Tax Query: Can you invest in ELSS under Section 80C to reduce tax liability?

I am a housewife. I have been investing in equity for the last 12 years, only for the long term. The principal was received from my parents during marriage. Now the corpus has grown. During this financial year i have sold some bluechip equity shares held for more than 8 years. The tax liability is in excess of ₹2 lakh. I have no other income except long term capital gains. Can I invest in ELSS under 80C to reduce my tax liability?

Swapna Amar Mahendrakar

Under the provisions of the Income Tax Act, chapter VI-A deductions i.e. deductions under section 80C to section 80U cannot be claimed on long term capital gains. Since you don’t have any income other than long term capital gains, you will not be able to claim deduction for investments made in ELSS.

I am 58, and out of a job, so my nephew sends me around 40,000 towards monthly expenses for the upkeep of my family. I have no other source of income besides the amount saved in the bank during the tenure of my 20 years of service. Do I have to pay tax on the said amount received from him? Is it to be considered as my income? Do I need to show it in my IT return? Please clarify.

Khushrau Aibara

As per section 56 of the Income-tax Act, 1961 (‘the Act’), any sum of money received by an individual from a relative is not taxable. The term relative is specifically defined to include:

a. Spouse of the individual

b. Brother or sister of the individual

c. Brother or sister of the spouse of the individual

d. Brother or sister of either of the parents of the individual

e. Any lineal ascendant or descendant of the individual

f. Any lineal ascendant or descendant of the spouse of the individual

g. Spouse of the persons referred above

However, if moneys are received from a person who is not a relative, then such receipts are taxable in the hands of the recipient. You may note that even in this situation, taxation wouldn’t arise if the moneys received do not exceed ₹50,000 during a financial year.

As you can observe, “Nephew” is not covered under definition of relative. Since you have received over ₹50,000 during the year, the entire sum received from your nephew would be taxable and included in your return of income as “income from other sources”.

Shares were transferred from wife’s account to husband’s account due to sudden demise of wife (one DP account to another). All the shares transferred are shown under Capital Gain (either long term or short term). The same shares will be sold in future from my account also. In the first instance, there was no funds transfer except shares transfer. Please advise.

R. Muralidharan

Section 56(2)(x) of the Act provides that any property (other than immovable property) received without consideration by way of inheritance would not be taxable in the hands of the recipient. Hence, transfer of shares (being movable asset) from your wife’s account to your account pursuant to her death is not taxable in your hands.

However, when the shares are sold by you, then it would be regarded as transfer as per section 2(47) of the Act and be taxed either as long-term or short-term capital gain depending on the period of holding. The period of holding will be determined from the year in which the shares were originally acquired by your wife.

The writer is Partner, Deloitte India.

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Published on

May 07, 2022

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