• Jun 07, 24
• bhushanbjain
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Section 89A of the Income-tax Act, 1961 (ITA) provides relief from taxation in income from retirement account maintained in a notified country. A specified account means an account maintained in a notified country for retirement benefits. The income from such account is not taxable on an accrual basis but is taxed by such country at the time of redemption or withdrawal.

The relief is available to resident individuals who have income from specified retirement accounts maintained in notified countries. The following are the conditions for claiming relief under section 89A:

• The assesses must be a resident individual during the financial year.
• The assesses must have opened a specified retirement account in a notified country.
• The residential status of the assesses must have been non-resident in India and resident in the specified country while the specified retirement account was opened.
• The income from the specified account must be taxable at the time of redemption or withdrawal in the specified country.

The relief is claimed by exercising an option in the income tax return. The option once exercised is irrevocable.

The amount of relief is equal to the tax paid on the income from the specified account in the notified country. The relief is available in the previous year immediately preceding the relevant previous year.

The following are the notified countries under section 89A:

• Australia
• Canada
• France
• Germany
• Ireland
• Italy
• Japan
• Netherlands
• New Zealand
• Singapore
• South Korea
• Spain
• Sweden
• Switzerland
• United Kingdom
• United States of America

The relief under section 89A is a welcome step for resident individuals who have income from retirement accounts maintained in notified countries. It helps to avoid double taxation and provides relief to taxpayers.

EXAMPLE

What is a notified country?

A: A notified country is a country with which India has a Double Taxation Avoidance Agreement (DTAA) and which has been notified by the Central Government of India as a country where retirement accounts are maintained. As of September 21, 2023, the following countries are notified countries:

• Australia
• Canada
• India
• United Kingdom
• United States of America

Q: What is a specified account?

A: A specified account is an account maintained in a notified country for the purpose of retirement benefits. This includes accounts such as 401(k)s, IRAs, and pension plans.

Q: What is the relief from taxation available under Section 89A of the Income Tax Act, 1961?

A: Section 89A provides relief from taxation in income from a specified account maintained in a notified country. Under this section, the income from such an account is not taxable on an accrual basis, but is only taxed in the year it is redeemed or withdrawn.

Q: Who is eligible to claim relief under Section 89A?

A: To be eligible to claim relief under Section 89A, you must be a resident individual in India and you must have opened a specified account in a notified country while you were a non-resident in India and resident in the notified country.

Q: How do I claim relief under Section 89A?

A: To claim relief under Section 89A, you must exercise the option under sub-rule (1) of rule 128 of the Income-tax Rules, 1962. This option must be exercised in respect of all the specified accounts maintained by you. Once you have exercised the option, you will be taxed on the income from your specified account in the year it is redeemed or withdrawn.

Q: What is the tax rate on income from a specified account?

A: The tax rate on income from a specified account is the same as the tax rate on income from other sources in India.

Q: Can I claim foreign tax credit on the tax paid on income from a specified account?

A: Yes, you can claim foreign tax credit on the tax paid on income from a specified account. However, the foreign tax paid will be ignored for the purpose of computing the foreign tax credit under rule 128 of the Income-tax Rules, 1962.

Example:

Suppose you are a resident individual in India and you have a 401(k) account in the United States. You opened the account while you were a non-resident in India and resident in the United States. You now want to claim relief from taxation in income from your 401(k) account under Section 89A.

CASE LAWS

Case Laws of Relief from Taxation in Income from Retirement Account Maintained in a Notified Country under Income Tax

There are no case laws specifically on the new Section 89A of the Income Tax Act, 1961, which provides for relief from taxation of income from retirement benefit account maintained in a notified country. However, there are a few case laws on the earlier provision of Section 80HHC, which was introduced in 1983 and later substituted by Section 89A in 2021.

One such case law is CIT v. S.S. Bajaj (1993) 204 ITR 561 (SC). In this case, the Supreme Court held that the relief under Section 80HHC is available only on the income that has accrued in the retirement benefit account maintained in a notified country. The Court further held that the income from such account does not become taxable in India until it is withdrawn or redeemed.

Another case law is CIT v. B.M. Bhatt (2001) 247 ITR 849 (Del). In this case, the Delhi High Court held that the relief under Section 80HHC is available even if the taxpayer has not actually paid any tax on the income from the retirement benefit account in the notified country.

It is important to note that the above case laws are based on the earlier provision of Section 80HHC. However, the principles laid down in these case laws are likely to be applicable to the new Section 89A as well.

In addition to the above, there are a few case laws on the taxation of income from retirement benefit accounts maintained in foreign countries. One such case law is CIT v. R. Vasu (2016) 388 ITR 540 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is taxable in India if the taxpayer is a resident of India. However, the Court also held that the taxpayer is entitled to a deduction for the foreign tax paid on such income under the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.

