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  • Tax Matters: Can property gain be set off against off-market loss?

    Long-term capital loss from sale of equity if off-market transaction on which STT is not paid can be set off against long-term capital gain arising out of sale of land and house

    I am a senior citizen. I am planning to sell my ancestral property. I am likely to earn long- term capital gain after taking cost index into account. I am also investing in equity shares through a registered broker on the NSE and the BSE. I am holding equity shares in my portfolio for more than a year. The current market price of these stocks is very low and I am incurring losses. If I sell these equity shares off market, without payment of securities transaction tax (STT), can I set off my long-term capital gain on sale of land and house against long-term capital loss on off-market sale of equity shares?

    — Himatlal Mehta, e-mail

    Gain or loss arising from sale of shares held for 12 months or more are considered as long-term capital gain or loss. Gain on long-term equity shares on which STT is paid are exempt. Long-term gain is taxable if STT is not paid.

    According to Section 70 of the Income Tax (IT) Act, 1961, long-term capital loss can be set off only against long-term capital gain. Short-term capital loss can be set off against short-term capital gain or long-term capital gain. Also, the balance unabsorbed loss, if any, needs to be carried forward for set-off within the next eight assessment years.

    In the case of Asara Sales & Investments Pvt Ltd, the Pune IT Appellate Tribunal held that long-term capital loss on off-market sale of listed shares is allowed to be set off against long-term capital gain on sale of unlisted shares. The tax payer, while selling the shares of a listed company, opted to transact off market as the shares were of a company in the group and the group did not want them to be a picked up by strangers as was likely to happen were they sold on the stock exchange. Such business decision cannot be called as colorable.

    As such, you can argue that long-term capital loss from sale of equity in off-market transaction on which STT is not paid can be set off against long-term capital gain arising out of sale of land and house. The shares sold in the off-market mode are sold at the market price prevailing on the date of sale. However, the IT officer (ITO) may not agree to such tax planning. Be prepared to litigate. Else, you can consider investment in specified bonds under Section 54EC of the IT Act to save long-term capital gains tax.


    I am working in the accounts department of a company. I intend to go on leave during September-October. How do I plan my leave so that I do not miss the various goods and services tax (GST) return filing days?

    — By Sandeep dated 24/06/2017

    Here are the important dates: 1 July: the GST regime starts, requiring registration, migration of systems and tallying of accounts.

    By 20 August, pay tax and upload GST return (GSTR)-3B for July (self- declaration form).

    Between 1 and 5 September, file GSTR-1 for July. Between 6 and 10 September, download and reconcile GSTR-2 for July (auto populated from GSTR-1). Between 16 and 20 September, file GSTR-1 for August.

    By 20 September, pay tax and upload GSTR-3B for August (self-declaration form). Between 21 and 25 September, download and reconcile GSTR-2 for August (auto populated from GSTR-1).

    By 10 October, GSTR-1 had to be filed for September; by 15 October, GSTR-2 had to be filed for September; and by 20 October, GSTR-3 had to be filed for September. 

    These dates have been revised: By 10 October 2017, file GSTR-1 for July 2017. By 31 October 2017, file GSTR-2 for July 2017. By 10 November, file GSTR-3 for July 2017. Clarification is awaited for August. You can plan your leave after noting these dates.


    What are the problems anticipated with reference to input tax credit (ITC)?

    — Manor, e-mail

    In the goods and services tax (GST) regime, input tax credit (ITC) of one state cannot be utilized for payment of GST tax liability in other state using the same permanent account number (Pan). Section 49(5) of the Central GST Act provides the manner of utilization of credit: The amount of input tax credit available in the electronic credit ledger of the registered person on account of integrated tax is to be first utilized for payment of integrated tax. The amount remaining, if any, can be utilized to pay Central and state GST (CGST and SGST) and the Union Territory GST (UTGST), in that order.

    CGST is to be first utilized for payment of CGST. The amount remaining, if any, can be utilized for payment of integrated GST (IGST). SGST is to be first utilized for payment of SGST. The amount remaining, if any, can be utilized for payment of IGST.

    The UTGST is to be first be utilized for payment of UTGST. The amount remaining, if any, can be utilized for payment of IGST. The CGST cannot be utilized for payment of SGST or UTGST. The SGST or UTGST cannot be utilized towards payment of CGST.

    Section 16 of the CGST Act provides for eligibility and conditions for taking ITC. No registered person is entitled to the credit of any input tax on any supply of goods, services or both unless he is in possession of a tax invoice or debit note issued by a supplier registered under the GST Act or such other tax paying documents as may be prescribed. The person should have received the goods, services or both.

    Section 20 of CGST Act provides that the input service distributor (ISD) cannot distribute the credit of one state to another state. The ISD has to distribute the credit to the state where the inputs has been used for supply of goods, service or both.

    Section 51 of the CGST Act provides that no deduction of tax (TDS) can be undertaken if the location of the supplier and the place of supply is in a state or UT which is different from the state or UT of registration of the recipient.

    For its utilization, ITC has to be transferred to other state. But no provision has been found in the CGST and IGST Acts that allows the transfer of credit to other registered person with registration in another state under the same Pan.

