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HUFs do not have benefit of Rs. 1 lakh exemption

QUESTION: In your answer to the second question in The Hindu dated July 12, 2004, you had indicated that the benefit of higher exemption limit of Rs. 1 lakh would be available for individuals and HUFs, while tax rebate which confers such exemption under Section 88D was limited to individuals. This would need correction.

I also remember that the Finance Minister during the course of his speech had indicated that there would be neither refund nor tax for this category of persons. Does it mean that if the persons eligible for tax rebate under Sec. 88D have suffered either tax deduction at source or paid erroneously some advance tax, such amount will not be refunded?

ANSWER: Many readers have pointed out to the error in stating that the benefit of exemption up to Rs. 1 lakh would be available for HUFs. Sec. 80D clearly confines the benefit of tax rebate only for individuals with total income of Rs. 1 lakh, though the speech of the Finance Minister states that, "any one with a taxable income of Rs. 1 lakh will have his income tax liability automatically rebated". But from Sec. 80D as well as the Memorandum accompanying the Bill, it is clear that the benefit is confined only to individuals. The answer earlier would, therefore, need correction.

The Finance Minister did state during the budget speech departing from the text that there will be neither refund nor tax. He had probably indicated that the need for refund should not arise in case of such persons. But then in the context of the experience of tax credit under Sec. 115JAA, which is denied to the extent of tax deducted at source or paid by way of advance tax, on the basis of the steps for tax calculation indicated in the prescribed return of income, one cannot rule out the possible intention on the part of Revenue that tax rebate is limited only to the tax payable after giving credit for tax deducted, collected or paid. Such a view would not accord with law. In fact, in case of tax credit under Sec. 115JAA, it was found to be so by the Tribunal in the case of Chemplast Sanmar Ltd. v Dy.CIT (2004) 83 TTJ (Chennai) 427.

Q: What are the changes made in respect of capital gains tax?

A: The first information that tax on capital gains is abolished is too wide, because what is abolished is only tax on long term capital gains on sale of listed shares under Sec. 10(38) of the Act, which spares liability only on a transfer through a recognised stock exchange in India of a long term capital asset being securities as defined under Sec. 2(h) of the Securities Contracts Regulation Act, 1956. The definition referred reads as under:

"(h) Securities includes: (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of Sec. 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and

(iii) rights or interest in securities".

It would mean that shares, debentures, units of UTI and other mutual funds and Government securities will be treated as securities subject to the condition that these should have been listed in a recognised stock exchange, so that transfer should take place through a recognised stock broker, since it is only such transfer, which could be treated as a transaction in a recognised stock exchange of India.

(To be continued)

S. Rajaratnam

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