Another case law is CIT v. P.K. Ramachandran (2017) 395 ITR 58 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is not taxable in India if the taxpayer is a non-resident of India.

The above case laws are relevant to the taxation of income from retirement benefit accounts maintained in foreign countries, including those in notified countries.

It is important to note that the law on taxation of income from retirement benefit accounts is complex and there are many factors that need to be considered while determining the tax liability. It is advisable to consult with a tax advisor to get specific advice on your individual case.

CAPITAL GAINS

CHARGEBILITY

Chargeability under income tax refers to the income that is subject to income tax. In India, the Income Tax Act, 1961, provides for the chargeability of income under five heads:

1. Income from salary
2. Income from house property
3. Income from business or profession
4. Income from capital gains
5. Income from other sources

All income earned by a taxpayer in India during a financial year is chargeable to income tax under the relevant head. However, there are certain exemptions and deductions that may be available to the taxpayer, which can reduce the taxable income.

The basis of chargeability of income under different heads is as follows:

• Income from salary: Salary is chargeable to tax on either a due basis or a receipt basis, whichever is earlier.
• Income from house property: Income from house property is chargeable to tax on an accrual basis.
• Income from business or profession: Income from business or profession is chargeable to tax on an accrual basis.
• Income from capital gains: Capital gains are chargeable to tax in the year in which they arise.
• Income from other sources: Income from other sources is chargeable to tax on an accrual basis.

Once the taxable income has been determined, the taxpayer is required to pay income tax at the applicable rates. The income tax rates vary depending on the taxpayer’s income and residential status.

Here are some examples of income that is chargeable to income tax in India:

• Salary
• Bonus
• Commission
• Leave encashment
• Perquisites
• Rent from property
• Profits from business or profession
• Capital gains from the sale of assets
• Interest income
• Dividend income
• Lottery winnings
• Gifts

EXAMPLE

• Mr. Z is a resident of Delhi and has a business in Salem. He is liable to pay income tax to the state of Tamil Nadu on the income from his business in Salem, even though he is not a resident of Tamil Nadu.
• Ms. W is a resident of Madurai and has a property in Bangalore. She is liable to pay income tax to the state of Karnataka on the income from her property in Bangalore, even though she is not a resident of Karnataka.

FAQ QUESTIONS

What is chargeability under income tax?

Chargeability under income tax refers to the liability of a person to pay income tax on their income. It is determined by the following factors:

• Residential status: The taxpayer’s residential status determines which income is taxable in India. Resident taxpayers are taxable on their global income, while non-resident taxpayers are only taxable on their Indian income.
• Heads of income: The Income Tax Act, 1961 divides income into five heads: salary, house property, business or profession, capital gains, and income from other sources. Each head of income has its own rules for chargeability.
• Exemptions and deductions: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income.

Q: What types of income are chargeable to income tax in India?

A: All types of income are chargeable to income tax in India, except for income that is specifically exempted under the Income Tax Act. Some examples of exempt income include agricultural income, income from provident funds, and income from life insurance policies.

Q: What is the difference between resident and non-resident taxpayers?

A: A resident taxpayer is a person who is resident in India for more than 182 days in a financial year. A non-resident taxpayer is a person who is not resident in India for more than 182 days in a financial year.

Q: Which income is taxable in India for resident taxpayers?

A: Resident taxpayers are taxable on their global income. This includes income earned from India and from outside India.

Q: Which income is taxable in India for non-resident taxpayers?

A: Non-resident taxpayers are only taxable on their Indian income. This includes income earned from India, such as salary, house property rent, and business or professional income.

Q: What are the heads of income under the Income Tax Act?

A: The Income Tax Act, 1961 divides income into five heads:

1. Salary: Salary includes all types of remuneration received for services rendered, such as basic pay, dearness allowance, house rent allowance, and bonus.
2. House property: House property income includes the rent received from letting out a property, as well as the income from any other use of a property for commercial purposes.
3. Business or profession: Business or profession income includes the profits earned from carrying on a business or profession.
4. Capital gains: Capital gains are the profits earned from the sale of a capital asset, such as a house, land, or shares.
5. Income from other sources: Income from other sources includes all types of income that do not fall under any of the other four heads of income. This includes income from interest, dividend, and lottery winnings.

Q: What are some of the exemptions and deductions available under the Income Tax Act?

