Your Taxes

After my retirement from a PSU, I have been filing my tax returns for the last five years. Last year (AY2014-15), my taxable income with the help of 87-A helped not to pay any tax. This year too, my income will be less than the exemption limit due to the increase in exemption limit to ₹3 lakh. What are the rules relating to filing of returns? Can I stop filing returns from this year?

Ramesh Chandra Pal

As per Section 139(1) of the Income Tax Act, 1961, an individual is mandated to file a tax return if his gross total income (before any deductions under chapter VI-A) is more than the basic exemption limit. Besides this, an individual is required to file a return if he is a resident having any overseas asset or a financial interest in any entity located outside India or is a signing authority in any account outside India (irrespective of whether there is any taxable income).

We understand that you are more than 60 years of age, having gross total income less than the basic exemption limit of ₹3,00,000. In that case, there would not be a requirement to file the tax return for financial year 2014-15, assuming that you are not covered by the other conditions stated above, which mandate filing of tax return.

I recently retired and am investing a substantial amount of my retirement proceeds in debt funds under a growth option. If I do not withdraw these amounts for three years from the date of investment, do I need to show the accrual gains as part of my income for the current year? Or is that I should show such gains as and when I redeem them in the respective years?

Muralidharan Subramanian

As per Section 45, gains are chargeable to tax in the year in which the transfer took place. Under the growth option, any proceeds are realised only at the time of sale of units. Hence, profits on sale would have to be included as part of taxable income in the year of sale/redemption. The rate of tax will depend on the period of holding of the units. In case the units are held for less than three years, the gains will be classified as short term and taxed at progressive rates. Gains realised on sale of funds held for more than three years will be in the nature of long-term capital gains chargeable to tax at 20 per cent.

However, if the redemption happened before July 10, 2014, the old rules would apply, i.e. the period of holding for classifying a gain into long term/short term would be 12 months. Further, long-term gains would be taxed at 20 per cent (with indexation) or 10 per cent (without indexation).

Based on the above, you need to show the gains only when you redeem the units and not on accrual.