The Hindu Business Line : Invest plan: One for my wife and one for my daughter

My gross income is Rs 1,80,000. I propose to make investments in the name of my spouse and minor daughter who have no independent source of income, in approved tax saving instruments such as NSC etc., to claim deduction under Section 80C. Will I be eligible to get the benefit of deduction under Section 80C in respect of the investment made in the name of my spouse and minor child? Also confirm whether my employer in computing the tax to be deducted can take these investments into account?

I propose to purchase a flat in Chennai the value of which is Rs 10.83 lakh. Eighty five per cent of the cost will be financed by the bank. My spouse apart from having dividend income of around Rs 5,000 does not have any other income. I propose to register the flat in her name to provide for her future security. Will I be able to get the tax benefits in respect of the housing loan? I receive dividend annually of around Rs 15,000 to Rs 20,000 from equity oriented mutual funds. Is this taxable? S. Muthukumar

The deduction under Section 80C in respect of certain investments is available where the investment is in your own name. The deduction under Section 80C is also available where the payment is for the benefit of the spouse or any child of the individual in case of life insurance premium, investment in a public provident fund, investment in the ULIP of the LIC or a mutual fund, investment in the ULIP of the UTI, investment in a deferred annuity other than an annuity of the LIC or any other insurer. In respect of other investments, the deduction under Section 80C cannot be claimed where it is for the benefit of the spouse or children. You may therefore note that in respect of investment in NSC, no deduction under Section 80C will be available where it is made in the name of your spouse or child. In respect of other investments as mentioned earlier if they fall within the aforementioned categories, the deduction under Section 80C can be claimed even where the same is in the name of your spouse or minor child.

If the investment in the house property is made in the name of your spouse as the sole owner, it is only she who can claim the tax benefits if at all in respect of the housing loan repayments. Given that she does not have any independent source of income other than dividend income, which is also very low and in any case exempt, she cannot get the tax benefit either.

The income received from the mutual fund investment will be exempt from tax under Section 10(35) which provides that income received in respect of the units of the mutual fund specified under Section 10(23D) would be exempt. This income will therefore be non-taxable.

As regards futures and options kindly clarify whether the same would be treated as business income or as short-term capital gains. G. Chandrasekaran

Generally speaking, the issue of whether such income will be treated as business income or capital gains can be decided based on the period of holding, the frequency of such transactions, the motive of the transaction which is to be examined on facts, the entries in the books, the infrastructure deployed, the source of funds (whether own or borrowed). None of these factors can be taken in isolation in determining whether the transactions by way of buying and selling of shares are in the nature of business or of investment.

In the case of futures and options, apparently the intention is to earn profit and not to hold them as an investment. This being the case, it is felt that dealing in futures and options will be treated only as business income and not as income chargeable under the head capital gains. Section 43(5) has been amended by the Finance Act, 2005, to provide that trading in derivatives referred to in Section 2(aa) of the SCRA 1956, carried on in a recognised stock exchange will not be treated as a speculative transaction.

This benefit will be available only if the transaction is carried on through a registered broker or sub-broker or by banks or mutual funds and where the transaction is carried out electronically on screen based systems and which is supported by a time stamp contract note which indicates the client identity and the number allotted under the SEBI Act or the SCR Act or the Depositories Act and also gives the permanent account number of the client.

I have taken a housing loan and purchased a house property. I pay an interest of Rs 1.90 lakh per annum on the loan. The house is let out. What is the amount of interest that I can claim as a deduction? M. Barboza

You can claim the interest as a deduction without any ceiling limit.

The rental income will be chargeable under the head income from house property. The deduction in respect of the interest under Section 24 will be available without any ceiling limit where the property is let out.

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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