The Hindu Business Line : Deductions on partly let house

My aunt works for a private company and earns a monthly salary of around Rs 30,000. While she owns a two-bed room flat at Mumbai, she has also let out a portion of her flat and gets a rental income of Rs 5,000 per month.

Will she be eligible in such circumstances to claim the entire interest on the loan that has been taken by her for purchase of the flat or will she only be eligible for the claim of interest subject to the limit of Rs 1.5 lakh? — Arun R.Sahu

As has been pointed out by you, interest can be claimed on loan taken for purchase, construction, repairs, renewals or reconstruction of a house property.

In a case where a house property, which is purchased or constructed out of borrowed capital is self-occupied, the maximum amount of interest that can be claimed as deduction under Section 24 is sum of Rs 1.5 lakh.

If on the other hand, the house property is let out, the deduction in respect of interest can be claimed without any ceiling limit.

In your aunt’s case, the property is partly self-occupied and partly let. In such a case, the proportionate interest relating to the let out portion can be claimed in full, while the interest on the self-occupied portion has to be restricted to a maximum of Rs 1.5 lakh. The proportionate interest can be calculated based on the area which is let out compared with the area occupied by her.

My salary for the financial year 2007-08 is a sum of Rs 2.3 lakh. I traded in futures and options and incurred a loss of Rs 2.25 lakh. Can such loss from dealings in futures and options be set off against the salary income? — Rajesh Gupta

Any income or loss from dealing in futures and options would be treated as income or loss under the head profits and gains of business or profession.

It may be noted that there is a specific prohibition on the set off of loss under the head profits and gains of business or profession against income chargeable under the heads salaries.

This is provided for in Section 71(2A) of the Act. You will, therefore, not be able to set off the loss from dealing in futures and options, which will be treated as loss under the head profits and of business or profession, against income chargeable under the head salaries.

I am a salaried employee and my annual income is Rs 1.5 lakh. I also have income by way of short-term capital gains from dealing in shares of Rs 1 lakh.

My wife has income by way of short-term capital gains from dealing is shares of Rs 1.75 lakh and has no other source of income.

Can my wife and myself make investments in NSCs etc, so as to claim deduction under Section 80C? Is a short-term capital gain eligible for the basic exemption? — Narendra Kumar Sinha

If the short-term capital gain is from sale of shares, where the sale is through a recognised stock exchange, the gain will be subject to a flat rate of tax of 10 per cent (proposed to be increased to 15 per cent with effect from assessment year 2009-2010) as provided for in Section 111A of the Act.

No deduction under Chapter VI-A can be claimed against such capital gains, which is also provided for in the same section.

Your wife can, therefore, claim no deduction under Chapter VI-A since her only source of income is by way of short-term capital gains from sale of shares. In your case also the maximum amount that would be eligible for deduction under Chapter VI-A would be Rs 40,000 i.e. the excess of salary income over the basic exemption of Rs1,10,000.

If, however, the capital gains from sale of shares is where the sale is not through a recognised stock exchange, such capital gains will be charged to tax at the normal rates applicable to an individual.

In such a case, the deduction under Chapter VI-A can be claimed even against the short-term capital gains.

So far as the basic exemption is concerned, there will be no problem in claiming the same where the short-term capital gain is charged to tax at the normal rates. If the short-terms capital gain is charged to tax at 10 per cent (proposed to be increased to 15 per cent with effect from assessment year 2009-2010) under Section 111A, the basic exemption which is in excess over the other incomes that is chargeable at the normal rates can be adjusted against the short-term capital gains before computing the tax on the short-term capital gains.

I was gifted a 400 square yard plot by my parents in 2006. I intend to give this plot for development.

The agreement will be to construct four flats of 2000 square feet each of which two flats would be retained by me and two flats by the developer. Will this transaction be subject to capital gains tax? If so, how is the capital gains to be computed? — Chaya Datta

Apparently on such joint development, a portion of the undivided share in land would also be transferred to the developer or his nominees.

This would mean that you would be getting two flats in exchange for transfer of a part of the land, which presently belongs to you. This would be a transaction, which would be regarded as a transfer under Section 2(47) of the Act. A capital gain will, therefore, arise on such transaction.

The cost of construction of the two flats allotted to you will be treated as the full value of consideration for transfer of the land and the capital gains will be computed accordingly. You may be eligible for exemption under Section 54F, provided you satisfy the conditions in the Section. The conditions for claim of exemption under Section 54F are as follows:

The assessee is an individual or HUF.

The gain arises from the transfer of a long-term capital asset not being a residential house.

The assessee does not within a period of 2 years purchase or 3 years construct any residential house other than the new house.

The assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.

The quantum exempt will be on the following basis:

If the amount invested is more than or equal to the net consideration then the entire capital gain.

If the amount invested is less than the net consideration, then the amount invested x capital gain/net consideration.

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