Tax Queries: Sept 18th :: Business Line

I am a Union Government pensioner and my total pension exceeds the basic exemption limit applicable to senior citizens. Canara Bank from this fiscal has started deducting TDS every month. Since TDS is purportedly a form of advance tax, I think the bank should not deduct TDS and leave it to the individual to pay at the time of ITR filing. Is my assessment correct?

- M. P. Rastogi

As per the provisions of the Income-tax Act, 1961 (the Act), salary includes pension due from a former employer. The Act further prescribes that any person (in your case, Canara Bank) responsible for paying salary, shall at the time of payment of such salary, deduct income tax on the amount payable at the average rate of income tax applicable during the concerned financial year. Thus, in your case, Canara Bank is required to deduct tax on your taxable pension income. You can claim the credit of tax deducted by Canara bank at the time of filing your tax return for the concerned financial year.

Our investments in equity shares are held in a joint demat account with my wife. We propose to transfer 50 per cent of our holding from existing demat account to my son and remaining 50 per cent to my daughter. This way we plan to divide our demat holding equally between our son and daughter. Does the off market transfer from demat account trigger any liability for capital gains tax on notional gain?

- B.S. Iyer

According to the prevailing tax law, gift of a capital asset would not qualify as a transfer of the capital asset. Accordingly, in absence of transfer of the capital asset, no capital gain/ loss implication would arise on such gift transaction. Since, in your case, you are gifting your shares to your children by way of an off market transfer, the said transaction would not qualify as a transfer of capital asset under the tax law and therefore no capital gain tax liability would arise in your /your wife’s hands.

Further, the tax law provides that in case any property is received as a gift from a relative (which include parents), then the same would not be taxed in the hands of the recipient. Accordingly, shares gifted by you and your wife to your children would not be taxed in their children hands.

It is advisable that you give a written confirmation or deed to your children, confirming the details of shares gifted by you to your children, so as to be able to substantiate the nature of the transaction, in case of any tax scrutiny that may happen in future.

(The author is a practising chartered accountant)

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