Tax talk

I find that in Form 26AS, the Annual Information Return (AIR) is a separate heading. That means that some authority has to enter details on them. Who is responsible for that and what are the high value transactions? Could you please clarify?

— Col Deidas

According to the provisions of the law, specified persons and authorities who are responsible for registering or maintaining books of accounts or other documents containing any specific financial transaction are required to file Annual Information Return (AIR) in respect of such specified financial transactions. These include banks, mutual fund houses, companies issuing shares or bonds, registrars and sub-registrars for property transactions and Reserve Bank of India (RBI).

AIR refers to the summary of specified high value financial transactions entered into by any individual with the aforementioned companies and institutions during any financial year. At the time of entering of these specified financial transactions, such companies/institutions are required to obtain the Permanent Account Number (PAN) of the individuals which they report in the AIR along with the transaction details — date, name of the individual, address, mode of transaction and transaction amount.

Such specified financial transactions are referred to as high value transactions and are listed in Rule 114E of the Income Tax Rules, 1962. These include cash deposits aggregating to Rs 10 lakh in a savings account in a financial year, credit card payments aggregating Rs 2 lakh in a financial year, purchase/sale of immovable property of more than Rs 30 lakh and so on.

This data aids the tax authorities in selecting cases for tax scrutiny. It is my understanding that, currently, transactions of shares, mutual funds and bonds with PAN details are being reported in the Form 26AS.

My father had invested in REC Capital Gains Tax Exemption Bonds about 20 months ago. He passed away recently. I am the nominee for the investment account and am preparing to submit claim in that capacity. What are tax implications if I decide to cash the amount?

— Laksman

We assume that your father had invested in the bonds for claiming exemption from sale of long term capital asset according to section 54EC of the Income Tax Act. To claim this exemption, one of the conditions is that such bonds need to be held for a period of three years.

If these bonds are sold or redeemed before the expiry of three years, then the amount of capital gains arising from transfer of the original capital asset — which was earlier claimed exempt u/s 54EC — shall be deemed to be income chargeable under the head Capital Gains, in the financial year during which such bonds are transferred or redeemed. Further, seller of these bonds would also be required to pay income tax on any short term capital gain arising on sale/redemption of these bonds, at the applicable slab rates.

According to section 159 of the Act, a legal representative of a deceased person is liable to pay any sum (up to the extent of value of the asset), which the deceased would have been liable to pay if he had not died. Further, all the provisions of the Act shall be applicable for the purpose of making income-tax assessment of the deceased and for the purpose of levying tax in the hands of the legal representative.

Accordingly, if you redeem the bonds before three years of investment, both the aforementioned implications, i.e. payment of tax on the deemed capital gain income and on the short term capital gain income, if any, would be applicable to you in the capacity of a representative assesse of your deceased father.

(The author is a practising chartered accountant)