The Hindu Business Line : Tax cuts and missus

I own a house and it is registered in my name. I have taken a housing loan jointly with my wife. I have sought a tax deduction in respect of interest up to the maximum amount of Rs 1,50,000 and, in respect of the principal, up to the maximum amount of Rs 20,000. Until last year, my wife's income was less than the maximum amount not chargeable to tax. This year, my wife's income will be more than the maximum amount not chargeable to tax. Will it be possible for her to seek tax benefit in respect of the amount over Rs 20,000 that has not been claimed by me. N. Venkateswaran

Your wife will not be entitled to deduction in respect of the principal repayment of the housing loan though it has been taken jointly. This is because she does not own the house. The owner of the property alone is entitled to tax benefits.

However, Section 80C does not restrict claim for deduction in respect of the principal repayment of housing loan to Rs 20,000. Section 80C permits a deduction of up to Rs 1,00,000 in respect of certain investments and payments. Within this limit, you can claim the principal repayment of the housing loan as a deduction.

In case of short-term capital gains from dealings in listed equity shares, can the following costs be reduced in arriving at the gain: Service tax on brokerage; education cess on the above service tax; STT paid on purchase/sale; stamp duty paid on daily turnover; DP charges on purchase/sale; annual DP maintenance charges; interest on borrowed capital; any other expenses such as travelling, consultancy fees etc.

If there is a gain from intra-day trading, will it be treated as short-term capital gains, similar to delivery-based trading? In case it is to be treated differently, can the above costs be deducted in computing the gain?

Can intra-day trading losses be set off against capital gains that is short-term and delivery based?

Can long-term capital losses, which are delivery-based, be set off against short-term capital gains that are delivery-based or from intra-day trading gains that are without delivery?

If a person has earned short-term capital gains out of investments made, given that the investments are gifted or provided by his or her spouse, will the earnings be treated as income in the hands of the person in whose name the transactions are done or in the hands of the donor/lender? V. S. Rama Rao

In computing short-term capital gains, all expenditure incurred wholly and exclusively for the purpose of the transfer can be claimed as deduction. Out of the expenses listed, those incurred by way of service tax on brokerage, education cess on the same and DP charges on sale of shares may satisfy this criterion. Interest on capital borrowed for investment cannot be reduced in computing the capital gains, but it may be possible for the same to be added to the cost of acquisition. Similarly, service tax on brokerage and education cess on the same incurred at the time of purchase can be added to the cost of acquisition of the shares. This would, in effect, reduce the capital gains.

Given the facts, particularly, that the capital was borrowed to invest in shares and that consultancy charges were incurred in connection with share dealings, it leads one to think that the gain itself may not be assessable as short-term capital gains but could be treated as business income. All the facts will have to be analysed to arrive at a definite conclusion on the matter. At any rate, any dealings in shares which is non-delivery based is most likely to be treated as business income and according to Section 43(5) has to be treated as speculative income/loss.

If assessable as business income, all expenditure incurred wholly and exclusively for the purpose of carrying on the business can be claimed as deduction. Such expenditure should, however, not be of the nature referred to in Sections 30 to 36, and should not be of a personal or capital nature.

Of the expenses listed, except STT on purchase and sale of shares, all other expenses will qualify as deduction in computing the business income when it is assessed as such. The STT can be claimed as a rebate under Section 88E. The rebate that will be available under this Section will be the lower of the tax on the business income or the STT paid. The tax on business income will be computed at the average rate of income tax applicable.

Non-delivery based transaction in shares will be treated as speculative and loss from such transactions cannot be set off, except against speculative income of the same year. The balance loss, if any, after such set off can be carried forward and set off against speculative income within four assessment years immediately succeeding the assessment year in which the loss is first computed. It cannot be set off against short-term capital gains that are assessed as such.

A long-term capital loss cannot be set off against short-term capital gains or against business income. It can only be set off against long-term capital gains.

If income is earned from investment that was a gift from the spouse , the income from the investment will be clubbed in the hands of the donor spouse. If the source is not a gift but a loan or advance received from the spouse, the clubbing provisions will not be attracted and the income will be taxed in the hands of the person who has derived the income from the investment.

(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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