The Hindu Business Line : Preoccupied with self-occupied

I have taken a Loan of Rs 15 lakh from ICICI Home Finance and purchased a house in Hyderabad. In my income-tax returns, I have shown the house property as "Self-Occupied" and claimed the interest of Rs 1,25,000 as a deduction in computing the income from house property. I also repaid Rs 54,000 towards principal during the financial year 2005-06 and claimed the same as deduction under Section.80C. The Assessing officer has taken objection that no deduction under Section 80C can be claimed in respect of self-occupied property, as the gross annual value in respect of the self-occupied property is nil and therefore no amount was charged to tax under the head "Income from House Property". The Assessing Officer is quoting Section 80C(2)(xviii) for disallowing this claim. Is he justified? — Ramana

The Assessing Officer is apparently not justified in seeking to disallow the deduction under Section.80C. Clause (xviii) of Section 80C(2) reads:

"For the purpose of purchase or construction of a residential house property the income from which is chargeable to tax under the head `Income from House Property' (or which would, if it had not been used for the assessee's own residence, have been chargeable to tax under that head), where such payments are made towards or by way of... "

Even a plain reading of the provision makes it clear that the income need not be charged under the head `Income from House Property' to claim deduction.

It is enough if the income would have been chargeable had it not been used by the assessee for his own residence.

In your case, since you are using the property for your residence, the deduction under Section.80C will be available in respect of the principal repayment though the income is not chargeable under the head `Income from House Property' where the gross annual value is taken as nil.

I have invested in a PPF account. Will the interest and principal be taxable when they are received on maturity? — S. Rajendiran

There is no provision to tax the principal on maturity. This will be a capital receipt, which is not chargeable to tax. The interest received on maturity will not be taxable as the same is exempt under Section.10 (11) of the Income-Tax Act.

I am an independent consultant providing technical/professional services. I get payments based on invoices I raise on my clients. I live in a rented premises. Am I eligible for a rebate on the rent that I am paying. — Sanjay

Section 80GG of the Act allows a deduction on the rent paid by an individual who is not in receipt of HRA (house rent allowance) or a HUF.

Since you are an independent consultant and not in receipt of HRA, you can claim the exemption under Section.80GG.

The deduction under this Section is available with respect to rent paid for residence, if HRA is not received and where an accommodation is not owned by the assessee or spouse or minor child and in case of HUF by any member of the family. The deduction under this Section would be the least of:

Rs 2,000 per month,

25 per cent of adjusted total income, or

Rent paid less 10 per cent of the adjusted total income.

For the purpose of this Section, adjusted total income means the income after all deductions under Chapter VI-A (Sections 80CCC to 80U) but before deduction under this Section.

My father purchased a property in 1956. After his death and the demise of my mother, the property was sold and the proceeds equally shared among the seven legal heirs.

My father did not leave a will. What will be the tax implications in the hands of the legal heirs? — N. Nagraj

On the death of your parents, the property would have apparently devolved on the legal heirs. Each of the heirs would have been entitled to an equal share in the property. The capital gains will have to be computed in respect of each person's share in the property and the tax paid respective.

I inherited a property on the death of my mother. This property had devolved on her on the death of her father. There are no documents to show for what price the property was acquired by my grandfather even before Independence. I have now sold this property for Rs 4,00,000. What will be the tax implication on the sale of the property? Will the tax be charged at the regular rates? — Devika Fernandes

Where the property is acquired by inheritance, the cost of acquisition would be taken as the cost to the previous owner and since in your case, your mother, who was the previous owner, had also acquired it by inheritance, the cost of acquisition of your grandfather would be taken as the cost of acquisition in your hands. The law also provides for substituting the fair market value as on April 1, 1981 as the cost of acquisition. Fair market value would mean that the price that the property would fetch if sold in the open market. The only possible way of arriving at the fair market value may be to obtain a registered valuer's certificate. The capital gains will be arrived at after reducing the indexed cost of acquisition and will be charged to tax at 20 per cent (as increased by the appropriate surcharge and additional surcharge) in accordance with Section 112 of the Act.

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

More Stories on : Income Tax | Income Tax | Tax Talk

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