Tax Column

I am a non-resident settled in Singapore. I hold investments in equities of Indian listed companies. I have decided to sell all these investments to another non-resident settled in the UK. Is there any tax implication involved as the transactions are between two non-residents residing outside India? If it is taxable, then how can one compute the tax liability? 

Although sale and purchase transactions are between two non-residents residing outside India, yet you are liable to pay Capital Gain Tax (CGT) in India since what is transferred is an asset situated in India. Equity shares of listed Indian companies are assets situated in India. Therefore, CGT is levied under the Indian Income Tax Act. The market value of equity shares of listed companies would be considered as deemed sale consideration. You are entitled to reduce the cost from deemed consideration and the balance amount would be considered as capital gain. If it is long term then the tax rate is at 10 per cent and if it is short term then the tax rate is at 15 per cent. If the share transactions are off-market without STT paid, then long-term capital gain is chargeable at 20 per cent and short-term capital gain at 30 per cent plus applicable surcharge. 

I am an individual and hold 100,000 equity shares of a listed company. The company has allotted bonus shares in the financial year 2021-22 in the ratio of 2:5. Accordingly, I have received 40,000 additional shares without any consideration. The fair market value of these 40,000 additional shares is approximately ₹ 2 crore. Please let me know whether there is any Income Tax implication at the time of receipt of bonus shares received as well as on its subsequent sale? 

There is no tax implication at the time when you receive the bonus shares. The issue of bonus shares is by capitalisation of a company’s profit and when bonus shares are received it is not something free or lesser fair market value. Under the circumstances, allotment of bonus shares cannot be considered as received for inadequate consideration and therefore it is not taxable under Section 56(2)(x) of the Income Tax Act. There are various tribunals and High Court decisions on this issue. When you sell the bonus share and if you sell within one year, then the entire sale consideration will be taxed as short-term capital gain. Kindly note that you will not be entitled for deduction of any cost since as per Section 55 of the Income Tax Act the cost of the bonus shares allotted in view of the original shareholding should be taken as nil. If you sell the bonus shares after one year, then it will be considered as long-term capital gain and will be taxed at 10%. 

My employer has reimbursed me entire expenses incurred on my medical treatment for corona virus-related illness. My query is whether the amount received from the employer would be considered as perquisite in my hand or taxable under any other provision of the Income Tax Act? Further, my brother’s family received ₹ 8 lakhs from his employer on the death of my brother due to the virus. Is this amount taxable? 

Section 17 of the Income Tax Act is amended effective from assessment year 2020-21 which provides that any sum paid by the employer in respect of any expenses actually incurred by an employer on the medical treatment of an employee or any of his family members for treatment relating to the corona virus shall not be regarded as taxable perquisite. However, this will be subject to certain conditions. Therefore, medical treatment provided by your employer on your illness due to the virus will not be considered as perquisite and accordingly will not be taxable. Further, the amount received by you from your employer will also not be covered by Section 56(2)(x) of the Income Tax Act as similar amendments have also been made with effect from assessment year 2020-21. The law has been amended even to include amount received by any member of your family towards treatment of the virus. However, the family member should fall in the definition given in Section 10(5) of the Income Tax Act. Further, the amount of ₹ 8 lakhs received by your brother’s family on the death of your brother and where the cause of death was illness related to the corona virus will not be taxable. However, such an amount should have been received within 12 months of the date of death. 

I am an individual and own a residential flat which I have given on rent. I use to receive rent and the same was offered to tax. In financial year 2021-22 I gifted this flat to my wife and now the rental is received by her. Also, the new tenant is paying separately the house rent as well as the rental for furniture and other infrastructure. Can you explain to me the tax implication in my wife’s hands and how to compute it? 

Rental income will be taxable in your hands and not in your wife’s hands in view of Section 64(1)(iv) of the Income Tax Act. Under this section, if an individual transfers his or her house property to his or her spouse without adequate consideration, then the transferor i.e. the individual who transfers will be deemed as the owner of the property and accordingly income arising from this gifted property will also be taxed in his hand. From your query it is clear that the flat was owned by you and that it has been gifted to your wife without any consideration and therefore the rental income earned by your wife will be taxable in your hands and not in your wife’s hands. 

You will also be entitled 30 per cent notional deduction while computing the rental income as you are deemed to be the owner of the property. Composite rent in your case is separable i.e. rent of the premises and rent of other assets. Accordingly, rent received for the premises will be taxed under the head ‘Income from House Property’ after considering 30 per cent notional deduction while rent for use of other assets will be taxed as ‘Income from Other Sources’ without any notional deduction. In some cases, composite rent is inseparable i.e. there is lump sum amount for rent of flat as well as rent for other assets. In that case, the entire rental income is taxable under the head ‘Income from Other Sources’ without allowing 30 per cent notional deduction.