No grandfather clause for corporate bonds

SC Vasudeva

Q. I am a super senior citizen. My queries are: 

(a) Are corporate bonds free from grandfather clause?

(b) Does dividend above Rs 10 lakh earned from Arbitrage Schemes of mutual funds attract 10% tax?

(c) Has holding period been reduced from 36 months to 24 months to qualify for LTCG in case of land and building from AY 2018-19?

(d) Will a residential plot purchased in November 2016 and sold in December 2018 i.e. after holding for over two years qualify for LTCG or will it attract STCG as the same was purchased in AY 2017-18 before the enactment of this provision?

(e) An industrial building was sold in June 2017. The entire sale proceeds have been deposited in CGAS in April, 2018 i.e. before the due date of filing of ITR for relevant AY 2018-19 which is July 31, 2018.  If one purchases a residential house within two years, say in May 2019 utilising the entire amount, one won’t have to pay any LTCG. If the residential house thus purchased is sold after holding it for two years, will it qualify for LTCG?

(f) Will interest earned on tax-free bonds of HUDCO attract tax consequent to Budget of FY 2018-19? 

— Jugal Kishore Mahajan

A. Grandfather clause is a concept which implies that a provision in the Income-tax Act, 1961, will be discontinued after a particular date and the benefit allowable under the relevant section would not be available after the said date. Corporate bonds issued by the companies always contain a provision that such bonds are redeemable after a particular number of years. Therefore, the issue with regard to grandfather clause for corporate bonds is of no relevance.

(b) Dividend declared, distributed or paid by a domestic company or companies is chargeable to tax if the amount of dividend so received by an assessee exceeding Rs 10 lakh @10%.  It has been explained in Section 115BBDA of the Act that the dividend for the purpose of this section would have the meaning assigned to it in clause (22) of Section 2 but shall not include sub-clause(e) thereof. Therefore, if the dividend of Rs 10 lakh received by you comes within the above category, it will attract tax @10%. Thus, dividend received from domestic companies falling within the aforesaid category would be covered within the purview of taxation under Section 115BBDA. Dividend received from mutual funds are not covered within the scope of Section 115BBDA.

(c)  Capital gain realised on the sale of a residential plot purchased in November 2016 and sold in December 2018 would be treated as a long-term capital gain. This amendment is applicable for 2018-19 and onwards, i.e., if the sale is made in AY 2018-19 and subsequent years, then the period of holding will be considered as 24 months.

(d) Industrial building which has been used for the purpose of business would be covered within the category of a depreciable asset and any profit realised on the sale shall be treated as a short-term capital gain under Section 50 of the Act. However, any profit on the sale of the land beneath the building shall be treated as a long-term capital gain. Profit arising on the sale of industrial building shall therefore not be exempt from tax even if the same is utilised for the purchase of a residential house. In case the short-term capital gain is utilised for the purchase of a residential house and it is sold within two years, the amount of short-term capital gain, if any, on such sale would be taxable.

(e) Section 10(15) of the Act deals with the exemption granted to assessees in respect of income by way of interest on bonds notified by the Central Government. The aforesaid section has not been amended by the Finance Act, 2018.  Therefore, there should not be any bar on the tax-free status of the bonds.

Q. I am a government employee. My annual income is around Rs 10.2 lakh. My compulsory NPS contribution is Rs 75,000. I have deposited Rs 92,000 in PPF account. My child’s tuition fee is Rs 32,000. Kindly let me know how to avail tax benefit under Section 80.

— Pallawi Chhabra 

A. A total deduction of Rs 1,50,000 is allowable from the total income under Section 80C of the Act. However, in case you have contributed towards the pension scheme notified under Section 80CCD(1B) of the Act, you would be entitled to claim an additional deduction to the extent of Rs 50,000 from your total income. The facts given in the query indicate that you have contributed Rs 75,000 towards pension scheme, deposited Rs 92,000 in PPF account and paid a tuition fee of Rs 32,000 for your child. Deduction under Section 80C of the Act is, therefore, allowable to the extent of Rs 1,24,000.  Deduction in respect of pension contribution is allowable under Section 80CCD of the Act which also provides that the deduction allowable under Section 80C and 80CCD of the Act would not exceed Rs 1,50,000 except the contribution under Section 80CCD(1B) of the Act being an additional deduction allowable under the said section. You will thus have to ascertain from your papers whether contribution towards pension scheme is under the old scheme or the new scheme which is notified under Section 80CCD(1B) of the Act and if that be so, you would be entitled to a deduction to the extent of Rs 1,99,000 under the provisions of Section 80C read with 80CCD(1B) of the Act.