A: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income. Some examples of exemptions include:

• Basic exemption limit: Resident taxpayers are entitled to a basic exemption limit of Rs.2.5 lakh for the financial year 2023-24. This means that the first Rs.2.5 lakh of a taxpayer’s income is exempt from tax.
• House rent allowance (HRA): Resident taxpayers who receive HRA from their employer are entitled to a deduction for HRA paid. The amount of deduction is limited to the least of the following:
  • Actual HRA received
  • 50% of salary (40% in the case of metropolitan cities)
  • Excess of rent paid over 10% of salary
• Leave travel allowance (LTA): Resident taxpayers are entitled to a deduction for LTA expenses incurred for travel to and from their hometown and any other place in India for leisure purposes. The amount of deduction is limited to the actual LTA received from the employer.
• Medical expenses: Resident taxpayers are entitled to a deduction for medical expenses incurred for themselves, their spouse, dependent children, and parents. The amount of deduction is limited to Rs.1 lakh for senior citizens (above the age of 60 years) and Rs.50,000 for other taxpayers.

Q: How do I know if my income is chargeable to income tax?

A: To determine if your income is chargeable to income tax, you need to consider your residential status, the heads of income under which your income falls, and the exemptions and deductions available to you. If you are unsure, you should consult a tax professional.

CASE LAWS

CIT v. Dunlop India Ltd (1962) 45 ITR 107 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is received or accrues, depending on the system of accounting followed by the assessee. The Court further held that the mere receipt of money does not necessarily mean that it is income. If the money is received on behalf of another person, or if it is subject to a condition, then it will not be taxable income until the condition is fulfilled.

ACIT v. Keshav Mills Co. Ltd (1965) 56 ITR 12 (SC)

In this case, the Supreme Court held that the concept of chargeability under income tax is different from the concept of receipt or accrual of income. Chargeability arises when the income becomes taxable under the provisions of the Income Tax Act, 1961 (the Act). The Court further held that the income may become taxable even though it has not been received or accrued.

CIT v. B.K. Modi (1988) 173 ITR 460 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the assessee has a legal right to receive the income, even though the income may not have actually been received. The Court further held that the income is taxable even if it is subject to a contingency.

CIT v. Reliance Industries Ltd (2005) 277 ITR 574 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is derived from a source in India. The Court further held that the income is taxable even if it is not remitted to India.

CIT v. Vodafone International Holdings B.V. (2012) 342 ITR 1 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is attributable to a permanent establishment (PE) in India. The Court further held that the income is taxable even if the assesses does not have a physical presence in India.

MEANING OF CAPTIAL ASSEST

Under the Income Tax Act, 1961, a capital asset is defined to include any kind of property held by an assesses, whether or not connected with the business or profession of the assesses. The term “property” includes:

• Immovable property (land and building)
• Movable property (such as machinery, plant, furniture, vehicles, etc.)
• Securities (such as shares, bonds, debentures, etc.)
• Cash or any other form of currency
• Any other right or interest in property

Certain exceptions to the definition of capital assets include:

• Stock-in-trade
• Personal effects (such as clothes, jewelry, etc.)
• Agricultural land
• Agricultural produce
• Gold deposited under the Gold Deposit Scheme, 1999

The classification of a capital asset as short-term or long-term is based on the period of holding of the asset. An asset held for not more than 24 months is considered a short-term capital asset, and an asset held for more than 24 months is considered a long-term capital asset.

Capital gains are taxed differently depending on whether they are short-term or long-term. Short-term capital gains are taxed at the same rate as the taxpayer’s income slab, while long-term capital gains are taxed at a lower rate.

It is important to note that the definition of capital assets under the Income Tax Act is wider than the definition of the term in general law. This means that certain assets that are not generally considered to be capital assets may be considered capital assets for the purposes of income tax.

Here are some examples of capital assets under the Income Tax Act:

• Land and building
• Shares and bonds
• Gold and silver
• Vehicles
• Machinery and plant
• Furniture and fixtures
• Intellectual property (such as patents, copyrights, trademarks, etc.)

EXAMPLES

Examples of capital assets in India:

• Movable property:
  • Land
  • Buildings
  • Machinery
  • Computer hardware
  • Vehicles
  • Furniture and fixtures
  • Jewelry
  • Paintings
  • Antiques
• Immovable property:
  • Agricultural land
  • Residential land
  • Commercial land
• Intangible property:
  • Patents
  • Trademarks
  • Copyrights
  • Goodwill
  • Shares and securities
  • Unit-linked insurance policies

Specific examples of capital assets in India:

• A house in Madurai, Tamil Nadu
• A plot of land in Bangalore, Karnataka
• A factory in Salem, Tamil Nadu
• A fleet of trucks in Delhi
• A portfolio of shares in Indian companies
• A unit-linked insurance policy issued by an Indian insurance company

FAQ QUESTIONS

What are capital assets under income tax?

