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Income Tax: Concessional rate of tax not available for debt-oriented MF
August, 04th 2015

Where the income is below the taxable limit, there is no obligation on the individual to file his return of income except where he has foreign asset or income. However, there are certain advantages of filing income-tax returns, even if there is no taxable income. This could include refunds or where benefit of carry forward of loss is to be claimed or simply for the sake of continuity of record.

I sold shares this year, some of which I bought between 1987 and 1989, while the rest I inherited from my father who passed away in 2008. The brokerage, commission and STT have been deducted from the sale proceeds. Do I have to pay income tax or long-term capital gains tax for FY15?

— Anmol Singh

Under the Income-Tax Act, 1961, if sale of equity shares (held as investment) is made through a recognised stock exchange and STT is paid on them, long-term capital gain arising on sale of equity shares is exempt under Section 10(38).

In your case, as the period of holding of equity shares is more than 12 months, the shares will be treated as long-term capital asset and gains arising on transfer of such shares would be eligible for exemption under Section 10(38). As such, you are not required to pay any capital gain tax.

Which form is to be filled by a salaried individual for income-tax returns?

— Prakash Kumar Sen

For the salaried class, the selection of the form depends on other income (such as house property, capital gains) or brought-forward losses or foreign assets, if any.
In most cases, the salaried persons will not have business income and, hence, the relevant forms would be ITR1, ITR2A or ITR2.

ITR-1 is applicable where an individual has income from salary and income/loss from one house property during the year and income other than business income or capital gains. There should not be any carry forward losses. ITR-2 is the most detailed form, which is applicable to all heads of income except income from business or profession. This form has a separate schedule for declaration of foreign assets, in case where the individual holds the same. ITR-2A has been newly introduced and is applicable in cases where an individual/HUF has income from salary and income/loss from house property and income other than business income or capital gains.
It is not applicable if you have foreign assets or foreign income or are claiming treaty relief.

What is the tax treatment for a debt fund vis-a-vis an equity-oriented mutual fund?

— SL Mohan
Units of an equity-oriented mutual fund are treated as long-term capital asset if held for a period more than 12 months. Long-term capital gain on transfer of such a fund is exempt from tax, provided the transaction took place through a recognised stock exchange in India and is subject to Securities Transaction Tax.

Units of a debt-oriented mutual fund will be a long-term capital asset if held for more than 36 months.

The benefit of concessional rate of tax of 10% (without indexation) is not available to debt-oriented mutual fund. So, the long-term capital gain on such a transfer of fund is taxable at the rate of 20% with indexation.

However, if the listed units of a debt-oriented mutual fund are transferred on or before July 10, 2014, the holding period for such units will be more than 12 months to qualify as long-term asset and you can claim the beneficial tax rate of 10% (without indexation) or 20% (with indexation).

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