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Query corner: Tax savings
February, 09th 2010

I work for an unlisted company and have held its shares for three years. This company is a subsidiary of a listed company. The listed company has acquired my shares and issued its shares as preferential allotment. The value is far higher than the acquisition cost. Can I take benefit of section 54 EC?
Sumit Sampath

The transaction would be considered as a transfer under the tax law and would trigger capital gains. As the shares were held for more than a year, the gain would be considered as a long-term capital gain and would be taxed either at 10.30% without indexation or 20.60% with indexation, at your option. Yes, you would be eligible to avail of deduction under section 54EC on such capital gains.

I have earned short-term capital gain of Rs 2 lakh. I have purchased NSC worth Rs 1 lakh during December 2009. Do I need to pay any tax on this?
Tulshi Roy

Please note that you would not be able to claim deduction under section 80C for investment in NSC as such deduction is not available on capital gains. You will have to pay tax on your short-term capital gains in excess of your applicable basic exemption limit.

I have taken a gift of Rs 35 lakh from my NRI cousin. Is there any tax liability on me?
Arun Kumar

If your cousin falls within the definition of a relative under section 56 of the Income Tax Act, 1961, you dont have to pay any tax. Otherwise, the entire amount would be considered as your taxable income.

I was allotted a flat in July 1996. However, some members and the High Court stayed all the allotments. Subsequently, I got possession of the same flat, which I sold the next month. Which date would be applicable for computing capital gains tax?

As the Honourable High Court confirmed the original allotments, the period of holding and indexation should be considered from July 1996.

Is any income tax payable on surrendering a pension policy and endowment policy after 5 years?
Sudhir Goyal

Pension policy is not a life insurance policy. Hence, you cannot claim exemption provided U/S 10(10D) of the I-T Act, 1961. The entire amount withdrawn would be taxable as per U/S 80CCC (2) of the I-T Act. For an endowment policy, the sum is exempted under section 10(10D) of the I-T Act.

However, an important condition is the premium paid to-wards such a policy during the period should not be more than 20% of actual capital sum assured under the policy.

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