4,71,900		47,190

From the above computation, it is clear that Mr. Kumar should exercise option 2, since in this situation the tax liability (excluding cess as applicable) comes to Rs. 47,190 which is less than tax liability under option 1 i.e. Rs. 77,500. Tax liability after EC @ 2% and SHEC @ 1% will come to Rs. 48,606.

Illustration

Mr. Kumar (a non-resident) purchased a piece of land in December, 1995 for Rs. 28,100 and sold the same, in April, 2016 for Rs. 5,00,000. Can he claim the option of not availing of the indexation and paying tax @ 10% on the capital gain?

**

In this situation, the asset transferred is land and hence the options discussed in preceding illustration are not available and the gain will be computed after availing of the indexation and the resulting gain will be charged to tax @ 20% (plus surcharge and cess as applicable). The computation in this case will be as follows :

Particulars	(Rs.)
Full value of consideration	5,00,000
Less. Indexed cost of acquisition (Rs. 28,100 ×1125/281)	1,12,500
Less. Indexed cost of improvement	Nil
Long term capital gain	3,87,500
Tax @ 20% on Rs. 3,87,500	77,500
Add. EC @ 2% and SHEC @ 1%	2,325
Net tax payable	79,825

Adjustment of LTCG against the basic exemption limit

Basic exemption limit means the level of income up to which a person is not required to pay any tax. The basic exemption limit applicable in case of an individual for the financial year 2016-17 is as follows :

• For resident individual of the age of 80 years or above, the exemption limit is Rs. 5,00,000.
• For resident individual of the age of 60 years or above but below 80 years, the exemption limit is Rs. 3,00,000.
• For resident individual of the age of below 60 years, the exemption limit is Rs. 2,50,000

• For non-resident individual, irrespective of the age of the individual, the exemption limit is Rs. 2,50,000.
• For HUF, the exemption limit is Rs. 2,50,000.

Illustration: Basic exemption limit

Mr. Kapoor (resident and age 25 years) is a salaried employee earning a salary of Rs. 1,84,000 per annum. Apart from salary income, he has earned interest on fixed deposit of Rs. 6,000. He does not have any other income. What will be his tax liability for the year 2016-17?

**

For resident individual of age of below 60 years, the basic exemption limit is Rs. 2,50,000. In this case the taxable income of Mr. Kapoor is Rs. 1,90,000 (Rs. 1,84,000 + Rs. 6,000), which is below the basic exemption limit of Rs. 2,50,000, hence, his tax liability will be nil.

Illustration: Basic exemption limit

Mr. Viren (resident and age 62 years) is a businessman. His taxable income for the year 2016-17 is Rs. 2,25,200. He does not have any other income. What will be his tax liability for the year 2016-17?

**

For resident individual of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000. In this case, the taxable income of Mr. Viren is Rs. 2,25,200, which is below the basic exemption limit of Rs. 3,00,000, hence, his tax liability will be nil.

Illustration: Basic exemption limit

Mrs. Raja (resident and age 82 years) is a doctor. Her taxable income for the year 2016- 17 is Rs. 4,84,000. She does not have any other income. What will be her tax liability for the year 2016-17?

**

For resident individual of the age of 80 years and above, the basic exemption limit is Rs. 5,00,000. In this case, the taxable income of Mrs. Raja is Rs. 4,84,000, which is below the basic exemption limit of Rs. 5,00,000, hence, her tax liability will be nil.

Illustration: Basic exemption limit

Mr. Raj (a non-resident and age 82 years) is a retired person. He is residing in Canada. He owns a house in Mumbai which is given on rent. The taxable rental income for the year 2016-17 amounts to Rs. 1,84,000. What will be his tax liability for the year 2016- 17?

For non-resident individual, irrespective of the age, the basic exemption limit is Rs. 2,50,000. In this case the taxable income of Mr. Raj is Rs. 1,84,000, which is below the basic exemption limit of Rs. 2,50,000, hence, his tax liability will be nil.

Adjustment of LTCG against the basic exemption limit

In the preceding illustrations we observed that if the income is below the basic exemption limit, then there will be no tax liability. Now a question arises that can an individual adjust the basic exemption limit against long-term capital gain? The answer will depend on the residential status of the individual (i.e., resident or non-resident). The provisions in this regard are as follows :

Only a resident individual/HUF can adjust the exemption limit against LTCG. Thus, a non-resident individual and non-resident HUF cannot adjust the exemption limit against LTCG.

A resident individual can adjust the LTCG but such adjustment is possible only after making adjustment of other income. In other words, first income other than LTCG is to be adjusted against the exemption limit and then the remaining limit (if any) can be adjusted against LTCG.

Illustration

Mr. Kapoor (age 67 years and resident) is a retired person. He purchased a piece of land in December, 2010 and sold the same in April, 2016. Taxable long-term capital gain on such sale amounted to Rs. 1,84,000. Apart from gain on sale of land, he is not having any other income. What will be his tax liability for the year 2016-17?

*

For resident individual of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000. Further, a resident individual can adjust the basic exemption limit against LTCG. In this case, LTCG of Rs. 1,84,000 can be adjusted against the basic exemption limit. In other words, Mr. Kapoor can adjust the LTCG on sale of land against the basic exemption limit.