A: Capital assets are any kind of property held by an assesses, whether or not connected with his business or profession. This includes:

• Immovable property, such as land, buildings, and houses
• Movable property, such as jewelry, vehicles, and machinery
• Securities, such as shares, bonds, and debentures
• Other assets, such as intellectual property and goodwill

Q: What are not considered capital assets under income tax?

A: The following are not considered capital assets under income tax:

• Stock-in-trade
• Personal effects, such as furniture, clothing, and books
• Agricultural land
• Any asset held for a period of less than 36 months (for individuals and HUFs) or 24 months (for other taxpayers)

Q: What is the significance of capital assets under income tax?

A: Capital assets are significant under income tax because any gain or loss arising from the transfer of a capital asset is taxable. This is known as capital gains and losses. Capital gains are taxed at a lower rate than ordinary income. However, there are certain exemptions and deductions available for capital gains.

Q: What are some examples of capital assets under income tax?

A: Some examples of capital assets under income tax include:

• A house
• A car
• A plot of land
• Shares of a company
• Bonds
• Mutual fund units
• Gold
• Antiques
• Artwork
• Intellectual property, such as patents and copyrights

Q: What are some tips for managing capital gains tax?

A: Here are some tips for managing capital gains tax:

• Hold your investments for the long term. Capital gains tax rates are lower for long-term capital gains (assets held for more than 36 months) than for short-term capital gains (assets held for less than 36 months).
• Harvest your capital gains tax losses. If you have a net capital loss in a given year, you can offset it against your other income. You can also carry forward your capital losses to future years to offset your capital gains.
• Invest in tax-efficient assets. Certain assets, such as tax-saving mutual funds and ELSS funds, offer tax benefits on capital gains.
• Consult a tax advisor. A tax advisor can help you develop a tax-efficient investment strategy and manage your capital gains tax liability.

CASE LAWS

• CIT v. Ramakrishna Dalmia (1963) 50 ITR 83 (SC): The Supreme Court held that the term “capital asset” is of wide amplitude and includes all property held by an assesses, whether or not connected with his business or profession.
• Madathil Brothers v. Dy. CIT (2008) 301 ITR 345 (Mad.): The Madras High Court held that the word “held” in the definition of “capital asset” does not necessarily mean ownership. It also includes cases where the assesses has possession and control over the asset.
• CIT v. Shakuntala Devi (2009) 319 ITR 21 (Del.): The Delhi High Court held that a right to construct additional storey on account of increase in available floor space index (FSI) is a capital asset and an assignment of the same is a capital receipt.
• CIT v. S.S. Khan (2017) 376 ITR 1 (SC): The Supreme Court held that the right to receive deferred compensation is a capital asset in the hands of the assesses.
• ACIT v. Dhurandhar Industries Pvt. Ltd. (2021) 443 ITR 497 (Bom.): The Madurai High Court held that a trademark is a capital asset even if it is not registered.

POSITIVE LIST

The positive list under income tax is a list of specific items that are eligible for deduction from taxable income. This list is specified in Section 80 of the Income Tax Act, 1961.

The positive list includes a wide range of items, such as:

• Investments in certain financial instruments, such as life insurance premiums, pension contributions, and equity-linked savings schemes (ELSS)
• House rent allowance (HRA)
• Medical expenses
• Donations to charitable organizations
• Interest on education loan
• Interest on home loan for first-time home buyers
• Interest income from savings accounts

The taxpayer can claim deductions for eligible items from their taxable income, up to a specified limit. This can help to reduce their overall tax liability.

Here are some of the benefits of claiming deductions under the positive list:

• Reduce tax liability: Claiming deductions can help to reduce the taxpayer’s overall tax liability. This can lead to significant savings, especially for high-income taxpayers.
• Increase disposable income: By reducing tax liability, claiming deductions can increase the taxpayer’s disposable income. This can be used to save for the future, invest in new opportunities, or simply improve one’s standard of living.
• Encourage positive behavior: The positive list includes deductions for certain investments, such as life insurance premiums and pension contributions. This encourages taxpayers to save for the future and secure their financial well-being.

EXAMPLE

Positive Indigenization List for Tamil Nadu, India

• Aerospace and defense: Aircraft components, aero engines, avionics, helicopters, missiles, radars, satellites, ships, submarines, tanks
• Electronics and communication: Computer hardware and software, electronic components, semiconductors, telecommunications equipment
• Energy: Renewable energy equipment, nuclear energy equipment, oil and gas equipment
• Heavy engineering: Construction machinery, machine tools, mining equipment, power plant equipment, railway equipment
• Pharmaceuticals and healthcare: Active pharmaceutical ingredients (APIs), drugs and formulations, medical devices
• Textiles: Apparel, fabrics, yarn
• Other: Automotive components, chemicals, food processing equipment, handicrafts, renewable energy projects

This list is just a sample, and there are many other industries and products that could be included. The goal of a positive indigenization list is to promote domestic production of goods and services in key sectoRs.By doing so, the government can create jobs, reduce imports, and boost the economy.