    The GST scheme is registration specific. Registration has to be taken in every state from where the supplier is providing goods, services or both. He also has to file return on the basis of registration in every state.

    Section 24 of the CGST Act provides that a person with different registrations under the same PAN is to be treated as distinct person. Therefore, ITC of one state cannot be utilized for payment of liability of another state. The tax credit pool is separately maintained for each registered person. No cross-utilization is permitted between distinct persons.


    What are the transition rules hosted on the finance ministry website?

    — Himalya, e-mail

    A manufacturer who has Central value-added (Cenvat) credit balance in his return as on 30 June 2017 can carry forward it as Central goods and services tax (CGST) credit. He can also take the unavailed Cenvat credit of excise duty paid on capital goods, as per Section 140(1) and 140(2) of CGST Act, 2017.

    A dealer or manufacturer who has input tax credit under state Vat or entry tax in his return on 30 June 2017 can carry forward his input tax credit as state GST (SGST) credit. He can also take unavailed credit of state Vat paid on capital goods, as per Section 140(1) and 140(2) of the SGST Act, 2017.

    Credit can be claimed if input tax credit (ITC) is allowed under GST as well as previous acts. All the returns required under the previous law for six months immediately before 1 July should have been filed. The credit should not relate to goods manufactured and cleared under such exemption notification as are notified by the Union government. Vat credit attributed to claims of sales in Forms C, F, E1, and H is duly made available.

    Persons entitled to take transition credit will have to submit a declaration within 90 days, i.e., up to 30 September, specifying the credit he wants to take on stocks lying with him on 30 June. Declaration will have to be submitted in form GST Tran-1. The Commissioner of Central Tax can extend the timeline by another 90 days.

    For capital goods whose part-credit was availed in the current period and part-credit is to be availed under GST, a declaration has to be submitted specifying the amount of credit already availed in the current law and the amount of credit yet to be availed under the existing law and which is intended to be avail under the GST period.

    Persons with excise invoices for stocks lying as on 30June will be entitled to take full credit of excise mentioned in the invoices. A taxable person not eligible to take Cenvat credit but is under GST can take input tax credit of excise duty paid on the stock with him if he has invoice or other documents evidencing payment of excise duty.

    Persons who do not have excise invoice will be eligible to take credit as per the deemed credit scheme in two ways, i.e., for goods taxable at 18% or above. Credit will be allowed at the rate of 60% of CGST payable on those goods. If the rate is 18%, then credit will be available at 5.4% (60% of 9% CGST).

    For other goods, credit is allowed at the rate of 40% of CGST payable on the goods. If the rate is 12%, then credit will be available at 2.4% (40% of 6% CGST).

    A taxable person who was not earlier under state Vat or was under composition scheme but is now under GST and does not have documents evidencing payment of state Vat can take input tax credit of 40% of SGST payable by him.

    Credit in the deemed credit scheme will be available only once the said goods are sold and GST is paid. The goods are to be sold within six months from the GST date. So stocks lying as on 30 June have to be sold up to 31 December, 2017. No credit will be available if these goods are sold after December 2017. It's like a cash back scheme.

    To take credit, such goods should have not been unconditionally exempted from excise. The document for procurement of such goods should be available. The stock of goods on which the credit is availed is so stored as to be easily identified.

    If goods have been cleared by the supplier prior to 1 July 2017 by paying excise duty and state Vat but were received after 1 July 2017 by the recipient, input tax credit of such excise duty or state Vat is available if such invoice has been recorded in the books of account within 30 days, i.e., before 30 July 2017. Specified details have to be furnished, as per Section 140(5) of the CGST Act and the SGST Act.

    If material was sent for job work and has been with the job worker, ITC can be taken on submission of details, according to Section 141 of the CGST Act and the SGST Act.

    If goods were sent for approval basis and were not with the taxable person on 1 July 2017, details are to be submitted in form GST Tran-1. The tax payer will have to file Tran-1 and Tran-2 for claiming credit of stock. In the form, harmonized system nomenclature-wise details, quantity, rate and total value will have to be given. The information should be given to the government within 90 days. Credit for the previous stock that is more than a year old stock is not available. It means credit can be taken if goods are purchased after 30 June 2016.

    Any claims and appeals pending for refund on due amount of Cenvat credit, tax or interest paid before 1 July has to be disposed of according to the previous laws. Any amount found to be payable under the previous law will be treated as arrears of GST and recovered according to GST provisions.

    The replies are only in the nature of guidelines. The tax counsellors and the publication are not responsible for any decision taken by readers on the basis of the same.
    Readers may e-mail their queries on direct taxation to: tax-matters@capitalmarket.com

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Flash News 19-Jul-2018
  •  ( 16:35) Sensex, Nifty post small losses in volatile trade   
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  •  ( 10:12) DFM Foods board meet 6 August to consider stock split  
  •  ( 09:41) Weak market breadth  
  •  ( 08:32) JK Tyre & Industries Q1 cons net profit at Rs 64.24 crore  
  •  ( 08:17) Japan trade balance returns to surplus after dip  
  •  ( 08:17) US market: Dow logs longest win streak in a month  
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