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S. Murlidharan

I TOOK a loan of Rs 12 lakh for constructing a house in April 20004 and I have been paying the EMI since May 2004. I am likely to be given possession of this house in February 20005. Meanwhile, I live in a rented house and my employer is paying me House Rent Allowance. What are the tax implications?

Arun Mugur, Pune

For the period you pay house rent, you would get exemption in respect of your HRA. Assuming, you occupy your own house on February 1, 2005, you would get exemption for HRA only for ten months with the HRA for February and March being fully taxable because for these two months you would not have paid any house rent. The interest that you have paid till January 2004 will unfortunately not beget any tax benefit because, thanks to loose drafting, deduction for pre-construction interest in five equal instalments is available only to the extent such interest relate to years prior to the previous year in which the construction is completed.

IDRs

WHY is it that no foreign company has evinced interest in India Depository Receipts (IDRs) despite the enabling mechanism being in place for quite some time now?

Matushree Reddy, Secunderabad

Indian companies making the grade made a beeline to New York, London and Luxemburg when the Government permitted issuance of global depository receipts (GDRs) by them. Your question is why foreign companies are not reciprocating this gushing enthusiasm for foreign capital. While Indian companies needed the greenbacks badly, foreign companies are not particularly enamoured of the Indian rupee. Second, the offer of GDRs by Indian companies presented an excellent investment opportunity for the foreigners, there is no guarantee that IDRs issued by foreign companies, coming as they would with a heavy price tag, especially in view of the huge exchange rate differential, will be lapped up by the Indian investors.

Foreign plan

THERE was the controversy over the appointment and subsequent resignation of foreign consultants in the Planning Commission. What is your take on it?

Prakash Mallayya, Mangalore

In my view, while we must open our windows to let in fresh ideas, we must not mortgage our long-term interests to foreign financial and consulting outfits. A redoubtable Indian industrialist remarked tongue firmly in cheek that consultants are those who borrow your watch to tell you the time. This applies more to foreign consulting firms, especially when all that they have to offer by way of advice is predictably and tiresomely repetitive — privatisation.

Moreover, there is also the conflict of interest angle to it. Having gained a toehold, they would go on to wangle plum consultancy assignments from governments for mind-boggling fees. In my view, therefore, they must be engaged selectively when the requisite skills are lacking in India for specific projects. The Planning Commission is a policymaking body. Foreigners should not be privy to sensitive information.

Paying guest ploy

I AM getting an HRA of Rs 8,000 a month but do not pay any house rent because I and my wife live with my parents. What is the best option for me? Should I pay house rent to my parents or ask my employer to enter into a leasing agreement with them or pay my parents our contribution for living as a paying guest?

Kiran, e-mail

There is no tax relief for paying guests which then makes the third possible option visualised by you unattractive. Assuming your basic pay to be Rs 20,000 and further assuming there are no other taxable allowances, the two other options would entail the following tax consequences. Assuming you pay Rs 6,000 as rent to your parents, the least of the following three amounts would be exempt from tax on an annualised basis: the actual HRA being Rs 96,000 or rent paid in excess of 10 per cent of salary being Rs 48,000 or 50 per cent of your salary assuming you are posted in one of the four metros being Rs 1,20,000.

The HRA option then exposes Rs 48,000 out of your HRA of Rs 96,000 to tax liability with the remaining Rs 48,000 being exempt from tax.

The lease option, however, increases your taxable income only by Rs 24,000 because in case of rent-free accommodation provided by the employer, the taxable value thereof is 10 per cent of salary or the actual rent paid, whichever is less. You should plump for this option.

As far as your parents are concerned, well it makes very little difference who they get the rent from — you (HRA) or the employer (lease) because in either case, the rent would be taxable as income from house property in an identical manner.

The paying guest option which is ill-suited to you from the tax angle suits them eminently because in that case their income from you would evade the clutches of income from house property and therefore would be eligible for all the expenses incurred by the host in extending hospitality to the paying guest.

Refund amnesia

THE Department has not decided our refund application for excess TDS despite seven years having passed since the application was made.

S. Kodandaraman, e-mail

It is surprising that the chapter on refunds is silent on the time within which a refund application has to be disposed of. Be that as it may, you are entitled to a simple interest of half per cent for every month or part of it commencing from the first day of the relevant assessment year till the amount is refunded.

If the sluggishness of the Department strains your finances, there is no reason why you cannot go for a writ petition to shake the Department out of its slumber.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

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