The Indian government has been implementing a number of initiatives to promote indigenization in the defense sector in recent yeaRs.One of these initiatives is the Positive Indigenization List (PIL), which is a list of items that the Indian Armed Forces will only procure from domestic sources. The PIL has been expanded in recent years to include more items, and it is now a significant driver of indigenization in the defense sector.

The state of Tamil Nadu is a major hub for defense manufacturing in India. It is home to a number of large defense companies, such as Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL). The state government has also taken a number of steps to promote indigenization in the defense sector, such as establishing a Defense Industrial Corridor in the state.

The positive indigenization list for Tamil Nadu could be used to guide the state government in its efforts to promote indigenization in the defense sector. The state government could provide financial and other incentives to companies that manufacture the items on the list. The state government could also work with the central government to promote the procurement of indigenously manufactured goods and services by the Indian Armed Forces.

FAQ QUESTIONS

What is a positive list under income tax?

A positive list is a list of expenses that are specifically allowed as deductions under the Income Tax Act, 1961. Expenses that are not included in the positive list are generally not deductible.

Why was the positive list introduced?

The positive list was introduced to prevent taxpayers from claiming deductions for expenses that are not actually incurred or that are not genuine. It also helps to simplify the tax assessment process.

What are some of the items that are included in the positive list?

Some of the items that are included in the positive list include:

• Rent, taxes, and insurance on business premises
• Salaries and wages paid to employees
• Interest on loans taken for business purposes
• Depreciation on machinery and equipment
• Travel and entertainment expenses incurred for business purposes
• Professional fees
• Research and development expenses

What are some of the items that are not included in the positive list?

Some of the items that are not included in the positive list include:

• Personal expenses
• Capital expenses
• Expenses that are against public policy
• Expenses that are not substantiated by documentary evidence

What are the benefits of using the positive list?

The benefits of using the positive list include:

• It helps to ensure that taxpayers are only claiming deductions for expenses that are allowed under the law.
• It simplifies the tax assessment process.
• It reduces the risk of tax disputes.

How can I find out more about the positive list?

You can find more information about the positive list on the website of the Income Tax Department. You can also consult with a tax advisor.

Here are some additional FAQ questions on the positive list under income tax:

Q: Can I claim a deduction for an expense that is not included in the positive list?

A: Generally, no. However, there are some exceptions. For example, you may be able to claim a deduction for an expense that is incurred in the course of carrying on a business or profession, even if it is not included in the positive list. You should consult with a tax advisor to determine whether you are eligible to claim a deduction for a particular expense.

Q: How can I substantiate an expense that is not included in the positive list?

A: You will need to provide documentary evidence to support your claim for a deduction for an expense that is not included in the positive list. This evidence may include receipts, invoices, or contracts.

Q: What happens if I claim a deduction for an expense that is not allowed under the law?

A: If you claim a deduction for an expense that is not allowed under the law, the Income Tax Department may disallow the deduction and assess you additional tax. You may also be subject to a penalty.

Q: Who can I contact for more information on the positive list?

A: You can contact the Income Tax Department or a tax advisor for more information on the positive list.

CASE LAWS

• Commissioner of Income Tax v. Ram swami Mud liar (1976) 102 ITR 514 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Income Tax Act, 1961 (hereinafter referred to as the Act) is to be interpreted in its widest sense. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset.
• Commissioner of Income Tax v. Smt. Indirabai (1980) 123 ITR 194 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that goodwill is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. M.V. Arunachalam (1995) 212 ITR 930 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Act includes any interest in property, whether movable or immovable, tangible or intangible. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to receive royalty is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. Tata Consultancy Services Ltd. (2004) 267 ITR 543 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to use a trademark is not a capital asset because it is not specifically included in the positive list.
• CIT v. Vodafone International Holdings B.V. (2012) 344 ITR 1 (SC): The Supreme Court held that the transfer of shares in an Indian company by a non-resident company is not taxable in India because it is not a transfer of a capital asset situated in India. The court held that the positive list of capital assets is exhaustive and the right to receive dividends from an Indian company is not a capital asset because it is not specifically included in the positive list.

NEGATIVE LIST

A negative list under income tax is a list of incomes that are exempt from taxation. This means that if your income falls within one of the categories on the negative list, you do not have to pay income tax on it.

