T. Banusekar

I HAVE business income of Rs 95,000 and agricultural income of Rs 1,95,000. These figures relate to the assessment year 2005-06. How will my tax liability be computed?

Chari Suresh

Reply

Agricultural income is exempt under Section 10(1) of the Act so long as the income is derived from agricultural land situated in India. This income is, however, included merely for rate purposes and rebate is allowed on the same in accordance with the Finance Act. Section 88D allows a rebate if the total income of an individual does not exceed Rs 1 lakh in such a manner that no tax liability will be incurred on such income. The inclusion of agricultural income for rate purposes and the rebate on agricultural income is only required where the total income exceeds Rs 50,000. In your case since your total income, which will not include agricultural income is only

Rs 95,000, the rebate under Section 88D will be the entire amount of income tax chargeable. Therefore, there will be no tax liability in your case and you will have to pay no tax on your income. The working of your tax can be as per shown in the Table.

Query

In January 2001, I purchased 150 equity shares of Raymond Ltd for Rs 127 per share. Since I did not have a demat account at that time, I credited the same into neighbour's demat account. In February 2004 I opened a demat account and transferred the shares to my account and sold them two days after at Rs 338 per share. STT was charged at the time of sale of the share. What will be my tax liability on the sale of the share? What will be my neighbour's tax liability on his transferring the shares into my demat account?

Binay Bist

Reply

In your hands, since you purchased the shares and held it for more than 12 months, the gain would be exempt under Section 10(38) since STT has been paid at the time of sale of the shares. The fact that the shares were initially credited to your neighbour's demat account and later on transferred to your demat account will not have any impact on the taxability of the shares.

In your neighbour's hands there will be no tax implication. Though the shares were initially credited to your neighbour's demat account and later on transferred into your account, the fact remains that you were the owner of the shares and that the credit to your neighbour's account was only for convenience. Your neighbour was never the owner of the shares and there could have been no transfer of shares within the meaning of Section 2(47) from your neighbour's demat account into your demat account for capital gains to arise in your neighbour's hands.

Query

I am a resident Indian. I have made investments in the IPO of TCS and NTPC. Will these investments qualify for the tax exemption under Section 54ED?

A. Kulkarni

Reply

The answer to your question will depend on whether the offer made by these companies was to subscribe for fresh shares to be issued by the companies or whether the shares that were subscribed to by you were off loaded by the existing holders of the shares. If it were fresh shares issued, the exemption under Section 54ED can be claimed in respect of any long-term capital gains that has arisen.

If it were not so, the exemption will not be available. The exemption under Section 54ED is available subject to satisfying the following conditions:

The asset transferred is a long-term capital asset

The shares are listed in a recognised stock exchange in India

The investment is in equity shares of public companies formed and registered in India or units of a mutual fund specified under Section 10(23D) or UTI

The shares or units are not transferred for a period of 3 years.

If the exemption should be claimed under section 54ED, the investment should be made before the expiry of six months from the date of transfer of the capital asset.

The section also requires that the investment in shares for the purpose of claiming exemption should be in shares forming part of the issue of such shares for subscription to the public.

This would mean that only when the investment is at the time of a public offer made by the company, the exemption would be available.

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