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  • Tax Matters: How to split demat shares of deceased parent among heirs?

    If a Change has to be effected, a new account has to be opened in the surviving holding pattern and the securities are then transfeered to the new account

    Our mother, aged 94, died on 2 August. One of my sisters' name is already there in her demat account for the sake of convenience. As per her will, all her properties will go to her three daughters in equal proportion. We intend to give oral and written instructions to the depository participant (DP) to transmit one-third amount each to three different demat accounts belonging to all of the sisters. We understand the process will be sufficient for the income tax (IT) department. However, we are not sure about the procedures required by the depositories, CDSL and NSDL.

    — By Harsha & Kanan, e-mail

    Demat accounts can be held by an individual either in single name or joint names. In case of death of the primary account holder, rules of transmission will apply for securities held in the demat account. Separate procedure for transmission is prescribed depending whether the demat account is in single name or joint name.

    As your deceased mother's demat account was jointly held by one of your sisters, the holdings will not be transmitted to the joint holder by merely giving oral or written instructions. The surviving joint holder has to apply to the DP, as per the guidelines of the Securities and Exchange Board of India (Sebi), along with the requisite papers for transmissions.

    In joint accounts, the securities are transmitted to the surviving holders on submission of the transmission form and attested copy of the death certificate along with the Will of the deceased holder.

    Through its master circular dated 7 April 2014, Sebi has prescribed the procedure for transmission of shares in case of joint demat accounts. After receiving the application from the surviving holder and based on the documents required as per the know-your-client norms, the DP will open a new demat account of the surviving holders in the same order in which the names appear in the joint account that is to be closed. A uniform time-frame of seven days after the receipt of all required documents is prescribed for processing of the transmission requests.

    As per Sebi guidelines, the names of the account holders of beneficial owners' account cannot be changed. If a change has to be effected by addition, deletion, a new account has to be opened in the surviving holding pattern and the securities are then transferred to the new account.

     

    Can short-term capital gain arising from sale of shares be set off against current or carry-forward long-term losses from equities? Can short-term capital gains from selling equities be set off against carry-forward short term losses from shares?

    — R A Banga, Jalandar

    As per the provisions of the Income Tax (IT) Act, 1961, long- term capital losses can be set off only against long-term gain and short- term capital loss can be set off against short- as well as long-term capital gain.

    If a person cannot set off losses under the head, Capital gain, within the same year, then such loss is carried forward and can be set off in subsequent years against the income from the head, ‘Capital gain' only.

    In the subsequent years, too, brought-forward long-term losses can be set off only against long-term gain, if any. Brought- forward short-term losses can be set off against short- or long- term capital gain.

    An exception is dead loss, i.e., loss not available to be set off at all. As there is no tax on long-term capital gain on shares and equity funds subject to securities transaction tax (STT) as exemption is available under Section 10(38) of the IT Act, so also long- term capital losses on shares and equity funds subject to STT is dead losses and, therefore, cannot be set off or carried forward to the subsequent assessment years.

    Thus, short-term gain on shares can be adjusted with the current or brought-forward losses on equities provided such losses are not dead losses. Short-term capital gains on equities can be adjusted against brought-forward short-term losses from equity.

     

    Who can avail of Rs 2000 rebate under Section 87-A of the Income Tax (IT) Act, 1961? I am a senior citizen. I do not have any income other than interest on resident bank deposits. I heard that the system of filing Form 15 H has been changed from the current financial year. Am I eligible for an additional Rs 2000 rebate on interest income?

    — Neelam Sharma, e-mail

    Form 15H can only be filed by a resident individual above 60 years of age. The form imposes only one condition: the final tax on the investor's estimated total income should be nil. So if you are above 60 years of age and your taxable income for the financial year is up to Rs 3 lakh, you are eligible to fill Form 15H. The form should be submitted at the beginning of the financial year to avoid a situation of the bank already deducting tax.

    The form has to be submitted at each branch of the bank from where you receive interest income. The form ensures that the bank branch does not deduct tax at source (TDS). All banks have been instructed to apply TDS on all interest payments exceeding Rs 10000 from all branches in any financial year. If the liability of the tax payer is nil and TDS is applicable as interest income is more than Rs 10000, Form 15H has to be submitted. A fresh form is required to be submitted each financial year as income may differ from year to year.

    As per Section 87A of IT Act, an individual resident tax payer whose total income does not exceed Rs 5 lakh is entitled to a deduction of an amount equal to 100% of the IT or an amount of Rs 5000, whichever is less, for the financial year (FY) 2016-17. The maximum rebate under Section 87A is Rs 2500 for FY 2017-18. The limit was Rs 2000 in FY 2015-16 and earlier years.

