• Notification Date: 29-10-2021
• Notification No: 05/2021-22

Your Queries: Income Tax: Adjust basic exemption limit against LTCG/ STCG

Indian tax laws impose individuals to necessarily furnish return of income only when their gross total income in a financial year exceeds the basic exemption limit.

Query: I am a B.Tech student and earn up to Rs 2 lakh from tuition and have some LTCG and STCG. Which ITR form is to be filed? My income is less than Rs 2.5 lakh. Will I pay tax on STCG if my LTCG is less than Rs 1 lakh?

—Nakul Dhal

Indian tax laws mandate individuals to necessarily furnish return of income only when their gross total income in a financial year exceeds the basic exemption limit. The exemption limit for FY 2020-21 for an individual of below 60 years of age is Rs 2.5 lakh. We assume that Long Term Capital Gains (LTCG)/ Short Term Capital Gains (STCG) have arisen on sale of shares held as investment.

Any LTCG on transfer of listed shares, held for a period more than one year are taxed at a flat rate of 10%, if such gains are in excess of Rs 1 lakh in a financial year and Securities Transaction Tax (STT) has been duly paid. On the other hand, STCG are taxable at applicable slab rates for individuals, however, the rate is 15%, if short-term capital gains arise on sale of listed equity shares, on which STT has been paid. A resident individual is entitled to adjust the basic exemption limit against LTCG/ STCG, after making adjustments of other income, if any.

Tax has to be computed separately under each head and thereafter aggregated to arrive at ‘gross total income’. If this gross total income (without claiming any exemption under Section 80C/ 80D, 54, etc.) does not exceed the basic exemption limit of Rs 2.5 lakh, then you shall not be required to file the return of income.

Query: I retired in July 2019 on attaining the age of 58, but have not yet withdrawn the accumulated EPF corpus therein as it earns tax-free interest. When will the taxability kick in on the interest being earned there so that I pay it accordingly as advance tax for that financial year?

—M K Jain

As per a recent judicial pronouncement, interest on EPF to the extent of the amount earned post retirement has been held to be taxable. This is because the exemption is available only to an employee. Once an individual retires, he/ she ceases to be an employee; hence, any interest earned attracts tax. Therefore, conservatively, you may offer the entire amount of interest earned post retirement to tax. You may discharge tax liability annually on accrued interest.