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T. Banusekar

I HAVE inherited a piece of land from my father. I intend to sell half of it to my wife. We then propose to apply for a loan jointly for construction of a house. Both of us have income chargeable to tax. Can we claim the interest and principal repayment as a deduction/rebate in the proportion of our ownership of the property which would be 50:50?

We also understand that there will be a capital gain in my hands on the sale of the 50 per cent land to my wife. Will this capital gain be eligible for exemption on the reinvestment in the house by way of construction?

Raja

Reply

If your wife and you own 50 per cent each in the property, there should be no difficulty in claiming the deduction in respect of interest and the rebate in respect of the principal repayment in the same proportion. As indicated by you, You can also claim exemption under Section 54F in respect of the reinvestment in the house by way of construction to the extent of your share in the property provided you satisfy the other conditions stipulated by the section.

Query

I live in a flat in Kerala, which is owned by me. For buying this flat I had borrowed money from my relative. The annual municipal tax in respect of the property is being paid by me. Can I claim the municipal tax as a deduction irrespective of the actual payment in the previous year?

S. K. Das

Reply

Municipal tax is allowed as a deduction in the year of payment irrespective of the year to which it relates in computing the income from house property provided the property is let out. In your case you have stated that you live in that house. Therefore, there will be no deduction available in respect of the municipal tax paid by you even if it is actually paid.

Query

I had purchased a flat for Rs 3 lakh. I have also paid Rs 30,000 by way of stamp duty for registering the property in my name. I had taken a loan of Rs 3 lakh to pay for it, the purchase price, while the Rs 30,000 towards stamp duty was paid out of my own funds. Can I get rebate in respect of the stamp duty paid out of my own funds? Will the principal repayment qualify for rebate? Can I get the deduction in respect of interest on the loan?

Anurag

Reply

You can get rebate in respect of the stamp duty that is paid. It does not matter whether this is paid out of own funds or out of borrowed funds. Principal repayment to certain institutions will qualify for rebate. However, the aggregate of principal repayment and stamp duty, and so on, which will qualify for rebate cannot exceed Rs 20,000.

Therefore, in your case, the principal repayment will not qualify for rebate in the current year since the limit is already exhausted. In subsequent years, it will qualify for rebate provided it was borrowed from the institutions specified in Section 88(2)(xv)(c).

Interest on housing loan will qualify for deduction in computing income from house property.

Query

I purchased a house property in the financial year 2002-03. The seller of the property paid the property tax for the first half of the financial year 2002-03. The receipt for the same also stands in his name. Can I, as the purchaser, claim the property tax paid by the seller as a deduction in computing the income from house property?

S. Madhavan

Reply

You cannot claim the property tax as a deduction in computing the income from house property. Section 23 permits taxes levied by a local authority to be claimed as a deduction in computing the income from house property irrespective of the year to which it relates, provided it is incurred by the owner.

In the instant case, you are the owner of the house and the income is being computed in your hands. Therefore, you cannot claim the tax paid by the seller. It is presumed that the property is let out by you. You may note that if the property were not let the question of claiming the property tax as a deduction in computing the income from house property does not arise.

Query

Can interest on capital borrowed from a friend or relative for purchase, construction, repairs, renewals or reconstruction be claimed as a deduction in computing income from house property? What will be the position in respect of the repayment of principal of such loans?

T. K. Das

Reply

You can claim the interest as a deduction in computing your income from house property. Rebate however cannot be claimed in respect of the repayment of principal of such loans. This will be so because Section 88(2)(xv)(c) specifically provides that the repayment of principal only to the employer in certain cases and to certain specified institutions or to the Government will qualify for the rebate.

No such restriction is, however, placed under Section 24 and, therefore, the interest paid on loan taken from a friend or relative for the purposes mentioned by you will qualify for deduction in computing income from house property.

Query

I am posted in Sikkim. I had purchased a flat in my wife's name in Chennai where she now resides. My company pays a rent of Rs 7,480 under a self-lease accommodation scheme for the flat — that is, they take the flat on lease and let it out to us for use. The company pays the rent in my name and includes it as my income, deducting tax at source on the same.

I have taken a loan for the purchase of the flat and the loan is in the joint names of my wife and me. Can I claim the interest on the loan as a deduction against this rental income? The rent is being paid to me while the flat is in the name of my wife. Is this correct? Can I request my employer to pay the rent in the name of my wife?

K. T. Rajah Pandian

Reply

From the query it appears that the house actually belongs to you but is registered in the name of your wife. In other words, the property has, in effect, been gifted by you to your wife. This will essentially mean that the clubbing provisions of Section 64 would get attracted.

One of the circumstances contemplated under this section for clubbing of income is in respect of income from a property transferred for inadequate consideration by one spouse to another otherwise than in connection with an agreement to live apart.

This will mean that the income by way of rent whether received in your or your wife's name will not make any difference, for the clubbing will be attracted. However, if the property is purchased by your wife out of her own resources and where she is repaying the loan and interest thereon the income should belong to her and should be assessed in her hands.

In such a case it would be advisable for you to require your employer to pay the rent to her so that the income could be accounted in her hands as income without any difficulty.

The person to whom the employer pays the rent will not make a difference with regard to whose hands the income will be taxable.

Also, there would be no need for your employer to deduct tax on the rent that is paid even if it were to you, as Section 194-I requires tax to be deducted on rent only if the same exceeds Rs 1,20,000 per annum.

The person in whose hands the income is assessed can also claim interest on the housing loan as a deduction subject to limits provided in Section 24.

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