Returns relief for capital gains

Non-filing of returns extended to taxpayers who have not booked gains on equities.

Last month, the income-tax (I-T) department said those with taxable income of Rs 5 lakh and interest earnings on savings accounts of less than Rs 10,000 would not have to file income tax returns. However, the guidelines have wider implications.

I-T experts say the relief has been provided to two other accounts as well. Retail investors in the stock market who fulfil the two above categories and had not booked profits in equities during the year also need not file returns. In addition, house owners with no rental income would be exempt.
 

FILE EXEMPTION

There is relief from filing a return when:

• Earning Rs 4.9 lakh and interest from the savings bank not exceeding Rs 10,000 (reported to the employer and tax deducted), as total income from both sources does not exceed Rs 5 lakh 
• Earning Rs 4.98 lakh and interest from savings bank of Rs 2,000 (reported to the employer and tax deducted)
• Earning up to Rs 5 lakh, no interest income 
• Earning Rs 5.5 lakh, interest from savings bank of Rs 8,000 (reported to employer and tax deducted) and deduction of Rs 70,000 claimed under Section 80C
• Earning Rs 6.1 lakh, interest from savings bank of Rs 10,000 (reported to employer and tax deducted) and deduction of Rs 1 lakh claimed under Section 80C, a deduction of Rs 20,000 under Section 80CCF (infrastructure bonds) and a further deduction of Rs 15,000 under Section 80D (health insurance premium)

 

“When you have invested in equity, you do not have an income till you redeem those investments. You realise your loss or gain only on redeeming these. Similarly, if you are staying in your own house or have not let it out, there is no income. Therefore, you are exempted from filing taxes till then,” said Sundeep Agarwal, associate director — tax and regulatory services, PricewaterhouseCoopers.

Returns, however, will have to filed when there is a redemption or gains are booked. But it will only be applicable for short-term capital gains (less than one year); there is a tax of 15 per cent on such gains.

Also, one gets the opportunity to offset short-term losses with gains for the next four years. In case of a short-term gain, you can tell your employer to deduct tax at source but you will still have to file returns.

Tax experts said since there was no tax on capital gains from stocks and mutual funds after a year, if a taxpayer had taxable income of less than Rs 5 lakh, he need not file returns at all.

“Even if there is a short-term loss, one will have to file returns,” says Homi Mistry, tax partner, Deloitte, Haskins & Sells. Similarly, in the case of redeeming property investments, you will need to file returns whether you make money on it or not.

Especially in the case of a loss on housing property, you will have to file returns. The Central Board of Direct Taxes clarifies, “Under the existing procedure, DDO/employer can give credit to the employee for a claim for loss under ‘income from house property’ under Section 24. As a result, an employee’s total income may reduce to less than Rs 5 lakh, as the loss would have been set-off against salary income.”

A taxpayer is not exempted from filing returns, as the notification exempts only those whose total income under ‘salary’ and from a savings bank account is not in excess of Rs 10,000. If the taxpayer has any loss from house property, he will not be eligible for exemption from filing a return of income.

But if you have invested in instruments that provide a fixed rate of return, such as bank or company fixed deposits, National Savings Certificate, etc, returns will have to be filed.

“When you earn a fixed return annually from investments, it comes under the head 'income from other sources'. And, you do not qualify for being exempted from filing income tax,” added Agarwal.