I have investments in the dividend option of four equity-oriented mutual funds. I want to exit two funds to limit my tax liability. The two funds I intend to exit will result in a long-term capital loss (LTCL). Can I set off this loss against any dividends that I may receive from the two funds that I want to continue with?
—Shankar Bose
Any LTCL from the sale of equity-oriented mutual funds cannot be set off against dividend income. You can set it off only against any other long-term capital gains (LTCG). Any unadjusted LTCL can be carried forward for eight financial years and can be set off only against LTCG arising in future. Also, you have to report this LTCL in your income tax return even if no tax is payable.
If I let out my shop to my nephew on a nominal rent of ₹1, will I be taxed for potential rent that I could have received? I am in the 30% tax bracket.
—Garvit
It is assumed that the said shop (property) is not occupied by you for the purpose of your business. As per the Income-tax Act, 1961, the amount that is taxed in case of a let-out property is its gross annual value (GAV). From GAV, the deductions of municipal tax and interest on loan for the let-out property are allowed. GAV is calculated as the higher of a reasonable expected rent (RER) or actual rent.
Accordingly, if you choose to let out your shop to your nephew at a nominal rent of ₹1, RER may be higher than the actual rent and the onus would be on you to prove otherwise. In case RER is determined to be higher, you would be taxed on the RER of the shop. You would in any case be eligible to claim standard deduction and deduction towards municipal taxes paid during the financial year and interest paid on any loan availed for the property.
An employee works for 12 years with employer A, takes a two-year break and is unemployed during this period. He then takes up employment for one year with employer B and transfers the PF balance to employer B. The employee then quits or takes permanent but early retirement at 54. Is the interest on PF balance earned during the two-year break (during the unemployment period) taxable?
—Vijay
As per judicial precedents, interest earned post cessation of employment shall be considered as taxable in the hands of the individual. For the period the employee was on a break from employment, he or she would not be an employee of any organization and, hence, any accretions to the accumulated PF balance due for the period when the employee was not employed with any organization would be taxable in his or her hands. Also, taxability of the entire PF accumulated balance (excluding the interest for the two years of unemployment) at the time of withdrawal would depend upon the number of years of continuous service rendered.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com
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