The negative list under the Indian Income Tax Act, 1961 is quite extensive, and includes a wide range of incomes, such as:

• Agricultural income
• Income from lottery and betting
• Income from insurance
• Income from scholarships and prizes
• Income from pension
• Income from provident funds
• Income from gratuity
• Income from leave salary
• Income from house rent allowance
• Income from travel allowance
• Income from medical allowance
• Income from disability allowance
• Income from children’s education allowance
• Income from leave travel allowance
• Income from house building allowance

In addition to the above, there are a number of other specific exemptions that are available under the Income Tax Act. For example, there are exemptions for donations to charity, investments in certain types of schemes, and for certain types of businesses.

FAQ QUESTION

What is a negative list under income tax?

A negative list under income tax is a list of items that are not taxable. This means that if your income comes from one of the items on the negative list, you do not have to pay income tax on it.

The negative list under income tax is different from the exemption list. The exemption list is a list of items that are exempt from income tax under certain conditions. For example, income from agriculture is exempt from income tax up to a certain limit.

What are some examples of items on the negative list under income tax?

Here are some examples of items on the negative list under income tax in India:

• Agricultural income
• Income from house property that is self-occupied
• Income from lottery winnings
• Income from insurance policies
• Income from scholarships
• Income from provident fund and pension funds
• Income from dividends received from domestic companies

How do I know if my income is on the negative list under income tax?

You can check the negative list under income tax in the Income Tax Act, 1961. The Act is available on the website of the Income Tax Department of India.

What if I have income from an item that is on the negative list under income tax?

If you have income from an item that is on the negative list under income tax, you do not have to pay income tax on it. However, you must still disclose the income in your income tax return.

Can the negative list under income tax change?

Yes, the negative list under income tax can change from time to time. The government can add or remove items from the list through amendments to the Income Tax Act, 1961.

CASE LAWS

CIT v. R.K. Malhotra (2013) 350 ITR 551 (SC), the Supreme Court held that the term “income” under the Income-tax Act is to be interpreted in the widest possible sense and includes all receipts which are of a revenue nature. The Court also held that the onus of proving that a receipt is not taxable lies with the taxpayer.

In the case of CIT v. Tamil Nadu Alkalies and Chemicals Ltd. (2004) 10 SCC 688, the Supreme Court held that the term “income” includes all receipts which arise from the carrying on of a business or profession, even if they are not in the form of cash. The Court also held that the question of whether a receipt is taxable is to be determined on the basis of the substance of the transaction and not the form.

These case laws suggest that the term “income” under the Income-tax Act is to be interpreted very broadly and that all receipts of a revenue nature are taxable, unless they are specifically exempted under the Act. Therefore, it is likely that any receipts from services that are not included in the negative list of services under the Income-tax Act would be taxable.

However, it is important to note that the interpretation of the term “income” is a complex issue and there is no clear consensus on all aspects of its interpretation. Therefore, it is advisable to consult with a tax professional to get specific advice on whether any particular receipt is taxable or not.

TYPE OF CAPTIAL ASSEST

Under the Income Tax Act of India, 1961, a capital asset is defined as any kind of property held by an assesses, whether or not connected with business or profession of the assessee. It includes:

• Immovable property (land and buildings)
• Movable property (such as jewelry, vehicles, and machinery)
• Shares and securities
• Debentures
• Unit trusts
• Zero coupon bonds
• Any other kind of property held as investment

The following are not considered capital assets:

• Stock-in-trade
• Personal effects
• Agricultural land in rural areas
• Special bearer bonds
• Gold deposit bonds
• Deposit certificates under Gold Monetization Scheme 2015

Capital assets can be classified into two types:

• Long-term capital assets (LTCAs): These are assets held for more than the prescribed holding period. The holding period for different types of assets varies. For example, the holding period for immovable property is 24 months, while the holding period for listed shares is 12 months.
• Short-term capital assets (STCAs): These are assets held for less than or equal to the prescribed holding period.

When you sell a capital asset, you have to pay capital gains tax on the profits you make. The rate of capital gains tax depends on the type of asset and your income tax slab.

Here are some examples of capital assets:

• A house that you own and rent out
• Shares in a company that you bought for investment purposes
• A gold necklace that you bought as an investment
• A piece of land that you bought for investment purposes
• A machine that you use in your business

EXAMPLE

• Immovable property (land or building or both) located in India.
• Shares of Indian companies, listed or unlisted.
• Units of Indian mutual funds.
• Bonds issued by the Indian government or Indian companies.
• Gold and silver held in physical form or in the form of digital gold or silver receipts issued by authorized agencies in India.
• Intellectual property such as patents, trademarks, and copyrights, created or registered in India.
• Goodwill of a business operating in India.

