Income tax return: My wife is a homemaker who earns interest income below Rs 2.5 lakh from FDs, RDs. Should she file her ITR?

My homemaker spouse has never filed her income-tax returns. She saves from household expenses and invests in fixed deposits and mutual funds. The interest income from FDs and recurring deposits is less than Rs 2.5 lakh. Is it necessary for her to file tax returns?

Amit Maheshwari, Tax Partner, AKM Global:

Your spouse, who handles household affairs, has invested in fixed deposits and mutual funds, generating interest income below Rs 2.5 lakh from FDs and RDs. According to Section 139(1) of the Income-tax Act, 1961, individuals need not file an income-tax return (ITR) if their total income remains under the basic exemption limit of Rs 2.5 lakh, unless specific exceptions apply. These include substantial deposits in current or savings accounts, and high travel or electricity expenses. Since your spouse’s income falls below Rs 2.5 lakh, filing isn’t obligatory unless it is under mandatory categories. However, if she chooses to file, she can use the ITR-1 (Sahaj) form, tailored for individuals earning up to `50 lakh from sources like salaries, one house property, and interest income.

On 24 January this year, I sold a flat, which was purchased in December 2014. To compute long-term capital gains or loss, please clarify if transfer and documentation expenses are eligible for indexation. Do expenses incurred for property improvement qualify for indexation?

Shubham Agrawal, Senior Taxation Adviser, As per the Income-tax Act, 1961, while computing long-term capital gains on property, both transfer and documentation expenses qualify for indexation. The year of property purchase determines the indexation year. The expenses related to the property’s improvement also qualify for indexation benefits, with indexation applying from the year these expenses were incurred. Ensure you retain proof of payment, such as invoices and bank entries, to substantiate expense claims. While income-tax returns may not require annexures, queries may arise, necessitating justification for claims.

I have US shares worth Rs 40 lakh. To avoid short-term capital gains, I plan to gift these shares to my mother, who is a homemaker and doesn’t have any income. If I sell shares from my mother’s account, will the gains be taxed based on her tax slab? Are there any other tax implications for such a transaction?

Amit Maheshwari, Partner, AKM Global:

Section 56 (2)(x) of the Income-tax Act, 1961, provides specific exclusions for money or property received by way of a will or inheritance, or as a gift from a specified relative. Therefore, no tax implications shall arise for such gift transactions. However, when the inherited or gifted assets are sold by a taxpayer, it gives rise to capital gains. The taxpayer is then liable to pay tax on short-term capital gain (STCG) or long-term capital gain (LTCG) on the sale of such assets, depending on the period of holding. The cost of acquisition, cost of improvement and any expenses related to the transfer of capital asset shall be deducted from the full value of consideration. In the case of a gift or inheritance, the purchase price of the previous owner is treated as the purchase price for computing capital gains. The period of holding is considered from the date of its purchase by the acquirer. Any gains from stocks not listed in India shall be treated as unlisted shares. The capital gains will be short term if the holding period is up to 24 months and the STCG would be taxable as per the tax slab of your mother. The period of holding will be counted from the date it was originally acquired and the purchase price for computing capital gains would be the price originally paid to acquire the stocks. However, if the sole purpose of the transfer is to avoid tax, it may attract greater scrutiny from the tax department.I have a 25% share in an unlisted private limited company. I plan to sell my share for around Rs 6 crore. How can I reduce my tax liability?

Shubham Agrawal, Senior Taxation Adviser,

The capital gain on shares in unlisted private company, if held for over 24 months, is categorised as long term and taxed at 20% with the benefit of indexation. If held for less than 24 months, then it is categorised as shortterm capital gain and taxed at your slab rate. There is no way to save tax from STCG. For LTCG, you can reinvest the proceeds in a residential property. The house must be purchased within a year before or within two years of the sale. If a house is being constructed, it must be completed within three years from the sale. If you are unable to buy or construct a house before the ITR due date, the proceeds must be transferred to a ‘capital gains account’ with a bank and can be withdrawn to re-invest in the house within a stipulated time frame. A key condition for availing this exemption under section 54F is that you cannot have more than one residential property on the date of transfer of the shares. This exemption is withdrawn if the newly purchased/constructed property is transferred within three years of its construction or purchase.

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