The Hindu Business Line : Are you doubly taxed in India and US?

My wife works in a software company in India. In September 2006 she was sent on deputation for a project in the US. During the financial year 2006-07, she was in the US for more than 182 days.

During the financial year 2007-08, she returned to India in December 2007, until which time she was in the US continuously from September 2006.

For the purpose of taxation in India for the financial year 2007-08, what will be her residential status? Since August 2007 her salary had a US component and also an Indian component.

She has been taxed both in India and the US on the component of salary paid in India. Will she be able to get the benefit of the Double Taxation Avoidance Agreement between India and the US on the doubly taxed income, which is the Indian component of her salary? — Sebastian Bridson

Under the Income Tax Act, your wife will be non-resident in India. The Double Taxation Avoidance Agreement between India and the US, in Article 25, provides that the taxes paid in the country of source will be allowed as a credit in the country of residence. You will have to examine based on various facts as to whether your wife is a resident of India or of the US as per the Double Taxation Avoidance Agreement and claim credit in the country of residence, the tax paid in the country of source on the doubly taxed income.

You may note that under the Double Taxation Avoidance Agreement, your wife is most likely to be a resident of India, in which case credit should be allowed in India in respect of the tax paid in the US, on the doubly taxed income.

You may also note that the credit that would be allowed in the country of residence will be the lower of the tax payable in the country of source or in the country of residence on such doubly taxed income.

I stay in an old and dilapidated house in Mumbai. This house was constructed in 1980 as a flat by a co-operative housing society.

There are twelve flats and all the flat owners have agreed to give this building for redevelopment.

The builder in addition to giving a new flat in the building, to be constructed free of cost, has agreed to give a further compensation of Rs 10 lakh to each of the flat owners. Will the compensation be taxable? — P. Shekhar

Apparently the builder would be constructing more than twelve flats and would be transferring the excess over twelve flats, which would be given to the existing flat owners, to others.

While each of the existing flat owners owns a flat they would also be entitled to an undivided share in land. In the process of redevelopment, the undivided share in land of each of the existing flat owners would reduce since the number of flats, which is to be developed would be more than the existing number.

This would mean that each of the existing flat owners would be transferring apart from their flat; a portion of the undivided share in land to the developer or his nominees.

This would mean that you would be getting a new flat in exchange for transfer of your existing flat.

Over and above this, you would also be getting Rs 10 lakh as compensation. 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 new flat allotted to you as increased by the compensation of Rs 10 lakh will be treated as the full value of consideration for transfer of the existing flat and the land and the capital gains will be computed accordingly.

You may be eligible for exemption under Section 54, provided you satisfy the conditions in the Section. The conditions for claim of exemption under Section 54 are as follows:

The assessee is an individual or HUF.

The gain arises from the transfer of a residential house being a long-term capital asset.

The income from such asset is chargeable to tax under the head income from house property.

The exemption would be available to the following extent:

If the amount invested is more than or equal to the capital gain.

If the amount invested is less than the capital gain then to the extent invested.

You may note that the amount that will be treated as reinvested will be the cost of construction of the new flat which is allotted to you.

I have taken an educational loan from a bank for the education of my son and daughter in 2004 and have been paying interest since then.

Will the interest that I pay qualify for deduction under Section 80E and for how many years can I claim the same? — T.V. Subba Rao

Section 80E has been amended to provide that with effect from assessment year 2008-09, the deduction will be available in respect of the interest on loan taken for the purpose of the higher education of the individual or his relative and the term ‘relative’ is defined to mean the spouse and children of the individual.

There is no ceiling limit on the amount that will be eligible for the deduction. This deduction is available for a maximum period of eight assessment years beginning from the year in which the interest is paid.

Therefore, in your case, if the higher education is one which qualifies for deduction under Section 80E, the entire amount of interest will qualify for the deduction.

Higher education for the purpose of Section 80-E will mean full-time studies for any graduate or post graduate course in engineering, medicine, management or for post graduate courses in applied sciences or pure sciences including mathematics and statistics.

The fact that the loans were taken even in 2004 will not in anyway stand in the way of your claim for such deduction. The deduction, however, will be restricted to eight years beginning from the year in which you started paying the interest on the said loans.