The Hindu Business Line : Assurance vs insurance

Assurance refers to those insurance policies which guarantee payment on death of the person whose life is insured or on expiry of the prescribed period, whereas insurance refers to those policies where payment would be made only in the prescribed circumstances — death or accident happening within a specified period.

House loans and tax

I bought a flat in September 2003 in Coimbatore with a loan taken from a bank, and rented it out from April 2006 for Rs 3,550 per month.

I took possession of another house in Pollachi (my place of employment) again by taking a loan from the same bank in November 2005. This house is self-occupied from April 2006. I also get an HRA (house rent allowance) of Rs 4000 per month. Will I get tax benefits for both the houses?

S. Mohanasundaram, email

As far as income from house property is concerned, there is no restriction on interest in respect of the rented house — the restriction of Rs 1.5 lakh applies only to the self-occupied house.

And as far as deduction of principal from the Gross Total Income under Section 80C is concerned, the language of the Section when it uses the words "for the purposes of purchase or construction of a residential house" fortifies the view that not more than principal repayment in respect of one house can be deducted under this Section subject to an overall ceiling of Rs 1 lakh.

The HRA would be fully taxable because you are not even paying a rent equal at least to 10 per cent of your salary.

Private Debentures

Can a private company raise debenture capital amounting to Rs 25 crore from friends and relatives? What exactly is public issue, which a private company is barred from making?

Hiren Kareliya, email

There is no bar on a private company raising debenture capital from amongst friends and relatives.

The line between a prospectus inviting public participation and a communication addressed to a select set of people is admittedly thin but you do get some guidance from the Companies Act when it says that if sufficient care is taken to ensure that the shares and debentures cannot be subscribed to by persons other than the ones to whom a communication is sent, then it would not be treated as a prospectus.

This is called private placement but the law says if such an invitation is extended to more than 49 persons, it would be deemed to be a prospectus and the one issuing it would be guilty of violating the bar on inviting public participation imposed on private companies.

TDS on travel allowance

Is tax deductible from travel allowance paid to a working director for going to company's foreign unit?

Gopal Sharma, Kolkata

Section 192 calls upon an employer to deduct tax at source at the time of payment of salary. You would appreciate that in terms of Section 10(14) and the rule framed there under, travel allowance is tax-free to the extent it is spent for the stated purpose.

Therefore, at the time of payment of travel allowance, the company would have no means of knowing if the employee is going to spend the allowance fully or not for official purposes. In fact, he would be justified in presuming that the allowance would indeed be spent for the stated purpose.

In the event, there is no scope for deducting tax at source at the point of payment of this allowance because at this point of time the presumption is in favour of the entire allowance being tax-free.

Should the director however return from his tour and say that some part of the allowance remained unspent and the company does not insist on the unused part of the allowance being given back, then at that point of time the question of TDS may arise which possibly can be done only out of the next salary.

(ASK! Send in your queries to ask@thehindu.co.in.)

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S. Murlidharan

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