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Taxation Details

Taxation: Homi Mistry

Business Standard / 21 Mar 12 | 12:18 AM

I am holding some shares and want to gift these to my mother. Can I do so? What will be the implications if the price at which I bought these shares is considered the price at which my mother purchases these?
Yes, you can gift. Such a transfer will not attract tax. However, when your mother sells/transfers such shares, in calculating the capital gains taxable in your mother's hands, the cost of acquisition will be taken to be the cost at which you had purchased the shares, and the period of holding will be the aggregate of the period that you, as well as your mother, held the shares. Currently, the sale of listed shares held for more than one year, on which Securities Transaction Tax is paid, is exempt from capital gains tax.

Till now, I had known that if one withdraws his/her Employee Provident Fund (EPF) before completing five years in an organisation, the amount is taxed according to slab. However, I recently read that if the contribution is being made to a recognised provident fund (PF), withdrawal of the accumulated balance is not taxable, even if the employee has not rendered five years of continuous service. Why?
On withdrawal of the accumulated PF balance before completing five years in an organisation, contributions to a recognised provident fund would be deemed a contribution to an unrecognised provident fund and tax accordingly would be required to be recomputed, without taking into account the benefits available on contribution to a recognised provident fund. The tax payable on such re-computation would be deemed as tax due for the year in which the accumulated balance becomes payable. However, the accumulated PF balance may be withdrawn without any tax consequences in case withdrawal from the recognised PF account is on termination of continuous service on account of employee's ill-health, contraction/discontinuance of employer's business or other causes beyond the control of the employee. In case of cessation of his employment, if the employee obtains employment with any other employer, and the accumulated balance in the recognised PF account is transferred to his individual account in a recognised provident fund maintained by the new employer, then such transfer before completing five years of continuous service is not taxable. It may be noted that where the PF withdrawal consists of an amount transferred from his individual account in any recognised provident fund or funds maintained by his former employer(s), then in computing the period of five years of service, the service under his former employer is included.

The writer is a tax partner at Deloitte, Haskins & Sells. Views expressed are his own.
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