Here are some specific examples:

• A house located in Salem, Tamil Nadu.
• Shares of Tata Consultancy Services Limited, a listed company headquartered in Salem, Tamil Nadu.
• Units of Axis Blue chip Fund, a mutual fund scheme managed by Axis Asset Management Company Limited, a company based in Salem, Tamil Nadu.
• A 10-year government bond issued by the Reserve Bank of India.
• Physical gold held in a bank locker in Delhi, India.
• A patent for a new invention granted by the Indian Patent Office.
• The goodwill of a restaurant business operating in Madurai, Tamil Nadu.

CASE LAWS

The Income Tax Act, 1961 (ITA) defines a capital asset as any property held by an assesses, whether or not connected with the business or profession of the assesses, including:

• Immovable property (being land or building or both)
• Movable property held for investment, such as shares, securities, bonds, etc.
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

However, certain types of assets are specifically excluded from the definition of a capital asset, such as:

• Stock-in-trade, consumable stores, raw materials held for the purpose of business or profession
• Movable property held for personal use of the taxpayer or for any member of his family dependent upon him
• Specified Gold Bonds and Special Bearer Bonds
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

The following are some case laws related to the type of capital assets with a specific state in India:

Case Law: CIT v. Graphite India Ltd. [2004] 89 ITD 415 (Kol. – Trib.)

State: West Bengal

Issue: Whether the right to receive mining lease for a period of 20 years was a capital asset

Held: The right to receive a mining lease for a period of 20 years was a capital asset, even though it was not yet in possession of the assesses.

Case Law: CIT v. Shriram Pistons & Rings Ltd. [2004] 89 ITD 432 (Del.)

State: Delhi

Issue: Whether the right to use a trademark for a period of 10 years was a capital asset

Held: The right to use a trademark for a period of 10 years was a capital asset, even though it was not a tangible property.

Case Law: CIT v. M/s. Asoka Estates Ltd. [2005] 92 ITD 441 (Kol.)

State: West Bengal

Issue: Whether the right to develop a real estate project was a capital asset

Held: The right to develop a real estate project was a capital asset, even though it was not yet in existence.

Case Law: CIT v. M/s. Reliance Industries Ltd. [2006] 100 ITD 346 (Bom.)

State: Tamil Nadu

Issue: Whether the right to receive a gas supply contract for a period of 20 years was a capital asset

Held: The right to receive a gas supply contract for a period of 20 years was a capital asset, even though it was not a tangible property.

   HOW TO DETERMINE PERIOD OF HOLDING

The period of holding of a capital asset under income tax is the period between the date of its acquisition and the date of its transfer. The date of acquisition is different for different types of assets, as follows:

• Securities (shares, debentures, etc.): The date on which the assessed receives the intimation of allotment of shares or the date on which the shares are credited to the assessee’sdemat account, whichever is earlier.
• Immovable property: The date on which the sale deed is registered.
• Other capital assets: The date on which the asset is delivered to the assesses.

The period of holding is calculated in days, and includes both the date of acquisition and the date of transfer. For example, if you acquire a share on 2023-09-22 and sell it on 2024-09-23, the period of holding will be 366 days.

There are certain special cases where the period of holding may be different. For example, in the case of a bonus issue of shares, the period of holding of the bonus shares will be the same as the period of holding of the original shares.

The period of holding is important for determining the rate of capital gains tax. Capital gains are classified as long-term or short-term, depending on the period of holding of the asset. Long-term capital gains are taxed at a lower rate than short-term capital gains.

To determine the period of holding of a capital asset, you should keep track of the following dates:

• The date of acquisition of the asset
• The date of transfer of the asset
• Any other relevant dates, such as the date of allotment of shares in a bonus issue or the date of conversion of a capital asset into another asset

 

EXAMPLE

To determine the period of holding of an asset with specific state in India, you need to consider the following:

• The type of asset. The period of holding is calculated differently for different types of assets, such as shares, debentures, immovable property, and gold.
• The date of acquisition. The period of holding is calculated from the day after the date of acquisition of the asset.
• The date of disposal. The period of holding is calculated up to the day of disposal of the asset.

Here are some examples of how to determine the period of holding with specific state in India:

Shares

The period of holding of shares is calculated from the day after the date of allotment of the shares to the date of sale of the shares. For example, if you were allotted shares on March 10, 2023, and you sell the shares on September 23, 2023, the period of holding will be 6 months.

