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TAX FORUM: QUESTIONS & ANSWERS
Basic exemption for capital gains tax Forum: Questions & Answers
I am a senior citizen with interest income at Rs. 50,000 and long-term capital gains of Rs. 2.50 lakh. Have I to pay tax on long-term capital gains at a flat rate of 20 per cent by considering long-term capital gains as a separate block?
Capital gains no doubt is considered as a separate block but that does not take away the right to basic exemption. Since the reader is a senior citizen, he is exempt up to Rs. 2.25 lakh. He can avail himself of the balance of basic exemption being the difference between Rs. 2.25 lakh and Rs. 50,000, that is, Rs. 1.75 lakh. He can set off this amount of Rs. 1.75 lakh against long-term capital gains of Rs. 2.50 lakh so that his assessable long-term capital gains will only be Rs. 75,000 assessable at 20 per cent as provided under Sec. 112 of the Act. There is an anomaly in charging tax at 20 per cent on capital gains on the income which falls between the exemption limit of Rs. 2.25 lakh and Rs. 3 lakh, since it is the normal rate for income other than capital gains. The concessional rate under Sec. 112 at 20 per cent was concessional when the maximum slab rate was 50 per cent, but now not so much after it was reduced to 30 per cent. At present, for the tax bracket between Rs. 1.50 lakh and Rs. 3 lakh, there is no concession at all with long-term capital gains suffering the same rate of tax as short-term capital gains or other income.
S. RAJARATNAM
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