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April 24, 2000

Real Estate

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"How does one compute capital gains from a stock split?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask.

During the first few months of the year ending March 2000, I was staying in a rented flat. I then purchased a flat after taking a loan from HDFC. Will I get the exemption for House Rent (upto the time I stayed in rented flat) and for the housing loan repayment?

Lalit Singal

You will be entitled to exemption under section 10(13A) in respect of the HRA received by you from your employer (presuming that you do receive this) based on the rent paid by you. After the purchase of the flat, you will also be entitled to deduction for interest paid on a housing loan to HDFC subject to a maximum of Rs 75,000. Further, you will also be entitled to rebate under section 88 in respect of the principal amount repaid to HDFC subject to a maximum of Rs 10,000.

I had bonus shares allotted to me in March 1999 and these underwent a split (Rs 10 share to two shares of Rs 5 each) in February 2000. For the purpose of long term capital tax, does the period start from March 1999 or is to reset to February 2000?

Suhas S Nerurkar

As far as bonus shares are concerned, the date of acquisition is the date of allotment of the shares. In your case, the bonus shares were allotted in March 1999. Therefore, the date of acquisition would be March 1999. The subsequent split will not affect the date of acquisition.
However, it would be advisable to keep all documentary evidence in respect of the original allotment of the shares as well as the split so that, if at a later date, you are called upon to substantiate the date of acquisition, you will be able to do so easily.

I am an IT professional in the 33 per cent income tax bracket. I understand that in case of property acquired/constructed by me before April 1, 2001 with a housing loan, entails an interest deduction of Rs 75,000. If I rent out the acquired property, can I claim HRA exemption under Section 10 (13A) of the I T Act, 1961, given that I do not reside in the property acquired by me but in a different rented property and declare the proceeds from rent of the acquired property in my return? Will the interest deduction also apply?

Tanmay Sahoo

Yes, you would be entitled to exemption under section 10(13A) in respect of the HRA received by you from your employer (presuming that you do receive this). However, the amount of exemption would be based on the rent paid by you and on the formula given in Rule 2A.
In the event that you rent out your own property then the entire amount of interest paid by you on the loan taken to finance the house would be deductible from the rental income. The limit of Rs 75,000 would not be applicable to you.

I am a final year degree student who will be working for Wipro Infotech next year at an offer of about Rs 2.5 lakh per annum. Will the amount taxable be my entire salary or only the basic salary portion? Will the slab rates be applicable for incremental amounts? Say for example, if my income is Rs10,000 over the 30 per cent tax threshold, will that excess amount be taxed at 30 per cent or the entire amount?

Vijai Kumar

Very soon you would be starting your career and that too with a blue chip company like Wipro. It would be appropriate if you contact a C.A. and take professional advice from him/her right from the beginning. You ought to be aware that with a salary of Rs 2,50,000 per annum, you will have to file your tax returns from the very first year.
The basic salary is of course fully taxable. In addition, if you receive taxable perquisites/allowances then the same would be taxable in your hands. Examples of such perquisites are:

  • Motor Car (without/without driver)
  • H.R.A.
  • Conveyance Allowance
  • Medical Allowance
  • Uniform Allowance
  • Bonus
  • ESOPs
For anybody to tell you what would be your taxable income, it would be necessary to know what is the composition of your salary.
The slabs of tax rates are applicable to you like anybody else. Up to Rs 50,000 per annum, it is not taxed. Up to Rs 60,000, tax @ 10 per cent is applicable and up to Rs 1,50,000, the tax rate is 20 per cent. Over and above this amount, it is 30 per cent. On the 20 and 30 per cent bracket, a surcharge of 10 per cent is applicable.

We have recently closed a property transaction, the agreement for which was signed in early March. Part of the sale proceeds were recieved before March 31 and the remaining in April 2000. Can we invest the proceeds received before the March 31, 2000 under Sec 54EA and pay capital gains tax only on the remaining amount? How should the indexation benefits be calculated, assuming tax is to be paid only on the sum recieved after April 1?

Mahesh and Arundhati Jukar

What is important is that the sale of the property should be concluded before March 31, 2000. If this is done then the fact that part of the sale proceeds have not been received prior to March 31 is not relevant. You can invest the entire sale proceeds (including the amount received after March 31) in bonds notified under section 54EA and save the entire tax. The exemption is not available (as per the Budget provisions) only in respect of transfers that take place after March 31, 2000.
The indexation will be based on the index for the financial year 1999-2000 irrespective of the date of receipt of the sale proceeds.

I work for a company where, under a recently implemented Employee Stock Purchase Plan (ESPP) I was allotted a number of equity shares at par. A memorandum of agreement to this effect was signed between the firm and me on August 30 1999. The payment towards purchase of these shares was made on September 29, 1999. The shares got listed on December 28, 1999.
Is Perquisite Tax applicable? Our company says that the perk tax is zero since the shares were not listed at the time of issuing them to the employees. Their argument is that the fair market value of the shares is equal to the price at which it was offered namely the par value. Therefore the company has not deducted TDS for this perk for the assessment year 1999-2000.
Assuming I hold the shares with a long term view, what will be the date with respect to which long term capital gains can be calculated?

Aarif Muhammed

On the basis of the facts given by you, it is quite clear that the shares of your employer company were not listed as on the date of exercising of the option by the employees. However, this fact is not material as far as computation of perquisite value of the ESOP is concerned.

For the purpose of computing the value of the ESOP, what would be required is to compare the fair market value of the shares with the price at which the shares are offered to the employees. In case of unlisted shares, the fair market value would have to be calculated on the basis of the latest balance sheet of the company.
There are various methods of calculating this value. In the absence of the Balance Sheet of the company, it would not be possible for me to quantify the value of the perqusite. But one thing is certain - the company's stand will not be accepted by the Income-tax Department if the Fair market value is found to be higher than the price at which shares are offered to the employees.

For the purpose of capital gains, the period of holding is to be reckoned from the date of allotment of shares. All other dates are irrelevant. Upon sale of shares which are Long Term Capital Gains, you can certainly avail of the exemption under section 54F by investing in a residential house property subject to fulfillment of all the conditions laid down in the said section.

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