The Hindu Business Line : Search for infrastructure investment to make the cap

I WANTED to invest Rs 30,000 in equity shares of a public company engaged in infrastructure development so as to be eligible for a rebate in respect of the investment. I invested Rs 10,000 in IDBI but could not find any other qualifying investments in the market.

Will it be possible to invest the balance of Rs 20,000 in any other form such as in units of a mutual fund or in the LIC so that I can claim rebate on the further investment of Rs 20,000 as well.

Paneendra Kumar

Reply

Even if you invest the balance of Rs 20,000 in any other manner you will not be eligible for a rebate on the investment. Section 88 provides for a rebate on a basic investment of Rs 70,000 and a further rebate on investment of Rs 30,000 in debentures or equity of a public company engaged in infrastructure development or power.

In the instant case, you have probably exhausted the basic investment limit of Rs 70,000 and are looking to claim a further rebate by investing Rs 30,000 more in equity shares of a public company engaged in infrastructure development.

Since you have invested only Rs 10,000 in such modes, only Rs 10,000 can qualify for rebate. That you cannot find a mode of investment in the market will not be a reason to make an investment in any other form so as to qualify for rebate on such investment.

Query

You had in these columns clarified that the percentage of rebate under Section 88 would depend on the gross total income, that is, the income before deductions under Chapter VI-A comprising Sections 80CCC to 80U. Kindly clarify whether the income to be taken into account for determining the percentage of rebate under Section 88 is after standard deduction? Is surcharge leviable on the basis of the income computed after rebate under Section 88? The rebate under Section 88 is available only towards children's education fees and not towards education fees of the assessee. Is this correct?

K. Ranganathan

Reply

For the purpose of rebate under Section 88, the income will be that which is computed after standard deduction. As indicated by you, the percentage of rebate under Section 88 will depend on the gross total income, that is, the income computed before applying the provisions of Sections 80CCC to 80U (Chapter VI-A). Standard deduction is computed under Section 16, which is a deduction in computing the salary income. This can be reduced before arriving at the gross total income.

It appears that the confusion is with regard to computation of income and the rebate. Rebate is reduced from the tax on total income. Total income is first computed and thereafter the tax is computed on such total income.

If the total income exceeds Rs 8.50 lakh, a surcharge is leviable. Rebate will not alter the total income and, therefore, the question of whether levy of surcharge will be on the basis of the income before or after rebate under Section 88 does not arise.

You are right in your understanding that rebate under Section 88 is available only in respect of the tuition fee paid for the full-time education of two children and not for the tuition fee paid in respect of the education of the assessee himself. It may be noted that the education should be in India and only the tuition fee paid for two children of the assessee will qualify for the rebate.

Query

If a loan is taken for purchasing a vacant plot, will the interest thereon and the principal repayment of such loan qualify for deduction and rebate respectively? I do not propose to construct a house on the land immediately.

If an individual takes more than one loan for constructing or purchasing more than one house property, will the interest on such loans and the principal repayment of such loans qualify for deductions and rebate respectively?

Raja Sekar

Reply

You may not be eligible for interest deduction on loan taken for purchasing the plot or for rebate on the principal repayment on such loan since you will not be constructing a house on the plot immediately.

Interest on loan taken for the purchase of a plot on which a house is to be constructed should also qualify for deduction under Section 24 and further the principal repayment of such loan should also qualify for the rebate under Section 88.

It would only be fair that this view be taken given that the objective of purchasing the plot is to build a house, and, further, a house cannot normally be purchased or constructed without purchase of a plot of land.

In this context, reference had also been made to Circular No. 667 dated October 18, 1993, of the Board rendered in the context of Sections 54 and 54F, which are exemptions available in computing capital gains.

As per this circular, the Board has clarified that the cost of the plot on which a residential house is situated should also be taken into account in computing the amount to that is eligible for exemption under Sections 54/54F. These sections provide for an exemption on reinvestment in a residential house. It may be clarified that no deduction or rebate can be claimed until such time as the construction of the house is complete.

The interest up to the end of the previous year immediately preceding the previous year of completion of construction will however qualify as pre-construction period interest which can be claimed as a deduction in five equal annual instalments commencing from the year in which the construction of the house is completed but within the overall ceiling limits.

There is no restriction on claiming interest on housing loan or rebate on the principal repayment of such loan for more than one loan taken for purchase or construction of more than one house property.

The quantum of deduction in respect of interest will be with reference to each property and will be restricted to a maximum of Rs 30,000 (Rs 1,50,000 if the loan is taken on or after April 1, 1999, and the purchase or construction is completed within three years from the end of the financial year in which the loan is taken) if the property is self-occupied and without any ceiling limits if the property is let out.

The amount that will qualify for rebate under Section 88 in respect of the principal repayment cannot exceed Rs 20,000.

The rebate order

OF the rebates under Sections 88 and 88B, which of these is to be allowed first? If a senior citizen has a long-term capital gain of Rs 1 lakh and other incomes of Rs 1.40 lakh how is the rebate to be allowed if the senior citizen has made an investment of Rs 1 lakh which is eligible for rebate under Section 88.

H. S. Ramachandra

Reply

The rebate under Section 88B is to be allowed before the rebate under Section 88. This will be so because Section 88B that allows a rebate to senior citizens (individuals who are 65 years or more at any time during the previous year) provides that the rebate under the section would be before allowing rebates under any other section in Chapter VIII of the Act.

In the instant case, the tax on the basis of the information given will be as shown in the Table.

(Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.)

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