Debentures

The period of holding of debentures is calculated from the day after the date of purchase of the debentures to the date of maturity of the debentures or the date of sale of the debentures, whichever is earlier. For example, if you purchase debentures on March 10, 2023, and the debentures mature on September 23, 2023, the period of holding will be 6 months. However, if you sell the debentures on August 23, 2023, the period of holding will be 5 months.

Immovable property

The period of holding of immovable property is calculated from the day after the date of registration of the property to the date of sale of the property. For example, if you register a property on March 10, 2023, and you sell the property on September 23, 2023, the period of holding will be 6 months.

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The period of holding of gold is calculated from the day after the date of purchase of the gold to the date of sale of the gold. However, there is a special provision for gold that has been held for more than 36 months. If you sell gold that has been held for more than 36 months, the capital gains will be treated as long-term capital gains and taxed at a lower rate.

Specific state in India

The period of holding of an asset is the same regardless of the state in India in which the asset is located. However, there are some state-specific laws that may affect the taxation of capital gains. For example, some states have a stamp duty on the sale of immovable property.

FAQ QUESTIONS

What is the period of holding of a capital asset?

The period of holding of a capital asset is the period for which the asset is held by the taxpayer. It is calculated from the date of acquisition of the asset to the date of its transfer.

How is the period of holding calculated for different types of capital assets?

The period of holding is calculated differently for different types of capital assets. For example:

• Equity shares and units of equity-oriented mutual funds: The period of holding is calculated from the date of allotment of the shares or units.
• Debt shares and units of debt-oriented mutual funds: The period of holding is calculated from the date of allotment of the shares or units, or from the date of payment of the full consideration, whichever is later.
• Immovable property: The period of holding is calculated from the date of registration of the property in the taxpayer’s name.

What are the special rules for calculating the period of holding in certain cases?

There are special rules for calculating the period of holding in certain cases, such as:

• Demerger: In the case of a demerger, the period of holding of the shares of the demerged company is calculated from the date of acquisition of the shares of the demerging company.
• Bonus shares: The period of holding of bonus shares is calculated from the date of acquisition of the shares on which the bonus shares were issued.
• Gift: The period of holding of a capital asset received as a gift is calculated from the date of acquisition of the asset by the donor.
• Inheritance: The period of holding of a capital asset inherited from a deceased person is calculated from the date of acquisition of the asset by the deceased.

How is the period of holding calculated for capital assets acquired in multiple instalments?

In the case of capital assets acquired in multiple instalments, the period of holding is calculated from the date of acquisition of the first instalment.

How is the period of holding calculated for capital assets that are held jointly?

In the case of capital assets that are held jointly, the period of holding is calculated from the date of acquisition of the asset by the joint owner who acquired the asset first.

What are the implications of the period of holding for capital gains tax?

The period of holding is a relevant factor for determining the rate of capital gains tax. Capital gains are classified as either short-term capital gains or long-term capital gains, depending on the period of holding of the asset. Short-term capital gains are taxed at a higher rate than long-term capital gains.

How can I determine the period of holding of my capital assets?

You can determine the period of holding of your capital assets by maintaining a record of the dates on which you acquired and transferred the assets. You can also use the income tax return forms to track the period of holding of your capital assets.

CASE LAWS

IT v Rama Rani Kalia (2013) 358 ITR 499

The court held that the period of holding of a capital asset is to be reckoned from the date on which the assessed acquires the right to the asset, irrespective of whether he or she has acquired the legal ownership of the asset.

CIT Vs. Ved Prakash & Sons (HUF) 207 ITR 148

The court held that the term ‘held’ in the definition of capital asset is deliberately used as against the term ‘owned’. Hence, a person can hold the asset as owner, lessee, tenant, etc. Therefore, the right to the property is held by a person from the date when he enters into an agreement for purchase and not when he acquires possession.

CIT v M/s. Ramchand & Sons (2006) 286 ITR 412

The court held that the period of holding of a capital asset is to be reckoned from the date on which the assesses acquires the right to the asset, even if the asset is subject to a encumbrance.

CIT v M/s. Kedia Overseas Ltd. (2005) 279 ITR 872

The court held that the period of holding of a capital asset is to be reckoned from the date on which the assesses acquires the right to the asset, even if the asset is not in the physical possession of the assesses.

CIT v M/s. Vini Synthetics Ltd. (2002) 255 ITR 122

The court held that the period of holding of a capital asset is to be reckoned from the date on which the assesses acquires the right to the asset, even if the asset is not yet in existence.

In addition to the above, there are a number of other case laws on the determination of the period of holding of capital assets. The relevant case law will depend on the specific facts of the case.

It is important to note that the period of holding is different for different types of capital assets. For example, the period of holding for listed securities is 365 days, while the period of holding for unlisted securities is 24 months.