Losses in mutual fund units' trading are business losses

dubai - Such loss can be set off against income taxable under any other head

Q: I have been trading in units of mutual funds. In the current year, I have made some losses, which I wish to set off against profits from trading in shares. Will I be permitted to set off such loss against profits? My tax consultant feels that this may not be allowed by the income-tax department as the loss pertaining to the units may be treated as arising from speculative transactions.
- C.R. Joshi, Dubai

A: A speculative transaction is defined by section 43(5) of the Income-tax Act to mean a transaction in which a contract for the purchase or sale of any stocks and shares is settled otherwise than by actual delivery. The Supreme Court has held that units of mutual funds do not fall within the meaning of the word 'shares'. Therefore, the provisions of section 73 which stipulate that losses from a speculation business can only be set off against profits of another speculation business would not be applicable.

In short, the losses in transactions of mutual fund units would be treated as a business loss, and not as a speculation loss. Thus, such loss can be set off not only against profits of the same business or another business, but can also be set off against income taxable under any other head, including property income or investment income.

Q: My parents are returning to India but I will continue to work in the Gulf for the next few years. My father will be earning investment income in the current financial year. Is he liable to pay advance tax on such income and, if so, when is he required to pay and on what amount?
- K.C. Ramaswamy, Doha

A: Your father, being a senior citizen, is not liable to pay advance tax if he does not have any income chargeable under the head 'Profits & Gains of Business or Profession'. Therefore, if he earns income during the current financial year and subsequent years only from investments or from rent of any house property, no advance tax is payable by him. In such a case, he would have to pay the tax only before filing his tax return, for which the last date is July 31 of each assessment year. In his case, the initial exemption would be three lakhs rupees, but upon reaching the age of 80 years, the initial exemption limit would be five lakhs rupees.

This benefit of not paying advance tax is only available to a person who is resident in India. Therefore, if your father retains his non-resident status by being outside India for more than 182 days, he would be liable to pay advance tax by June 15, September 15, December 15 and March 15 of the financial year. He would need to estimate his tax liability for each financial year and pay the advance tax in instalments of 15 per cent, 30 per cent, 30 per cent and 25 per cent respectively by the aforesaid dates.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policies.

• India