Your Taxes

My wife has no income of her own. In 2008, I transferred about ₹10 lakh to her bank account. A demat account was opened in her name and trading was carried out. With the crashing of the stock market, she incurred a loss of about ₹9 lakh. Since the money was earned fully by me, the loss was reflected in my IT return of financial year 2008-09, claiming deduction of the loss from my total income for that year. This was disallowed by the ITO. An appeal was made to the appellate division, but the commissioner of Income Tax (Appeals) also rejected the appeal as in his opinion, there are no grounds for considering the appeal. Kindly let me know the right tax treatment and the way forward.

SSK Ayyar

As per Section 64, “income” arising directly or indirectly from assets transferred has to be clubbed with that of the transferor. Hence, in the case cited above, your wife’s income needs to be clubbed with yours. Further, as per Explanation 2 to Section 64, income includes “loss” and hence, the loss incurred by your wife in the share trading transactions can be set off against gains that you earn. We assume that this was the case in your situation and that the loss you made did not relate to a long-term capital asset (i.e. shares held for more than 12 months wherein the profits are tax exempt and so would be the case with losses).

In the absence of details, we are unable to comment on the reason for the disallowance by the AO or rejection of the appeal. However, since clubbing of income is expressly provided for in the regulations, you could file a further appeal before the Income Tax Appellate Tribunal within the specified time.

I have a ULIP, which was started in March 2009. In view of stock markets doing well, I am planning to close the policy. What is the tax treatment for the redemption amount? Do I need to mention this amount while filing returns next year?

Vikram

Tax benefits are available at the time of investment in ULIPs (u/s 80C) and also at the time of receipt of maturity proceeds (u/s 10(10D)), subject to certain conditions.

As you have paid all the premiums and maintained this policy for more than five years, there will not be any reversal of tax benefits you may have claimed u/s 80C at the time of investment.

Further, the sum received on surrender of a policy is taxable only if the premium paid during any of the years was more than 20 per cent of the capital sum assured. If so, the entire proceeds have to be included under the head, “Income from other sources”, while filing your tax return.

In case the premium was lower than 20 per cent of the sum assured, the entire proceeds would be exempt from tax under Section 10(10D). However, you have to report this as exempt income in your tax return (Form ITR 2 -Schedule EI).

The writer is Partner, Deloitte Haskins and Sells. Send your queries to >taxtalk@thehindu.co.in