The Hindu Business Line : Tax benefits on housing loan when you are living elsewhere

I HAVE taken a housing loan from LIC Housing Finance Ltd. The loan has been utilised for acquiring a house which is not in the city I reside. I am employed and already own a house in the city where I am residing. Will it be possible for me to get tax benefits in respect of the new housing loan? My family members will be living in that new house.

S. Prakash

Reply

There should be no difficulty in claiming tax benefits on the principal repayment and interest payment on the housing loan taken for acquiring the new house.

The only issue will be whether you can treat this house as self-occupied. Only one residential house can be treated as self-occupied and the annual value can be taken as `nil'.

If more than one house is self-occupied, only one will be treated as self-occupied and the others are deemed let-out property.

In the instant case, though your family members are residing in the new house and can be treated as self-occupied, if you are occupying the house which you own in the place where you are employed, you can only treat one of the houses as self-occupied and take its annual value as nil.

You can opt to treat any one house of your choice as self-occupied.

The other house will be deemed to be let out and the sum for which such property can be let should be treated as the income under the head `income from house property'. Deductions can be claimed against such notional income in computing the income from the property.

Query

I have taken a housing loan of Rs 12 lakh, which is in the joint names of my son and myself. The loan was taken in October 2004.

The property was constructed by a co-operative housing society and completed in July 2005. The property is booked in my name with my son being the nominee.

As per the co-operative housing society's rules, the property can only be registered in the name of a single owner. It is, however, possible to register the house in joint names later.

My son is paying the EMI for the loan out of his salary, while the amount of contribution made out of own funds has come from my savings. Will my son be able to claim the benefits in respect of the EMI?

Mukesh Lakhanpal

Reply

For claiming the tax benefits, what is relevant is not the registered ownership but real ownership of the property.

If your son is the real owner of the property, either in whole or part, he can claim the tax benefits on his proportionate share of the ownership in the property.

The Supreme Court, in CIT v Podar Cement Pvt Ltd (1997 226 ITR 625 SC), held that in the context of Section 22, having regard to the ground realities and to the object of the Act, namely, to tax the income, the owner is the person who is entitled to receive income from the property.

A similar view was taken in the R. B. Jodha Mal Kuthiala vs CIT (1971 82 ITR 570 SC) case.

Query

My salary income for financial year 2005-06 will be Rs 1,20,000 and my agricultural income, Rs 50,000. What will be my tax liability?

D. K. Sharma

Reply

Your tax liability for the assessment year 2006-07 will be as follows: Salary, Rs 1,20,000; agricultural income, Rs 50,000; total income as increased by agricultural income, Rs 1,70,000; tax on Rs 1,70,000 — Rs 9,000; less: rebate on agricultural income (tax on Rs 1,50,000, that is, basic exemption as increased by agricultural income), Rs 5,000; balance tax, Rs 4,000; add: cess @ 2 per cent, Rs 80; tax payable, Rs 4,080.

Query

I am a government servant who also invests in shares. In financial year 2004-05, my taxable salary income is likely to be Rs 1,30,000.

I also have short-term capital gains and long-term capital gains of Rs 10,000 and Rs 20,000, respectively.

On the capital gains, security transaction tax was levied at the time of sale.

If I invest in PPF, LIC, and so on, to the extent of Rs 60,000, what would be my tax liability?

Sanjeev

Reply

The answer to this query was published in these columns (Business Line, September 18), wherein it was mentioned that the amount invested in PPF, LIC, and so on, will qualify for deduction under Section 80C. Since the issue relates to assessment year 2005-06, the question of claiming deduction under Section 80C does not arise. These investments and payments will only qualify for rebate under Section 88. The mistake is regretted.

In the light of the non-availability of deduction under Section 80C and the availability of rebate under Section 88, the total income will be Rs 1,40,000 as the long-term capital gain will be exempt under Section 10(38). Out of the total income, Rs 10,000, being the short-term capital gains, will be taxed at 10 per cent, which amounts to Rs 1,000.

The other income of Rs 1,30,000 will be taxed at the normal rates, and the tax thereon will be Rs 15,000. The total tax liability works out to Rs 16,000. Against this, rebate can be claimed under Section 88, which will be 20 per cent of Rs 60,000 or Rs 12,000. The balance tax payable will be Rs 4,000, which is to be increased by an additional surcharge of 2 per cent. This means that the effective tax payable will be Rs 4,080.

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