Financial Daily from THE HINDU group of publications
Sunday, Dec 05, 2004
Financial Daily from THE HINDU group of publications Sunday, Dec 05, 2004 |
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Investment World
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Income Tax Columns - Tax Talk Anxiety of an assessee with agricultural income T. Banusekar
A. R. Suresh Reply You can claim the rebate available under Section 88D. The rebate under this section will be computed if the total income does not exceed Rs 1,00,000, by reducing the entire tax. In other words, in such a case you will have no tax payable. If your total income exceeds Rs 1,00,000, the section provides for a relief, whereby a rebate is allowed from the tax, being the difference between the tax on total income and that part of the total income that exceeds Rs 1 lakh. For example, if the total income is Rs 1,11,000, the tax thereon would be Rs 11,200. The rebate would therefore be Rs 200, that is, the difference between Rs 11,200 and Rs 11,000 (the excess of total income over Rs 1,11,000). In other words, the tax where the total income exceeds Rs 1 lakh and is below Rs 1,11,250 will be the excess of total income over Rs 1 lakh after the rebate. Since agricultural income does not form part of total income, being exempt under Section 10(1), the rebate under Section 88D will be available even where the income exceeds Rs 1,11,250, including the agricultural income, but does not exceed the said sum on excluding the same. Query I am a Central Government employee. I have purchased a plot of land in the current financial year for constructing a house. The stamp duty for registration of the plot in my name is Rs 32,000. Will this be eligible for any tax benefit? T. V. Rameshkumar Reply Stamp duty, registration fee and other expenses for the purpose of transfer of a house property to an assessee will qualify for rebate under Section 88. From the language used in the section, which requires that such duty or fee should be for the purpose of transfer of a house property it, prima facie, appears that the stamp duty and registration fee paid for transfer of a vacant land to you will not qualify for rebate under Section 88. However, the view that rebate will be available even on the stamp duty on land on which a house is constructed is not one without merit. The intent obviously could not have been to allow rebate under Section 88 where a house is purchased while the same would not qualify when a house is constructed. The rebate can be taken in the year in which the stamp duty is paid, but the onus will be on you to prove that such land is one on which a house property has been constructed by you. Query I have purchased a flat jointly along with my wife. The flat costs Rs 16 lakh. My wife and myself have taken loans for this purpose, of Rs 7.5 lakh and Rs 6.5 lakh respectively. Can both my wife and me claim the benefit of rebate under Section 88 on the principal repayment, and deduction under Section 24 on the interest on such loan? If the answer is in the affirmative what are the individual limits for my wife and me? Can these benefits be claimed when the flats are under construction and the possession is not handed over? Can our employers take these tax benefits into account in determining the tax that is to be deducted from our salary? Kindly note that possession of the flat will be handed over only in November 2005. Pradeep Kumar Mudgal Reply Both you and your wife will be eligible for the rebate under Section 88 in respect of the principal repayment and the deduction under Section 24 in respect of the interest on such loan. The maximum amount that will qualify for rebate under Section 88 for principal repayment cannot exceed Rs 20,000. This will also be subject to other overall limits. Each of you can claim the rebate under Section 88 in respect of the repayment up to the maximum limit. If the property is self-occupied the maximum amount of deduction in respect of interest under Section 24 will be restricted to Rs 1,50,000. If it is let out, the interest can be claimed without any limit. If in your case the property is self-occupied, the interest can be claimed by you and your wife, and the limit of Rs 1,50,000 will apply individually to you and your wife. This question will not arise if the property is let out. It is assumed that the loan has been borrowed from an institution specified in Section 88(2)(xv)(c). If it were not so, the principal repayment will not qualify for rebate. Interest however, will qualify for a deduction even if the loan has not been borrowed from such institution. You may note that interest up to the end of the previous year immediately preceding the previous year in which the purchase or construction will qualify for a deduction in five equal annual instalments beginning from the year in which the purchase or construction is completed. In your case, the interest up to March 2005 will have to be accorded this treatment. Your employers can take into account the income or loss from the house property after giving the benefit of deduction in respect of interest in computing the tax to be deducted at source provided you furnish the details in Form No.12C. The employers can also take into account the principal repayment for the benefit of rebate in computing the tax to be deducted at source if you give particulars of the same. Query I propose to buy a land and construct a house on the said land. The cost of the land is likely to be around Rs 15 lakh, and the construction cost, around Rs 10 lakh. The entire Rs 25 lakh is to be funded by way of a loan from a bank. Will the interest on the Rs 25 lakh qualify for a deduction, or is it only the interest on Rs 10 lakh, which is the loan for construction, that will qualify for deduction? Srini Reply The interest on the loan for purchase of the land and construction will qualify for deduction. That is, the interest on the entire Rs 25 lakh will qualify for the deduction. Section 22 of the Act brings to charge the annual value of property consisting of any buildings or land appurtenant thereto of which the assessee is the owner, provided the property is not occupied for the purpose of the assessee's business or profession. Section 24 allows a deduction in respect of interest payable on capital borrowed for the property, which has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital. This will apparently mean that the interest on capital borrowed to acquire the land and building will be allowed as a deduction. It may be noted that even where a property is purchased out of borrowed capital, a part of the borrowing will relate to the cost of land and the interest on such loan is also allowed as a deduction.
(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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