Liability To Pay Tax On Shares Only Arises At Time Of Sale

I am a student and have invested in listed shares out of my pocket money in the last one year. I have not yet sold any of my investments. As of now, the market value of my investments in shares has gone up substantially compared to my cost. Do I have to pay any income tax on such book profits and file my income tax return?

Answer: Investments in shares are generally treated as capital assets under the income tax laws, and the profits on such investment are taxed under the head “Capital Gains”. 

The liability to pay tax on such investments arises only when the investments are sold. So, there is no tax liability as long as you do not sell the investment and realise the profits.

Moreover, the liability to file your income tax return (ITR) generally arises only when the taxable income from all sources, including profits on investments before various deductions and exemptions exceed the threshold of basic exemption.

I own two houses of which one is rented out, while the other is self-occupied. I am servicing a home loan for the latter and claim Rs 2 lakh on the interest paid under Section 24(b) of the Income-tax Act, 1961. Will I be able to claim higher interest paid by me if I rent out this house too?

Answer: In case of self-occupied property, there is a limit of Rs. 2 lakh for claiming interest under Section 24(b). However, there is no such cap in respect of property, which is let out. 

So, if the interest outgo on the home loan is more than 2 lakh, you will be able to claim the benefit of higher interest paid, if the property is let out. Do note that you will have to offer the rental income for taxation. 

You can also claim a flat deduction of 30 per cent of the rent received in addition to the actual interest paid on housing loan. Do note that there is also a restriction of Rs. 2 lakh up to which the loss under the head income from house property can be set-off against other income during the same year. The unabsorbed loss, if any, will have to be carried forward for eight years for set-off against house property income. 

I am in the 20 per cent tax slab. I have opened a recurring deposit account with the post office for Rs. 2,500 per month for five years. Will the entire money received on maturity amount be taxable?

Answer: The full amount received at the time of maturity not be taxable in your hand. Only the interest will be taxable in your hand at the time of receipt of such maturity proceeds.  

Instead of getting full interest taxed on maturity, you have an option to offer the proportionate interest accrued in each of the financial year for tax. Please request your post office to give you a certificate of interest accrued at the end of each financial year.

The author is a tax and investment expert.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)