The Hindu Business Line : An MBA with an education loan

I am an executive in a private company in Mumbai. I completed my MBA only this year, for which I took an education loan of about Rs 1,80,000. Now every month I pay an EMI of Rs 7,000 from the date I started my job. Do I get any tax rebate for the amount that I pay as EMI?

Sudipto, email

Yes, you do get tax benefit in the form of deduction from your gross total income under Section 80E to the extent of interest embedded in the equated monthly instalments (EMIs). This deduction is available for a period of eight years reckoned from the initial year of repayment unless of course the entire loan is squared off within a shorter period.

Tax-free gifts

To how many persons can tax-free gifts be made?

Janakiraman, email

There is no tax on donors. The tax is only on donees in terms of Section 56(1)(v) of the Income-Tax Act, which confers an annual exemption of Rs 25,000 for gifts received from one or more persons other than relatives. There are other exemptions, too, such as gifts received from a person on deathbed, gifts under will as well those received on occasion of one's marriage.

Cost of land

I was allotted a plot by the Tamil Nadu Housing Board (TNHB), and on payment of the tentative cost between 1987 and 1990 I was given possession of the plot on September 17, 1991. I have constructed my house thereon and living in it for over nine years now. TNHB has not been able to inform me the final cost due to litigation pending in courts, regarding the quantum of compensation to be paid by TNHB to the erstwhile landowners. However, TNHB has said that I could get the sale deed for the plot by paying the final cost worked out based on the highest compensation demanded by the erstwhile land owners. If I get the sale deed by paying the demanded amount and sell the plot and house now (2006-2007), will I be eligible for long-term capital gains (LTCG) tax exemption under Section 54 EC? Will capital gains be the sale consideration less the equated amounts for payments made between 1987 and 1990 and the amount paid now to get the sale deed based on the final cost and including the stamp duty and registration charges?

S. Nasiruddeen, email

The beneficial ownership in the land had passed on to you long ago, thus making the land on which you have constructed the house a long-term capital asset. The only issue that was pending was the determination of the final cost of land, which you have now resolved. While calculating the LTCG you can deduct from the selling price or the value determined by the stamp duty authorities, whichever is greater, the index cost of acquisition of this property including the cost of land.

The indexed cost is arrived at by dividing the amount paid by the index of the year of such payment and multiplying it by the index of the year of sale. The final payment to TNHB, which you have now made, would naturally get the least indexing benefit having been the latest payment. You can utilise the tax shelters under Sections 54 and 54EC.

Payments to contractors

I am an individual having a turnover of more than Rs 40 lakh paying freight charges of more than Rs 50, 000 to another individual in a year. My consultant says that I need not deduct tax because tax deduction for individuals having a turnover of more than Rs 40 lakh is required only under Section 194C(2), that is, if I am a contractor and payment is made to a sub-contractor. Please advise.

Elsy Joy, email

The bottomline of your consultant's advice is right but not the reasons. It is indeed true that the proviso requiring individuals having a turnover in excess of Rs 40 lakh in the preceding year has been mistakenly inserted with specific reference to sub-section (2) of Section 194C, which deals with deduction of tax on payments to sub-contractors, whereas the first sub-section deals with payments to the principal contractor. This was clearly a gaffe because this requirement ought to have been fastened on to individuals in the specified circumstances irrespective of whether the contractor is principal or sub-contractor. Be that as it may, you have been saved of this burden, thanks to the escape route in the first sub-section, which leaves out agreements with individual-principal-contractors for curious reasons from the purview of TDS.

Depreciation worries

We are a newly started private limited company. During 2005-06 we spent money only for construction of building and purchase of machineries. For these expenses we employed contractors. We paid huge sums of money to them for which we have not deducted TDS. Will non-compliance of TDS result in disallowance when we amortise these capital expenses in future?

C. Ramesh Babu, Sivakasi

Please make sure that the TDS regime is otherwise applicable. For example, in terms of Section 194C(1), no tax need be deducted if the principal contractor in question happens to be an individual. In case TDS was indeed warranted but your company was remiss in not deducting the requisite tax at source, you can retrieve some ground by doing so in a subsequent year and depositing the same with the government whereupon you would get deduction in that year.

Since you are worried about depreciation being hit, you can still ensure that this does not happen by some rearguard action. Of course you would lose out the depreciation benefit in case you have already started depreciation, but nevertheless in the subsequent years, you would be able to claim a higher depreciation because on payment of tax deducted with the government you would be able to increase the cost, and hence the block amount, by the amount paid to the contractor from which tax has been deducted belatedly. Hence, in such an event, the loss of depreciation would be temporary and not permanent.

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

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