Adding LTCG and STCG to income – Long Term and Short Term capital gains

[vijayan valiyapurayil]

My subordinate staff in central service who recently went on voluntary retirement is expecting about Rs.2 lacs as pension in the year 2018-19.He invested a good chunk of his pension benefits in units of MF from which he expects about Rs 2 lacs as LTCG and Rs1 lac as STCG also.He has to repay about Rs.1 lac as interest to housing loan and Rs.40000/- as its principal.No other considerable income and liability.
His simple question is whether he can avail the basic exemption limit of Rs.2.5 lacs by adding the LTCG and STCG to his pension amount? or at any cost he has to pay 10% tax on Rs.1 lac LTCG and 15% tax on other Rs.1 lac STCG?

[Dr. Ashok Dhamija]

Section 14 of the Income Tax Act, 1961, makes it clear that the computation of total income includes income under the head of Capital Gains also. Therefore, he is entitled to include the Long Term Capital Gains (LTCG) as well as Short Term Capital Gains (STCG) in the total income and claim benefit of the basic exemption of Rs. 2.50 lakh from such total income.

If the income is still taxable, then he can compute income tax at special rates of LTCG and STCG to the extent taxable income is coming under those categories. If any additional total income is still available, then the normal rate of tax will be applicable.

     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

[vijayan valiyapurayil]

thank you, sir for your valuable reply.Online tax calculators of Apnaplan.com and some other sites are giving the opposite picture which prompted me to raise the query.Still a doubt. Pardon me if am taxing your valuable time.
Since, LTCG is taxed at 10% and STCG at 15 %, can the person add his STCG to his pension to arrive at his basic exemption limit so that he needs to pay lesser tax on LTCG.

[Dr. Ashok Dhamija]

Yes, it can be done. This is what I have mentioned in my previous answer.

Please do not depend on any unofficial websites for income tax calculation. You can use the following OFFICIAL website for income tax calculation which correctly includes LTCG and STCG in the basic exemption limit and also correctly calculates tax at lower rates of 10% or 15% as the case may if the income still exceeds the basic exemption limit (please experiment with this calculator with various incomes, to gain confidence):

https://www.incometaxindia.gov.in/pages/tools/income-tax-calculator.aspx     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

[vijayan valiyapurayil]

sir, As you suggested I visited the above site of income tax dept.(https://incometaxindiagov.in/pages/tools/incometaxcalulator-234ABC.aspx) and tried calculation on the incomes which i had given in my first communication.Irrespective of basic limit, STCG and LTCG are taxed at 15% and 10% respectively. kindly clarify

[vijayan valiyapurayil]

Excuse me sir. The problem with the calculator I think is that when taxable income exceeds 2.5 lakhs, it does not give exemption to this 2.5 lakhs!

[Dr. Ashok Dhamija]

You must have made some mistake. I have personally calculated and it shows standard deduction of Rs. 250,000 and thereafter correctly calculates tax at the rates of 10% or 15% for LTCG and STCG.

Here is the link to a PDF file that I saved out of the calculation made by me at the above IT Calculator; you can download the file and check it for yourself:

https://drive.google.com/file/d/1FLGwRTBkTEbGZMVtoc5e26hi675RvUwa/view?usp=sharing
     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

[vijayan valiyapurayil]

thank you for the strain you have taken on this particular issue.I tried the calculator with the data given below and the tax liability as per the calculator is also given.
salary after standard deduction :260000
Income from house property
(housing loan interest) :-150000
STCG(111A) :100000
LTCG :200000
income from other sources :50000
Deductions:-
Repayment of housing loan :50000
Mediclaim premium :25000
Net taxable income :385000
STCG at15% :15000
LTCG at 20% :13500
Income tax :28500
cess :1140
Total tax liability :29640

sir, please see that the above IT calculator of IT dept.ignores the basic exemption limit of Rs.250000 as i stated in my earlier posting.How can this be justified?
A rough calculation which I feel correct as per your clarification on the above data is given below.
Total income :460000
Deductions :75000
Net taxable income :385000
basic exemption limit 250000
Income tax on balance 135000 is 13500 plus cess

[Dr. Ashok Dhamija]

It appears that you do not know how to operate the Income Tax Calculator the link to which was given by me in my previous answer. In such situation, please engage some local CA to do the computations for you. You commit the mistake yourself, and then you blame on the above calculator / software or blame me saying that the basic exemption limit of Rs. 250,000 is not being allowed.

Using the figures given by you, I have done the calculations myself on the above IT Calculator, and the total taxable limit comes to Rs. 335,000 (and not Rs. 385000 as found by you). Moreover, the above IT Calculator correctly allows the basic exemption limit of Rs. 250,000 and then on the remaining taxable income of Rs. 85000, tax at the rate of 20% is calculated for LTCG. The total tax is Rs. 14500 (after giving the deduction under Section 87A) and with cess, the total tax is Rs. 14,935 only.

You can download the calculation chart prepared by me from the above IT Calculator from the following link:

https://drive.google.com/file/d/1fBpwALe8Hfq8la8weZrHiQDxoUgxeJ2_/view?usp=sharing
     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

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