Income Tax Query 12: Set-off Unutilised Basic Exemption Limit against Capital Gains (Taxable at Special Rates)

Scenario

Mr/s A. B. is an Individual having Income from Capital Gains on Equity / Equity Mutual Funds / Debt Mutual Funds as well as Interest / Dividend included under the head – Income from Other Sources.

Query

If the Income (chargeable to tax at Normal Rates / Slab Rates) is less than the Basic Exemption Limit, whether “adjustment” of shortfall in Income from Basic Exemption Limit is available in respect of Income Chargeable to Tax at Special Rates, in the case of :

(1) a Resident Individual (or a Resident H.U.F.)

(2) a Non-Resident Individual (or a Non-Resident H.U.F.)

Response

(1) YES, Adjustment of shortfall in Income from Basic Exemption Limit is available in respect of Income Chargeable to Tax at Special Rates, in the case of a Resident Individual (or a Resident H.U.F.)

(2) NO, Adjustment of shortfall in Income from Basic Exemption Limit is available in respect of Income Chargeable to Tax at Special Rates, in the case of a Non-Resident Individual (or a Non-Resident H.U.F.)

Reference:

1. Proviso to sub-section (2) of section 112A (Tax on long-term capital gains in certain cases.)~ Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, the long-term capital gains, for the purposes of clause (i), shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax.

2. Proviso to sub-section (1) of section 111A (Tax on short-term capital gains in certain cases.)~

Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such short-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax.

3. Proviso to Clause (a) of sub-section (1) to section 112 (Tax on long-term capital gains.) (a)  in the case of an individual or a Hindu undivided family, being a resident,—Provided that where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax .