Tax Column

I am an individual engaged in business and investment activities. Some of the listed securities which were my business assets were converted into capital assets as investments on April 1, 2024. Could you tell me what would be the tax implication in my hand in the current financial year? [EasyDNNnews:PaidContentStart]

The moment you convert business assets into capital assets i.e. investment, business income arises. The fair market value of the shares, on the date of conversion, would be considered as deemed consideration received on conversion. After deducting the cost of the assets, the difference may be taxed as business income under Section 28 (via) of the Income Tax Act. 

The second implication is that when you sell the investment, which was originally held as a business asset, within one year, it will be considered a short-term capital asset and accordingly you would be liable to pay 20 per cent short-term capital gain if the sale consideration of the investment is more than the fair market value on the date of such conversion. If the difference is loss, then you can carry forward the same or set it off against other short-term losses in the year or the subsequent year. 

I am a non-resident of Indian origin but a citizen of the U.S. I am planning to sell a residential property which I inherited from my parents in India. My parents acquired this property almost 40 years ago. Could you tell me what would be the tax implication in my hand in India on sale of this property?

Since the residential property which you inherited from your parents is very old, the same is considered as long-term capital asset. If the actual sale consideration is more than the stamp duty valuation, the same may be considered as long-term capital gain. You can approach the concerned Income Tax Officer to allow you the fair market value as of April 1, 2001, as cost from the sale consideration. At present, the long-term capital gain has been reduced to 12.5 per cent, which is very reasonable. Therefore, it would be better to pay a 12.5 per cent tax on the actual sale consideration and remit the balance amount to your foreign account. You need not file your Income Tax Return or any other compliance under the Income Tax Act once the 12.5 per cent tax has been paid. 

I am an individual owning two residential houses which I have let out during the current financial year. I already have a self-occupied property for my own residence purposes. Is the rental income I receive taxable in my hands as business income?

Can I get a deduction for expenses which I incur for maintaining the property? I have also borrowed a loan to acquire the above two residential houses. Would there be any other compliance I need to adhere to? The rental income received by you would be taxed as income from house property. It will not be treated as business income as you are not carrying out any business activity and also in view of the specific provision applicable from the current financial year that any income from letting out residential houses shall be taxed under the head income from house property. Property tax i.e. municipal taxes actually paid by you will be allowed as a deduction. Expenses incurred on maintenance of the house will not be allowed as a deduction as all these expenses are covered under standard deduction which is equivalent to 30 per cent of the rent (net of tax). 

The interest paid on borrowed capital is allowed as deduction provided the borrowed capital was exclusively for the purpose of acquisition of the two residential properties mentioned above. However, this deduction i.e. interest may not be allowed to you if you opt to pay tax under the new tax regime under Section 115BAC of the Income Tax Act. The other compliance is to file a Return of Income, offer rental income to tax and claim TDS deducted by the lessee. You being an individual, the TDS rate is also reduced to 2 per cent from October 1, 2024. The above rental payment is also not subject to GST. 

I am an individual and own agricultural land in an urban area. The government has acquired my land under its right of compulsory acquisition for which it has paid me a compensation of ₹10 crore. Do I enjoy any exemption or do I have to pay long-term capital gain?

Under Section 10(37) of the Income Tax Act, capital gain arising from transfer by way of compulsory acquisition under any law of agricultural land situated in an urban area is exempt from taxation, subject to certain conditions. One of the conditions is that the land should have been used for agricultural purposes by an individual or his parents for at least two years, immediately preceding the date of transfer. 

If you satisfy this condition, then the entire consideration received by you on compulsory acquisition is tax-free. However, if you fail to comply with this condition, then the other option is to invest the entire capital gain in another residential house if you don’t have more than one residential house. Also, under Section 54B of the Income Tax Act, you can buy another parcel of agricultural land, subject to certain conditions.

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