The Hindu Business Line : Can I claim the loss on returns?

My net take home income is Rs 27,800. I have no savings other than my investments in equity related mutual funds. I have lost about Rs 15,000 in trading? What would be my tax liability? Can I claim the loss in my returns? Please advice.

Ramakrishna, email

I take it that your monthly take-home salary is Rs 27,800. What matters for tax purposes is the gross salary and not the take-home. And some of the elements of salary such as HRA are tax-free to the specified extent. The loss from trading in units cannot be set off against your salary income. If it is a short-term capital loss, it can be set off against any capital gain in the subsequent eight years if it has not already been set off against any capital gains during the current year itself. And if it is a long-term capital loss, a similar set off is allowed but only against long-term capital gains. If the units were held for more than 12 months, they make the grade as long-term capital asset.

Home loan

I took a housing loan in February 2004. I gained possession of the flat on March 31, 2005. But I was paying interest in the previous year, 2004-05. Can I claim the interest as well as principal exemption for the year 2004-05 now in the previous year 2005-2006. If yes, to what extent and what are the documents I need to file apart from the interest certificate from the bank? If you think that I should have claimed the interest and principal for the year 2004-05 in previous year itself, please guide me as to how can I do that now?

Ritu Chadha, email

You practically acquired the flat only on April 1, 2005. The date of allotment is immaterial because I take it that the construction was still in progress on the date of allotment so much so that the unit could not be called a house property on that date. The interest paid by you till March 31, 2005 will qualify for deduction in five equal instalments spanning the five financial years falling after March 31, 2005. Thus, you have to find out the interest from February 2004 to March 2005. One-fifth of this will qualify for deduction for the financial year 2005-2006, one-fifth for 2006-2007 and so on. These would be in addition to the annual interest for the respective years. You will have to attach the certificate given by the lender for the purpose which should among other things spell out the interest for various periods and separate them from principal built into the EMI.

Wealth tax

I have a bungalow in Bangalore, the market value of which is Rs 3 crore. I inherited this from my father more than 20 years ago who in turn inherited it from his father. I am told my grandfather constructed this at a cost of less than Rs 50,000. Am I required to pay wealth tax? My only other assets are shares, debentures and bank deposits.

Paru Kutty Menon, Bangalore

You are lucky. One house belonging to a person of his choice is completely exempt from wealth tax, whether it is an upmarket palatial bungalow or a janata flat. Such a house may be rented or self-occupied, it doesn't matter. As to other assets belonging to you, none of them falls under the definition of `asset' so much so that they are not taxable. Thanks to the exemption given to a residential house irrespective of its size and location, you do not have to worry about wealth tax despite being wealthy!

Tax on jewellery

I have jewels that I purchased in 1950 for Rs 1 lakh. Their market value today is upwards of Rs 75 lakh. Am I required to pay wealth tax? I don't have any other property.

Bimla Ramani, New Delhi

Yes, you are required to pay wealth tax on Rs 60 lakh at the rate of 1 per cent. Your tax liability is Rs 60,000. Your net wealth after giving exemption for tax-free wealth of Rs 15 lakh is Rs 60 lakh. Jewellery is one of the taxable assets and wealth tax is not on the cost but on the market value as on the valuation date that is March 31. I presume the value of Rs 75 lakh was on March 31.

Clubbing provisions

Some 20 years ago I gifted Rs 10 lakh to my wife who purchased a flat with it. It has a market value of Rs 50 lakh today. She has rented it out. We live in my house the value of which is close to Rs 1 crore. What is our wealth tax liability?

Naveen Kharbanda, Ludhiana

Clubbing provisions are available in the wealth tax also. If an individual gifts to his or her spouse, the gift will bounce back to the individual to his dismay. This happens both for income tax and wealth tax purposes. But the saving grace is that both of you are entitled to exemption in respect of one house each whether self-occupied or rented. Therefore, in your case you have successfully defanged the clubbing provision perhaps serendipitously. In other words, there is nothing to be clubbed at all.

Private placement regime

A private placement regime exclusively catering to QIBs has been put in place by the SEBI. Is it not an anti-small investor move?

Mukul Trivedi, New Delhi

This regime has been put in place ostensibly to check "export of capital market" (sic) to borrow the words of SEBI. It apprehends that with a view to cutting red tape and time, companies are increasingly resorting to GDR/ADR route to raise capital outside India. In its view if companies were allowed to raise capital with minimum fuss from the regulators by offering the shares only to QIBs, there would be little temptation for them to stir out. This argument is specious. Companies do not issue GDR/ADR only to cut down on red tape and time. First, they get hard currency from these issues. Secondly, these issues are often at premium vis-à-vis the quotations at Indian bourses. At any rate, in the name of offering an expeditious route for raising capital, one cannot elbow out the small investors. Now it would be QIBs all the way. In the IPO, QIBs have a hefty reservation of 65 per cent. With this kind of clout they would have no difficulty in steamrollering a 75 per cent majority required under Section 81(1A) to oust existing shareholders from their legitimate right to rights issue. Indeed, the recent move marginalizes the small investors so much so that the primary market now is of QIBs, for the QIBs and by the QIBs.

Wealth tax liability

I own shares worth Rs 50 lakh and jewellery worth Rs 1 crore. I also have a departmental store business for which I borrowed Rs 75 lakh from a bank. Can I deduct this from my wealth before computing my wealth tax liability?

T. S. Vaidyalingam, Paramakudi

It is true that wealth tax is payable only on the net wealth, that is, value of the taxable assets as reduced by liabilities incurred directly in relation to those assets.

While shares are outside the definition of `assets', jewellery is very much taxable.

But the loan for the departmental store is not relatable to any taxable asset and hence it cannot be reduced from the value of taxable assets, Rs 1 crore. In the event, you will have to pay wealth tax on Rs 1 crore which works out to Rs 85,000 at the rate of 1 per cent on Rs 85 lakh after allowing exemption of Rs 15 lakh being the tax-free limit.

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S. Murlidharan

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