The Hindu Business Line : Counsel for faculty on royalty

However, in respect of the royalty for the year March 31, 2007, tax has been deducted at source by the publisher, though the same has not been paid to me as yet.

I expect to receive this royalty only in September 2007. I am advised that I should claim the credit for tax deducted at source in the assessment year 2007-08.

Please note that I follow the cash system of accounting and in the circumstances I would like to know whether the credit for the tax deducted at source should be taken in the assessment year 2007-08 or in the assessment year 2008-09?

Also clarify whether I can offer the tax deducted at source as the income of the assessment year 2007-08 and claim full credit for the tax deducted in the same year? — Dr Meera

The second part of your query suggests that you will offer the tax deducted at source as the income of the assessment year 2007-08 and an amount equal to the same will be claimed as credit in the very same year.

As regards offering the tax deducted at source as your income of the assessment year 2007-08, this is probably sought to be done based on the provisions of 198 of the Act which provides that the tax deducted at source is also the income of the assessee. Since, this has been remitted on your behalf of the payer; you are probably seeking to treat the same as received in that year.

Even if this were possible, the credit for the entire tax that is deducted at source cannot be claimed in the assessment year 2007-08.

In this connection you may note that the provisions of Section 199 specifically provide that credit can be taken for tax deducted at source in the year in which the corresponding income is assessable.

You may note that even if you offer the tax deducted as income, the entire tax deducted cannot be taken credit for since it cannot be taken that the entire tax deducted is attributable only to the amount of income that is offered.

The ideal course of action for you to follow will be to offer the royalty in the assessment year 2008-09 and to take credit for the entire tax deducted at source in that year.

This would also be in accordance with the provisions of 199 of the Act. Further, since you are following the cash system of accounting, the income can be offered to tax in the year in which it is received, which is in the previous year relevant to the assessment year 2008-09.

I purchased a flat two years ago with the help of a housing loan and I have been claiming the tax benefits on the principal repayment as well as the interest payment.

About 9 months back, I had purchased a flat adjacent to my earlier one and I now use both these flats for my own occupation.

Will it be possible for me to claim the tax benefits in respect of the principal repayment and the interest payments on the housing loan taken for acquiring both the flats? — Amit

There should be no difficulty in claiming the tax deduction under Section 24 in respect of the interest on housing loan and under Section 80C in respect of the principal repayment of the housing loan. This can be claimed by you in respect of both the flats, which are presently used for your own occupation subject to the limits specified by the Sections.

We run a publication house where we are primarily engaged in publishing books for students. We are subject to audit under Section 44AB of the Income Tax Act, 1961.

We pay royalty to the authors of the books. Are we required to deduct tax at source on the royalty and if so, under which Section? — Jayesh Shah

Tax is required to be deducted at source on royalty under Section 194J of the Act. This Section would require a person being an individual or a HUF to deduct tax at source only if they were subject to tax audit under Section 44AB by virtue of exceeding the specified monetary limits in the immediately preceding previous year.

Persons other than individuals and HUFs will have to deduct tax at source under this Section in all cases. You have not stated in your query in which status you are assessed to tax in respect of the publishing unit.

Your requirement to deduct tax at source will depend on this and will arise in the manner stated above.

You may note that tax will have to be deducted in respect of payment or credit whichever is earlier, (up to May 31, 2007) at 5 per cent (as increased by the appropriate surcharge and additional surcharge) and in respect of payment or credit whichever is earlier, (on or after June 1, 2007) at 10 per cent (as increased by the appropriate surcharge and additional surcharge).

You may further note that there was no requirement to deduct tax at source on royalty payments paid or credited prior to July 13,2006.

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

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