The Hindu Business Line : Home loans: One from my company, one from my bank

I TOOK a house building advance from my employer company in March 2001. The first instalment along with interest on this loan was repaid in February 2004. In August 2004, I took a fresh loan from HDFC and completed construction of the house in March 2005. Can I claim the tax benefits in respect of the principal and interest?

S. Gupta

Reply

The interest that accrues up to the previous year immediately preceding the previous year the construction was completed would be treated as construction period interest and can be claimed in five equal annual instalments beginning from the year in which the purchase or construction was completed. In your case, from the facts given, the interest up to the previous year ending in March 2004 can be claimed in five equal annual instalments beginning from the previous year 2004-05, in which year the construction was completed. The interest relating to the previous year, 2004-05, can be claimed fully in the previous year 2004-05. If the property is self-occupied, the deduction in respect of interest will be subject to the limits stipulated. You can claim the interest paid to your employer and also to HDFC as a deduction in the manner stated above. The principal repayment will qualify for rebate under Section 88 or deduction under Section 80C as the case may be in the year in which you made payment of the principal.

Query

I am a pensioner. I also earn some interest on deposits, consultancy charges and short-term capital gains on sale of shares on which the securities transaction tax has been paid at the time of sale. I have paid a flat rate of tax of 10 per cent on the short-term capital gains while I filed my tax returns in July 2005 for the financial year 2004-05. Is the short-term capital gain also to be treated as part of the gross total income? Should advance tax be paid even in respect of such short-term capital gains? Would surcharge and additional surcharge be applicable even in respect of the short-term capital gains?

H. R. Rao

Reply

Short-term capital gains even when charged to tax at 10 per cent under Section 111A will form part of the gross total income. The gross total income would be the aggregate income computed before allowing the deductions under Sections 80C to 80U. Advance tax will have to be paid even on the short-term capital gains. You may note that advance tax is payable only when the tax liability after reducing the tax deducted at source exceeds Rs 5000.

The surcharge and the additional surcharge will have to be increased to the tax on short-term capital gains as well even where such gain is charged to tax at 10 per cent.

Query

A company pays rent for an immovable property on behalf of another firm, which belongs to the same management. The company, which pays the rent, deducts tax at source and remits the same into the government account. When the rent paid by the company is reimbursed to it by the other firm, which is in actual occupation of the property, is there a requirement to deduct tax at source?

Amit Kumar Agarwal

Reply

When the company in occupation of the property reimburses the amount paid by the other firm by way of rent on its behalf, the same will not take the character of rent. It will be a loan repaid by the firm in occupation of the property to the company, which actually paid the rent. There would, therefore, be no requirement to deduct tax at source under Section 194-I when such a reimbursement in made.

If, however, interest is charged by the payer company from the occupier firm, tax may have to be deducted on such interest under Section 194A.

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

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page