Considering the above discussion, the tax liability of Mr. Kapoor for the year 2016-17 will be nil.

Illustration

Mr. Kapoor (age 67 years and non-resident) is a retired person. He purchased a piece of land (at Delhi) in December, 2010 and sold the same in April, 2016. Taxable long-term capital gain on such sale amounted to Rs. 1,84,000. Apart from gain on sale of land, he is not having any other income. What will be his tax liability for the year 20 16-17?

*

For non-resident individual of any age, the basic exemption limit is Rs. 2,50,000. Further, a non-resident individual cannot adjust the basic exemption limit against LTCG. Hence, in this case the exemption limit of Rs. 2,50,000 cannot be adjusted against LTCG. In other words, Mr. Kapoor cannot adjust the LTCG on sale of land against the basic exemption limit. Thus, LTCG of Rs. 1,84,000 will be charged to tax @ 20% (plus cess @ 2% and 1%). Thus, the tax liability will come to Rs. 37,904.

Illustration

Mr. Kapoor (age 67 years and resident) is a retired person earning a monthly pension of Rs. 5,000. He purchased gold in December, 2010 and sold the same in April, 2016. Taxable LTCG amounted to Rs. 2,70,000. Apart from pension income and gain on sale of gold he is not having any other income. What will be his tax liability for the year 2016- 17?

*

For resident individual of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000. Further, a resident individual can adjust the basic exemption limit against LTCG. However, such adjustment is possible only after adjusting income other than LTCG. In this case, he is having pension income of Rs. 60,000 (Rs. 5,000 × 12) and LTCG on gold of Rs. 2,70,000. Thus, first we have to adjust the pension income against the exemption limit and the balance limit will be adjusted against LTCG.

The basic exemption limit in this case is Rs. 3,00,000, after adjustment of pension income of Rs. 60,000 from the exemption limit of Rs. 3,00,000 the balance limit available will come to Rs. 2,40,000. The balance of Rs. 2,40,000 will be adjusted against LTCG.

Total LTCG on gold is Rs. 2,70,000 and the available limit is Rs. 2,40,000, hence, the balance LTCG left after adjustment of Rs. 2,40,000 will come to Rs. 30,000. The gain of Rs. 30,000 will be charged to tax @ 20% (plus cess @ 2% and 1%). Thus, the tax liability before cess will come to Rs. 6,000 and after deducting rebate of Rs. 5,000 as per section 87A, he would be liable to pay tax of Rs. 1,030 (including cess @ 2% and 1%).

Illustration

Mr. Gagan (age 67 years and non-resident) is a retired person earning a monthly pension of Rs. 5,000 from Indian employer. He purchased a piece of land in Delhi in December, 2010 and sold the same in April, 2016. Taxable LTCG amounted to Rs. 2,20,000. Apart from pension income and gain on sale of land he is not having any other income. What will be his tax liability for the year 2016-17?

*

For non-resident individual, irrespective of the age, the basic exemption limit is Rs. 2,50,000. Further, a non-resident individual cannot adjust the basic exemption limit against LTCG covered under section 112. In other words, Mr. Gagan can adjust the pension income against the basic exemption limit but the remaining exemption limit cannot be adjusted against LTCG on sale of land.

The basic exemption limit in this case is Rs. 2,50,000, and the same will be adjusted against pension income of Rs. 60,000. The balance limit of Rs. 1,90,000 (i.e., Rs. 2,50,000 less Rs. 60,000) cannot be adjusted against LTCG. Hence, in this case Mr. Gagan has to pay tax @ 20% (plus cess @ 2% and 1%) on LTCG of Rs. 2,20,000. Thus, the tax liability will come to Rs. 45,320.

Deductions under sections 80C to 80U and LTCG

No deduction under sections 80C to 80U is allowed from long-term capital gains.

Illustration

Mr. Kapoor (age 57 years and resident) is a retired person. He purchased a piece of land in December, 2010 and sold the same in April, 2016. Taxable LTCG on such sale amounted to Rs. 4,00,000. Apart from gain on sale of land he is not having any income. He deposited Rs. 1,00,000 in Public Provident Fund (PPF) and Rs. 50,000 in NSC. He wants to claim deduction under section 80C on account of Rs. 1,50,000 deposited in PPF and NSC. Can he do so?

**

Deduction under sections 80C to 80U cannot be claimed from long-term capital gains. Hence, Mr. Kapoor cannot claim deduction under section 80C of Rs. 1,50,000 from LTCG of Rs. 4,00,000. The taxable income of Mr. Kapoor will be computed as follows :

Particulars	Rs.
Long-Term Capital Gains	4,00,000
Gross Total Income	4,00,000
Less: Deduction under sections 80C to 80U	Nil
Total Income or Taxable Income	4,00,000

He can claim basic exemption of Rs. 2,50,000 (being resident individual) and has to pay LTCG on remaining Rs. 1,50,000 @ 20% (+ Ed. Cess+ SHEC). Thus, his tax liability before cess will come to Rs. 30,000 and after deducting rebate of Rs. 5,000 as per section 87A, he would be liable to pay tax of Rs. 25,750 (including cess @ 2% and 1%).