The Hindu Business Line : Gratitude is exempt from tax

I gave a loan of Rs 2 lakh to one of my relatives about 20 years ago. Now he is settled abroad and is planning to return Rs 4 lakh to me, as a token of gratitude.

The agreement was not made in writing. What will be the tax implications when I receive the money? — Aditya Sood

There will be no tax implications on sum that is returned to you.

In so far as the further sum of Rs 2 lakh is concerned, it appears that this is not paid towards interest on the loan but is only given to you out of love and affection and as a token of gratitude.

If this were so, the further sum of Rs 2 lakh will be taxable under the head ‘Income from Other Sources’, if the person is not your relative within the meaning of the explanation to Section 56.

If, however, the person is a relative, within the meaning of the explanation to Section 56, the same will not be chargeable to tax. The term relative is defined in the explanation to Section 56 to mean:

Spouse of the individual

Brother or sister of the individual

Brother or sister of the spouse of the individual

Brother or sister of either of the parents of the individual

Any lineal ascendant or descendant of the individual

Any lineal ascendant or descendant of the spouse of the individual and

Spouse of person referred to in 2 to 4

My son is employed in UAE since 15th January 2008. Until 31st December 2007, he was employed in India and tax was deducted at source by the Indian employer on the entire salary until that date.

Will the salary for the period from 15th January 2008 to 31st March 2008, which is earned and received in UAE, be taxable in India?

For the financial year 2008-09 my son would be in UAE for 11 months and in India for one month. What will be the status of tax in India for the income earned during the financial year 2008-09? — Subhash Gupta

Under Section 6 of the Income Tax Act, an individual is resident in India if he satisfies any one of the following conditions:

He is in India for 182 days or more in the previous year.

He is in India for 60 days (182 days if he leaves India to take up employment outside India, if he is a citizen of India or being outside India comes to India on visit, if he is a citizen of India or a person of Indian origin) or more in the previous year and for 365 days or more in the four years preceding the previous year.

He is resident but not ordinarily resident if he satisfies any of the following conditions:

He is non resident in 9 out of the 10 years preceding the previous year

He is in India for 729 days or less in the 7 years preceding the previous year

If an individual is resident but is not resident but not ordinarily resident then he would be resident and ordinarily resident. An individual who is not a resident would be a non-resident.

For the previous year 2007-08 your son would be resident and ordinarily resident on the basis of the facts given by you. This would mean that the income earned by your son for the previous year 2007-08 will be taxable in India as provided for in Section 5 of the Income Tax Act.

For the previous year 2008-09, your son would be a non-resident in accordance with Section 6 of the Income Tax Act and therefore as provided for in Section 5 of the Act, the salary earned in UAE will not be taxable in India.

In this column, you have on February 17, 2008, clarified that an individual residing in Hyderabad can claim the exemption under Section 10(13A) as also the deduction in respect of interest on borrowed capital for purchase of a house under Section 24.

The query does not indicate whether both the houses are in Hyderabad or in different cities.

In my view, if both the houses are in Hyderabad, it may not be possible to claim the benefit under Section 10(13A) as also under Section 24.

Kindly clarify whether my view is correct particularly in the light of the provisions of Section 23(2). — T.V. Venketash

Even if both the houses are in Hyderabad there would be no prohibition on the claim of exemption under Section 10(13A), as also the claim of deduction under Section 24. Section 10(13A) allows an exemption to be claimed by an individual, who is in receipt of HRA and is also paying rent. Section 24 allows a deduction to be claimed in respect of capital borrowed for purchase, construction, repairs, renewals or reconstruction of a house property.

Where the loan is taken for purchase or construction of a house property and where such property is self-occupied, the deduction can be claimed up to a maximum of Rs 1.5 lakh, provided the purchase or construction is completed within three years from the end of the financial year in which the loan is taken.

In all other cases, where the property is self-occupied, the deduction can be claimed up to a maximum of Rs 30,000.

If on the other hand, the property is let, there is no ceiling limit on the amount of interest that can be claimed as a deduction.

Section 23(2) only provides that a property will be treated as self-occupied only if the owner is in actual occupation of the property or if the property cannot be occupied by the owner by reason of his employment or business or profession being carried on at a place other than the place where the property is located and where it is not possible to reside in that house for this reason.

Section 23(2) does not place any other prohibition on the claim of interest. It is only that if the reader is not able to satisfy this condition in Section 23(2), the notional rent would have to be offered to tax treating the property as let.

On the other hand, if the reader is able to satisfy this condition in Section 23(2), the annual value of the property can be taken as nil.

It either case, deduction in respect of interest can be claimed either subject to the limits stated above if the property is treated as self-occupied and without any limit if the property is treated as let.

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