LTCG on shares applicable to HUFs as well
The provisions of Section 112A of the Income Tax Act are applicable to all taxpayers, including HUFs
I am the karta of a Hindu Undivided Family (HUF). I have been filing my tax returns regularly. In FY20, the HUF made ₹18,000 in long-term capital gains (LTCG) by selling listed shares of a company. The LTCG was calculated using the fair market value as on 31 January 2018 as per income tax rules. Do HUFs get the same benefit as an individual, where ₹1 lakh LTCG arising due to equity does not attract any tax?
—B.B. Deshmukh
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The provisions of Section 112A of the Income Tax Act in relation to computation of tax liability on LTCG arising on sale of specified securities (including shares listed on a recognized stock exchange in India) are applicable to all taxpayers, including HUFs. As per the provision, the resultant LTCG to the extent it exceeds the overall limit of ₹1 lakh per annum is taxable in the hands of the assessee at 10% plus applicable surcharge and cess, i.e. the tax liability on LTCG up to ₹1 lakh is nil.
Accordingly, in your case, assuming that there is no other LTCG taxable as per the provisions of Section 112A of the Act, the tax liability on LTCG of ₹18,000 from the sale of listed shares shall be nil.
What is meant by continuous service of five years for availing tax-free provident fund (PF) withdrawal? My service with Company A was for six years, then with Company B for five months, followed by Company C for three years. There was a gap of three months between my employment at Company B and C, and 27 days between Company A and B. All PF accounts have been transferred to the current employer. Will the PF withdrawal (principal) be tax-free in the above case?
—Name withheld on request
From a tax perspective, as per Section 10(12) read with Rule 8 of Part A of Fourth Schedule of the Income Tax Act, the accumulated PF balance due and payable to the employee, i.e. balance to his credit on the date of cessation of his employment, is exempt from tax if he has rendered continuous service for a period of five years or more. Where there are multiple PF accounts and the PF balances are transferred to the most recent PF account, the cumulative period of employment pertaining to all such PF accounts is required to be seen for the purpose of evaluating whether the employee has rendered continuous service for a period of five years or more.
In this case, as the PF balances have been transferred to the latest employer, the cumulative period of employment shall be considered as more than five years (approximately nine years and five months) and accordingly, the accumulated balance to the extent payable to you at the time of ceasing employment shall be exempt from tax.
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However, please note that any accretions to the PF balance for the periods that you were on a break from employment and any accretions to the PF balance from the time that you had ceased employment (i.e. after last day of working with the previous employer till date of withdrawal), would be taxable in your hands.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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