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T. Banusekar

MY FATHER settled a property to me and to my brother in 1998. The property comprises 2,800 sq.ft of land and a built-up area of 700 sq.ft on the said land. The settlement was done in such a way that I got 50 per cent of the undivided share in land and also the right to construct a first floor on the existing superstructure.

In April 1999, I took a housing loan of Rs 3 lakh and constructed the first floor, which construction was completed in August 1999. I then stayed in that house and was claiming the interest as a deduction in computing the house property income and also the rebate under Section 88 on the principal repayment of the housing loan. Since the income from the property is taken as nil when it is self-occupied, the loss was set off against my salary.

Thereafter, in 2003, I let out the property and moved over to a rented house. Since then I have been offering rental income and also claiming the deduction in respect of interest on the principal repayment. I have also been claiming the benefit under Section 10(13A) in respect of the HRA since then. I closed the loan in November 2004 and took another housing loan from a bank in November 2004 for purchasing a new flat. The new flat was handed over to me in January 2005. I have been living there since then. Can I claim deduction in respect of the interest on the first housing loan taken in 1999 and also the principal repayment of the same (until November 2004) while also taking the benefit of claiming deduction in respect of the new housing loan taken in 2004 and the principal repayment of the same (paid from November 2004)?

Can I also claim exemption under Section 10(13A) in respect of the HRA in lieu of the fact that I have been paying rent until January 2005?

Anonymous

Reply

You can claim both the loans as a deduction in computing the income from house property. If there is a loss from house property, the same can be set off against your income from salary. The deduction would be restricted to a maximum of Rs 1,50,000. You can also claim rebate under Section 88 on the principal repayment of both the loans. The maximum amount eligible for rebate will be Rs 20,000. The exemption under Section 10(13A) can be claimed in lieu of the rent you have paid until January 2005.

Query

I buy and sell shares and these are normally delivery based. I also occasionally do day trading in shares. For this, I have pledged my fixed deposits with the bank and taken an overdraft. Can I claim the interest on the overdraft as part of my cost of acquisition? Can I claim expenses such as remuneration to a person who I have employed to pass on delivery instructions to the depository, telephone, Internet and electricity charges arising from the use of computer and the DP charges paid to the depository as part of the cost of acquisition? What will be the rate at which the income will be chargeable to tax?

My minor son has taken a loan from his PPF account, which stands in his name and has invested the same in shares. Will the clubbing provisions apply in respect of the income from sale of shares held by my minor son? If the gain is a long-term capital gain, can such gain be set off against any loss that I have incurred from dealing in shares? My wife has raised a jewel loan and has invested in shares. Will the interest on such jewel loan qualify for deduction in computing her income from dealing in shares? My brother is retained by a private limited company for looking after their affairs at Chennai. He is paid a lumpsum of Rs 10,000 per month. Will this be treated as his salary income? If my minor son has an income of Rs 4,000-5,000 per annum, earned by him from recitation of Vedas at select functions, will this be clubbed in my hands? Will he have to apply for a separate permanent account number?

S. Satish

Reply

It appears that you are regularly engaged in the buying and selling of shares, particularly because you are employing a person for this purpose. Therefore, the gain or loss from share trading will be assessable as your business income. If the income is assessable as business income, you can claim all the expenses that have been stated by you in the query as a deduction in computing such business income. Business income will be charged to tax at the normal rates applicable to an individual. If there is a loss from day trading the same will be treated as a speculation loss and cannot be set off against income from any other source or head. It can only be carried forward and set off against income from speculation within eight assessment years immediately succeeding the AY year in which the loss was first computed (proposed to be reduced to four AYs from AY 2006-07 by the Finance Bill, 2005). The gain arising from day trading will also be assessable only as your business income.

It is not clear whether your son is dealing in shares as an investment or as a business. In either case, the gain or loss will have to be clubbed in the hands of the parent whose total income is higher. The income once clubbed in the hands of one parent shall continue to be so clubbed unless the assessing officer, after giving the other parent an opportunity of being heard , is satisfied that the same needs to be clubbed in the hands of that other parent. Under whichever head the income is assessed, the loss can be set off only under the same head of the parent in whose hands it is clubbed .

In your wife's case, it is again not clear whether she is dealing in shares as an investment or as a business. If it is in the nature of business the interest on the jewel loan, which is used for acquiring the shares, can be claimed as a deduction. If it is in the nature of an investment and the gain is assessable as capital gains, the interest can be added to the cost of acquisition of the shares.

In the case of your brother, the income may be assessable as salary if he is an employee of the company. If he is not treated as an employee but as a consultant, it will be assessable as business income.

The income earned by your minor son from reciting Vedas will not be clubbed in the hands of either parent, as the same is attributable to his knowledge. Your son will not have to apply for PAN as he would not have to file a return, and this because the income does not exceed the maximum amount not chargeable to tax.

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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