Understanding capital gains and tax reliefs:: Business Line,

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Taxability of income in India depends upon your tax residential status in India during the relevant financial year

Regarding the short-term capital gains, I would like clarification on the period taken to calculate the short term gain. Say I purchased some shares on 15 May 2010. If I sell them on 15 Dec 2011, and make some gain or loss, will it be taken as short term Capital Gain/Loss? My doubt is on whether the financial year is taken as the basis for the actual selling.

Col Devidas Bangalore

The classification of a capital asset as long term or short term depends upon the period for which the asset was held prior to the date of sale. The actual date of acquisition and not the Financial Year (FY) of acquisition is relevant for the said classification.

In case of shares, if shares are held for 12 months or less before the date of sale, the gain/loss arising out of the same is classified as short term capital gain/ loss and if shares are held for more than 12 months before the date of sale, the gain/loss arising is classified as long term capital gain/loss.

Accordingly, if shares purchased on 15 May 2010 are sold on 15 December 2011, the gain/loss in FY 2011-12 would be treated as long term, as the shares would have been held for more than 12 months prior to the date of sale.

I took a loan of Rs 10 lakh from Air Force GIS in May 2010. I got the full amount at one time in May 2010. But, construction not yet started and I purchased a new plot for that money as an investment. I am not sure, whether I can construct a house in that plot (in the actual plot by which I took the loan). At this juncture, what tax reliefs can I avail? I came to know that I need a possession certificate of the new house for getting tax relief for the financial year 2010-11.

Who issues the Possession certificate?

Since I have not constructed the house and I may not get the possession certificate, can I get tax relief on interest paid?

Suppose I am not constructing the house, can I get tax relief for principal amount up to Rs 10 lakh without submitting the possession certificate? What are the procedures?

Akshay Kumar, Assam

The tax relief towards interest on loan taken for the purpose of construction of house is available only from the Financial Year (FY) in which construction of house is completed. The interest paid for the period prior to the FY in which the construction of the house was completed is deductible in five equal annual instalments from the year in which the house was constructed. The completion of construction of the house may be proved by a completion certificate issued by the relevant local authority/builder. The deduction up to a maximum of Rs 100,000 an annum, under Section 80C, is available only towards the principal amount paid for the purpose of purchase or construction of a residential house property. Accordingly, no tax relief should be available in case no house is constructed. Also, for the said deduction, it would need to be verified whether Air Force GIS is an eligible financing institution for the purpose of Section 80C.

I have a retirement income tax question. I am an Indian-born US citizen and holder of an OCI card. I would like to retire in India. My sources of income in retirement will be US Social Security and a pension from a US Company. I am not planning to earn in India. According to the US laws, I will be paying income tax on social security and pension to the US. What will be the tax consequences of my US retirement income in India?

Gopal Garg

Taxability of income in India depends upon your tax residential status in India during the relevant financial year (FY). Residential status in turn is determined by your physical presence in India during the relevant FY and immediately preceding seven FYs.

As long as your aggregate stay in India in the immediately seven FYs preceding a particular FY does not exceed 729 days, you should qualify as Non-resident (NR)/ Not Ordinarily resident (NOR) in India and only your India-sourced income should be taxable in India. In such case, your social security and pension income earned in the US as well as directly received in the US should not be taxable in India.

However, once your aggregate stay in India in the immediately seven FYs preceding a particular FY exceeds 729 days, you should qualify as Ordinarily Resident (OR) and accordingly, your global income should be taxable in India subject to benefit, if any, available under the Double Tax Avoidance Agreement between India and USA (the Treaty).

To ascertain the taxability of pension and social security which are not in respect of the US Government service, further examination will be required regarding your country of ultimate residency under the treaty, source of pension, type of pension, etc