Tax Column

I own a residential house and would like to sell it. What should be the period of holding? Are two or three years enough to avail exemption from Capital Gain Tax? If you hold any immovable property, whether land and building or both, for more than two years, it becomes a long-term capital asset, which is eligible for exemption under Section 54 and 54 F of the Income Tax Act, subject to fulfilment of certain conditions, mentioned therein. If you don’t want to avail the benefit of exemption, then the entire long-term capital gain is subject to taxation at 20 per cent plus applicable surcharge. [EasyDNNnews:PaidContentStart]
 

If you hold any immovable property, whether land and building or both, for more than two years, it becomes a long-term capital asset, which is eligible for exemption under Section 54 and 54 F of the Income Tax Act, subject to fulfilment of certain conditions, mentioned therein. If you don’t want to avail the benefit of exemption, then the entire long-term capital gain is subject to taxation at 20 per cent plus applicable surcharge. 

If you hold immovable property for less than two years, the same becomes a short-term capital asset and its sale will become liable to taxation at 30 per cent as short-term capital gain. You have to hold the immovable property for three years if the same is acquired out of earlier long-term capital gain and if it has been claimed as an exemption under Section 54 and 54 F of the Income Tax Act. If the property is sold within three years, the exemption granted under Section 54 and 54 F of the Income Tax Act shall be withdrawn.
 

I am a partner in a firm and draw remuneration which is chargeable as business income. Can I claim expenses against remuneration income? Also, can I avail the benefit of Section 44 AD of the Income Tax Act?
 

For remuneration received by a partner from a partnership firm or LLP, the same is taxable as business income under Section 28 (v) of the Income Tax Act. Kindly note that remuneration is taxed as business income but it does not establish that you are carrying out any business activity. Any expenses incurred, wholly and exclusively for business bearing a direct nexus with the earning income, can be claimed as a deduction. In your case, income has been earned by the firm. 

Therefore, all the expenses incurred for the earning firm’s income can be debited into the firm’s profit and loss account. It all depends on what expenses you can prove to have been exclusively incurred to earn remuneration. In your case, the provision of Section 44 AD is not applicable as the remuneration from the firm is only taxable as business income but it does not establish that you are carrying out any business activity. The provision of is applicable if an individual carries out an eligible business or profession. Therefore, you will not be entitled to the benefit of Section 44 AD.
 

I am an individual and a resident of India. I am a director in a foreign company and entitled for remuneration along with perks. For the financial years 2022-23 and 2023-24, I have not received any remuneration although the foreign company has provided for it in the books of its country and also deducted the applicable withholding tax. My question is whether foreign income like remuneration is taxable in India although I have not received it.
 

Under Section 5 of the Income Tax Act, if a person is an Indian resident, his or her global income accrued to him is taxable in India, whether received or not. In your case, the foreign company has already provided your remuneration in its books and credited it to your account as salary payable to you. Therefore, this is liable for taxation in India, whether you have received it or not.
 

I am an individual and have sold a residential unit on December 15, 2023. The letter of allotment in respect of the said residential unit was given to me by the builder on December 8, 2018, while the sale agreement was executed on June 11, 2022. Will the surplus made by me on this sale be like short-term or long-term capital gain?
 

I would like to refer to the judgement of the Bombay High Court in a recent case of CIT versus Vembu Vaidyanathan where it was held that the date of letter of allotment is the date on which property is acquired. In other words, it has been held that the date on which the letter of allotment is issued would be the relevant date for the purpose of Capital Gain Tax as the date of acquisition. According to the High Court, the letter of allotment is final unless it is cancelled.
 

The allottee gets title to the property on the issue of the allotment letter, and the payment of instalments is merely a follow-up action while taking delivery of the possession is only a formality. In light of the above findings of the Bombay High Court, the capital gain earned by you on the sale of a residential unit can be considered long-term capital gain as the date of sale is after two years from the date of acquisition i.e. the date of the allotment letter. Since it would be a long-term capital gain, you can also reinvest the capital gain in another residential unit under Section 54 of the Income Tax Act

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