Transaction tax

LTCL can be carried over for eight years


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My father is over 80 years old and his income for fiscal year 2020-21 is as follows: short-term capital gain of ₹1.2 lakh; long-term capital loss of ₹1.1 lakh; interest from the savings account ₹4000; fixed deposit interest of ₹20,000; NRI gift received from ₹10 lakh; and Indian resident gift from ₹2 lakh. Does he have to file an income tax return? If so, in what form? Can we offset short-term capital gain with long-term capital loss? Should we indicate monetary donations in the income tax return? If so, under what title or part of the form?

—Anil Jain

We have assumed that your father is an Indian tax resident and is not in regular stock trading. The gains were therefore assumed to be in the nature of capital gains.

In accordance with the provisions of the Income Tax Act, long-term capital loss (LTCL) can only be offset by long-term capital gain (LTCG). Thus, the PRLT incurred by your father cannot be set off against short-term capital gains (STCG). Your father can carry forward the LTCL for eight years immediately following the current year and charge the same amount to the future LTCG.

To allow your father to carry over the LTCL, he must file his income tax return (RTI) within the prescribed deadlines.

When a gift is received from a specific relative, the transaction of the gift itself will not result in any tax consequences in the hands of the recipient (i.e. your father). However, in the event that gifts are received from unrelated persons and the total of such gifts exceeds ₹50,000, the entire amount received will be taxable in India.

Accordingly, the taxation of donations received will be determined depending on whether or not the donation was given by a relative of your father.

From a disclosure perspective, the taxable amount of the donation should be reported as income according to Schedule OS of Form ITR-2. Non-taxable donations do not need to be reported in the ITR.

Please also note that a deduction of up to ₹50,000 are available for interest income for the elderly (both on term deposits and savings interest). As your father’s total interest income is ₹24,000, a deduction of the full amount will be available.

Typically, a resident natural person aged 80 or over is required to file an income tax return in India if their taxable income (before prescribed deductions) exceeds ₹5 lakh, subject to certain other exceptions not applicable in this case.

In the case of your father, if the total income (after considering taxable donations) exceeds ₹5 lakh and / or your father wants to postpone the LTCL, he would be required to file his tax return.

In addition, depending on the sources of income provided, your father would be required to file his ITR using Form ITR-2.

Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG, India.

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