The Hindu Business Line : When a wife’s house taxes her husband

An person purchased a house in his wife’s name though she has no source of income. The loan for acquiring the property was taken from a bank with the husband being a co-applicant to the loan. Can he claim the tax benefits in respect of the interest payment and principal repayment? – R. Savithri

Even under the clubbing provisions of section 64(1), the income from the property will have to be clubbed in the hands of the husband as the property was purchased in the wife’s name but out of the husband’s funds. The Supreme Court held in 1997 that income from house property should be assessed in the hands of the real owner and not the beneficial owner.

You may note that what is true for assessment of profit will also be true for assessment of loss computed under the head house property. For the same reasons, the principal repayment can also be claimed as a deduction by the husband u/s 80-C.

I purchased a house in Tamil Nadu for Rs 7 lakh in 2003. I sold the house in 2008-09 for Rs 17 lakh. For purchasing this house I had borrowed Rs 7 lakh, and until the date of sale had paid interest on the borrowed capital of Rs 3 lakh.

In 2005 I purchased a house in Bangalore for Rs 42 lakh for which I took a loan of Rs 38 lakh. On this loan I paid interest of Rs 12 lakh up to May 2009, when I sold this property for Rs 61.50 lakh.

I intend to buy a house for Rs 50 lakh and would like to get it registered next month. I will be taking a loan of Rs 38 lakh for purchasing this property; and out of the sale consideration from earlier two properties, I will be repaying the outstanding loans and will use the balance money for purchasing the new property.

I would like to know (a) if the long-term capital gains from the sale of the two properties can be claimed as exempt on purchase of the new property (b) if the cost of acquisition of the properties also includes the stamp duty and registration charges (c) if the interest on the capital borrowed can be added as part of the cost of acquisition (d) will there be any capital gains tax as I am reinvesting in a property. – Siva Raman

The long-term capital gains arising from the sale of both properties – the one in Tamil Nadu and the one in Bangalore – will be eligible for exemption u/s 54 on reinvestment in the new property.

The fact that you are selling two properties and reinvesting only in one residential house will not affect your claim for exemption. The cost of acquisition of the properties would also include stamp duty and registration charges paid at the time of registering the property in your name. The can be added to the cost of acquisition if the interest has not been claimed as deduction in any year under any provision of the Act.

Computing long-term capital gains: Less expenditure incurred wholly and exclusively in connection with the transfer from full value of consideration to arrive at net consideration. Less indexed cost of acquisition from this to get long-term capital gains.

Exemption u/s 54 can be claimed for reinvestment. If the investment in the new property is more than or equal to the capital gains, the whole of the capital gains will be exempt. If it is less than the capital gains, the exempting would be to the extent reinvested.

A salaried employee also has income from derivative transactions on which STT has been paid. If there is a loss from the derivative transaction, can it be set off against the salary income? If there is a profit from such derivative transactions, would it be taxed at the concessional rate of 10 per cent? – Vipul Garg

Profit or loss from dealings in derivative transactions will be treated as business income or loss or as speculative income or loss.

The loss or income will be treated as business loss or income if (a) the transaction is carried out electronically on screen-based systems, (b) the transaction is carried out through a registered broker or sub-broker, (c) the transaction is supported by a time stamped contract issued by such broker or sub-broker and (d) the contract note indicates the unique client identity number and permanent account number.

If the above conditions are not satisfied, the income or loss will be treated as speculative.

In either case, the loss cannot be set off against salary income. As the income from derivative transaction would be treated as speculative income or business income, no concessional rate of tax would be available. Tax will be charged at the normal rates of tax applicable to an individual.

I work as a lecturer in an engineering college. I have now joined for part-time PhD in Anna University. The fee that I pay is around Rs 20,000 for a semester. Can I claim exemption in respect of the fees paid for the PhD? – Govindaraj E.

No tax benefits will be available for the part-time PhD fee.

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