My father is over 80 years old and his income for financial year 2020-21 is as follows: short-term capital gain of ₹1.2 lakh; long-term capital loss of ₹1.1 lakh; savings account interest of ₹4,000; fixed deposit interest of ₹20,000; NRI gift received of ₹10 lakh; and resident Indian gift of ₹2 lakh.Does he need to file income tax return? If yes, in which form? Can we set off the short-term capital gain with the long-term capital loss? Should we show the monetary gifts in the income tax return? If yes, under which head or part of the form?
We have assumed that your father is an Indian tax resident and is not into regular trading in shares. The gains have, therefore, been assumed to be in the nature of capital gains.
As per provisions of income tax law, long-term capital loss (LTCL) can be set off only against long-term capital gain (LTCG). Accordingly, the LTCL incurred by your father will not be eligible to be set off against short-term capital gains (STCG). Your father can carry forward the LTCL for eight FYs immediately succeeding the current FY and set off the same against future LTCG.
To enable your father to carry forward the LTCL, he shall be mandatorily required to file his income tax return (ITR) within the prescribed tax filing due date.
Where a gift is received from a specified relative, the transaction of the gift itself will not give rise to any income tax implications in the hands of the receiver (i.e. your father). However, in case gift(s) are received from non-relatives and the aggregate of such gifts exceed ₹50,000, the entire amount received shall be subject to tax in India.
Accordingly, taxability of the gifts received shall be determined based on whether or not the gift has been given by a relative of your father.
From a disclosure perspective, the taxable amount of gift is required to be reported as income under Schedule OS in Form ITR-2. Non-taxable gifts need not be reported in the ITR.
Also, please note that a deduction of up to ₹50,000 is available for interest income for senior citizens (on both fixed deposit and savings interest). As your father’s total interest income is ₹24,000, a deduction of the entire amount shall be available.
Generally, a resident individual who is of the age of 80 years or more is required to file a tax return in India if his taxable income (prior to prescribed deductions) exceeds ₹5 lakh, subject to certain other exceptions not applicable in the instant case.
In your father’s case, if the total income (after considering taxable gifts) exceeds ₹5 lakh and/or your father wants to carry forward the LTCL, he would be required to file his tax return.
Further, as per the income sources provided, your father would be required to file his ITR using Form ITR-2.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG, in India.
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