“SHORT TERM CAPITAL GAIN ON BUY BACK OF SHARES - TAXABLE AT WHAT RATE”

TAX TALK-04.03.2013-THE HITAVADA

TAX TALK  

BY CA. NARESH JAKHOTIA

Chartered Accountant

“SHORT TERM CAPITAL GAIN ON BUY BACK OF SHARES - TAXABLE AT WHAT RATE”

Query 1]

I am 61 years old. I have purchased 27 shares of GSK Consumer Ltd @ Rs. 2,588.61 for a total consideration of Rs. 69,892.51 inclusive of STT and brokerage on 29/02/2012. The same were offered to the company under "Buy-back" scheme and the company has accepted all 27 shares for "Buy-back" and paid me Rs. 1,05,300/- @ Rs. 3,900/- per share on 12/02/2013. No STT, brokerage was deducted from this amount.  Thus, there is Short Term Capital Gain of Rs. 35,407.49. Please advise me about the following:

1.      How this amount will be taxed since no STT was paid at the time of "Buy-back"? Will it be taxed at the rate of 15% as it is Short Term Capital Gain (STCG) and shown accordingly in I.T. Return? Or

2.      Will be added to my Gross Total Income (mainly being interest on bank term deposits as I do not get any pension) and will be taxed at the lowest tax bracket of 10% under which I come? Please enlighten me on this score in your weekly column at your earliest. [Ashok R Apte- apteashok@gmail.com]

Opinion:

The income you have earned is a Short Term Capital Gain (STCG) & the same is not subject to Securities Transactions Tax. Resultantly, the short term capital gain would not be taxable u/s 111A at a special rate of 15%. The same would be the part of your regular income and would be taxed at the applicable tax slab (i.e., 10% in your specific case).

Query 2]

Kindly let me know whether saving or investment in Senior Citizen Saving Scheme 2004 is still qualifies for deduction under Section 80C of Income Tax Act? [bpmajumdar2006@rediffmail.com]

Opinion:

Yes, the investment is under the Senior Citizens Saving Scheme Rules-2004 is still eligible for deduction u/s 80C (2) (xxiii) of the Income Tax Act-1961.

Query 3]

1. I am physically handicapped (50%) permanent disability. Is there any concession in income tax for physically disable person? If yes, then please tell me how much concession will I get and by under which Section? What is the section 80DDB is about?

2) Due to physically handicapped, I have got TA 1,000/- but the arrears of TA of two years I have got this year. Can I get concession this towards this TA Arrears amount from income tax this year? Please Guide me. [bhagyashriborde@gmail.com]

Opinion:

1. Deduction u/s 80DDB:
   The deduction u/s 80DDB is available if the expenses for the medical treatment of specified disease or ailment is incurred by assessee on himself or on dependant. The specified disease for the purpose of section 80DDB is prescribed in Rule 11DD as under:
   11DD. (1) For the purposes of section 80DDB, the following shall be the eligible diseases or ailments :
   (i) Neurological Diseases where the disability level has been certified to be of 40% and above,—
   (a) Dementia ;
   (b) Dystonia Musculorum Deformans ;
   (c) Motor Neuron Disease ;
   (d) Ataxia ;
   (e) Chorea ;
   (f) Hemiballismus ;
   (g) Aphasia ;
   (h) Parkinsons Disease ;
   (ii) Malignant Cancers;
   (iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;
   (iv) Chronic Renal failure ;
   (v) Hematological disorders :
   (i) Hemophilia ;
   (ii) Thalassaemia.
   The amount of deduction allowable under section 80DDB is the expenditure actually incurred or Rs. 40,000/- (Rs. 60,000/- for senior citizen) whichever is lower.
2. Deduction u/s 80U:
   Deduction under section 80U of the I.T. Act, 1961 is available to an individual who is resident and who at any time during the previous year is certified by a medical authority to be a person with disability.
   “Person with Disability” means a person suffering from not less than 40% of any of the disability given below:
   i) blindness
   ii) low vision
   iii) leprosy-cured
   iv) hearing impairment
   v) locomotor disability
   vi) mental retardation
   vii) mental illness
   viii) austim
   ix) cerebral palsy
   x) multiple disability referred to in clauses (a), (c), & (h) of section 2 of the National Trust for welfare of persons with Austim Cerebral Palsy, Mental Retardation & Multiple Disabilities Act-1999.
   The deduction under this Section is a sum of Rs 50,000/- in normal cases and if the person is suffering from a severe disability (80% or more) then with effect from F.Y. 2009-10, a sum of Rs. 1,00,000/- is allowable as deductions.
3. As far as the arrears of the TA received during the year is concerned, you can claim the benefit of deduction available u/s 89(1) in respect of arrears payment.