The Hindu Business Line : Headed for new pastures

I AM a senior citizen. If I purchase agricultural land will it be possible for me to claim the stamp duty and registration charges as a deduction under Section 80C? If the agricultural land is gifted to my grand children will the stamp duty and registration charges for the gift be eligible for the deduction under Section 80C?

M. A. Khader

Reply

In either case the stamp duty and registration charges will not qualify for deduction under Section 80C.

Query

I booked a flat and have been paying the pre-EMI interest on the loan since November 2005. The flat is under construction and is likely to be completed in December 2006. I stay in a rented house. Can I claim tax benefits on the pre-EMI interest? Can I give the particulars of the same to my employer for the purposes of deducting tax at source? What documents need to be furnished to the employer for this purpose?

Panchapakesan V. Iyer

Reply

The pre-EMI interest will be eligible for deduction under Section 24 in five equal annual instalments beginning from the financial year in which the purchase or construction is completed. Insofar as the principal repayment is concerned, the deduction under Section 80C will be allowed in the year of payment. Pre-EMI interest would mean the interest which is accrued up to the end of the financial year immediately preceding the financial year in which the purchase of construction is completed. The particulars in respect of the same can be given to the employer who will take the same into account in determining the tax to be deducted at source. The particulars of the same need to be given in accordance with Rule 26B, which is to be verified in accordance with sub-rule (2) of Rule 26B.

Query

If a house property is registered in the name of an individual's wife, will it be possible for the him to claim tax benefits in respect of the principal repayment and interest on the housing loan if the same is paid by him? What will be the implication if the husband and the wife are divorced or in the event of the death of the wife?

R. Muthukrishnan

Reply

The husband who is not the owner of the property cannot claim the tax benefits even if he pays the EMI and the property is owned by the wife. In the event of divorce also the tax benefits cannot be claimed by the husband unless the property is owned by him.

In the event of death of the wife, the property will devolve on her legal heirs in accordance with the Succession Act, if she has not left a will.

If she has left a will, the property shall devolve in accordance with it. The husband will be able to claim the tax benefits on the basis of his share in the property which he gets on the death of the wife.

Query

I sold a house, which had a first floor. The staircase of the house is outside the building. To avoid capital gains tax I propose to construct a second house just like the first one. Will the entire cost of construction of the ground and first floor be eligible for exemption?

P. Swaminathan

Reply

The answer will largely depend on whether the ground and first floor of the new house is one unit. If so, there should be no difficulty in claiming the exemption in respect of the entire construction cost of the ground and first floor.

If on the other hand, the ground and first floor are independent units, contrary decisions have been taken by different Benches of the Tribunal on whether investment in more than one house will qualify for exemption. The Bangalore Bench of the Tribunal in D. Anand Basappa v ITO [2004] 91 ITD 53 (Bang) has taken the view that investment in more than one house will qualify for exemption under Section 54 while the Mumbai Bench of the Tribunal in Mrs Gulshanbanoo R. Mukhi v JCIT [2002] 83 ITD 649 (Mum) decided that the investment in only one house will qualify for the exemption under Section 54.

Query

My expected total income for the financial year 2005-06 is Rs 4,50,000. I have made tax saving investments of Rs 2,20,000 which includes Rs 1,32,000 towards housing loan interest. Will the entire Rs 2,20,000 qualify for deduction?

Anonymous

Reply

The sum of Rs 1,32,000 paid by you towards interest on housing loan will fully qualify for deduction under Section 24 in computing income from house property.

The balance of Rs 88,000 which is the investment made should qualify for deduction under Section 80C provided the investments are eligible for deduction under the said section.

Query

I purchased a house in September 2003. I gained possession of it in March 2004. I am getting the tax benefit in respect of the house loan. Around three months back I purchased another house. Will the interest on the housing loan taken for the new house qualify for tax benefits?

Chandu

Reply

The interest on the housing loan taken for purchase of the new house will qualify for deduction under Section 24 in computing income from house property. Similarly the principal repayment of this housing loan will also qualify for deduction under Section 80C. You may, however, note that you can treat only one house property as self-occupied and take its annual letting value as nil.

As regards the other, the same cannot be treated as self-occupied and its annual value will have to be determined based on the sum for which the property can be reasonably expected to let from year to year.

This will be so, even if the property is not actually let. If neither of the property is let the assessee can choose the property which he desires as self occupied and the other will be treated as a deemed let out property.

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