    The rebate is deducted from total tax before adding education cess. The rebate is also available to senior citizens who are 60 years old but less than 80 years.

    From your query it seems that you are filing Form 15H. Thus, your total income must be below the basic exemption limit. Hence, IT on your total income should be nil. Therefore, there is no question of rebate under Section 87A.

     

    What are the tax provisions, particularly tax deduction at source (TDS), to be complied with while purchasing property from a NRI valued at more than Rs 1 crore?

    — Krishan Aggarwal, e-mail

    When a non-resident sells an immovable property in India, capital income may accrue on such sale to the non-resident. The gain is chargeable to tax in India. Therefore, the consideration from the sale of property in India by a non-resident is chargeable to tax in India and is covered by Section195 of the Income Tax (IT) Act, 1961.

    As per Section 195 of the IT Act, a person responsible for paying to a non-resident not being a company or to a foreign company, any interest or any other sum chargeable under the provisions of the IT Act (not being income chargeable under the head, ‘Salaries') by cash, cheque, draft or any other mode, has to deduct income tax at the rate in force include cess.

    The rate in force is the rate prescribed under the IT Act for a particular type of income. Refer to the rates prescribed for taxation of capital gain. As per Section 112 of the IT Act, long-term capital gain is to be taxed at 20% and short-term capital gain as per the applicable slab rate. So the rate of tax will depend on whether the property sold by the non-resident is a long- or short-term capital asset.

    Tax has to be deducted by the payer at the rate in force or any lesser rate as certified by the assessing officer (AO) in a certificate issued by him. The application for deduction at a lesser rate of tax can be made either by the payer or recipient in the prescribed forms to the AO with the necessary documents.

    If a non-resident Indian does not have permanent account number (Pan), the rate of tax will be 20%, irrespective of any certificate issued by the AO. However, the Central Board of Direct Taxes has relaxed the deduction at a higher rate in absence of Pan if a non-resident furnishes tax residency certificate or tax identification number.

    As per Section 90 of the IT Act, the rate of taxation on taxable income of a non-resident will be as prescribed under the IT Act or under the Double Taxation Avoidance Agreement (DTAA) that India might have signed with the country of which the non- resident is a resident, whichever is more beneficial.

    Therefore, if as per DTAA, the rate is less than 20% or the slab rate, then tax will be deducted at such lower rate. However, for availing a lower rate under DTAA, the non- resident will have to furnish tax residency certificate to the payer indicating his residential status.

    Section 194-IA of the IT Act deals with TDS on sale of immovable property by a resident if the consideration is more than Rs 50 lakh. The section will not apply in your case as property is sold by an NRI. However, deduction of tax under Section 195 will be applicable on the payment made by you.

    TDS is to be deducted on the capital gain based on the capital gain certificate issued by the IT officer. If no certificate is obtained from the IT officer, TDS has to be deducted on the total sale price.

    You must obtain Tan before deducting TDS. Tan can be obtained by filing Form 49B under the IT Act. Tax has to be deducted at the time of making payment to an NRI. The information about TDS being deducted and the rate of TDS should be mentioned in the sale deed. TDS deducted by you must be deposited into an authorized bank before the 7th of the subsequent month in which the TDS is deducted. You must also file the quarterly TDS return in Form 27Q and issue Form 16A to the seller.

     

    My gross income is Rs 2.20 lakh per annum. I have earned Rs 1 lakh by way of capital gain. I understand it is exempt under Section 10(38) of the Income Tax (IT) Act, 1961, Hence, I will not be filing IT returns (ITR) for financial year (FY) 2017-18, as per the previous law. Is my understanding correct?

    — Pawan, e-mail

    According to Section 139(1) of IT Act, if total income of an individual without giving effect to deduction under Chapter VIA exceeds the maximum amount that is not chargeable to IT, then such an individual has to furnish ITR within the due date specified under Section 139(1). The due date for filing ITR for an individual not required to get his books of accounts audited is 31 July.

    You are exempt from paying long-term capital gain on sale of equities, units of equity-oriented mutual funds or units of business trust. Even though the gain is exempt from IT, such persons have to mandatorily file an ITR effective FY 2016-17 if the taxable income after adding the long-term capital gain exceeds the basic exemption limit of Rs 2.50 lakh per annum.

    As your gross total income including exempted long-term capital gain exceeds the maximum amount chargeable to tax, i.e., Rs 2.50 lakh, you need to file your ITR.

    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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