The Hindu Business Line : `Tedious' on rent

X company has taken Mr Y's premises on rent and is paying rent after deducting TDS. Mr Z provides training facility, server room facility and hiring of furniture service to Mr Y's premises on behalf of X. In this case, while making payment to Mr Z, is TDS applicable?

Indu Shekar, email

The Taxation Laws (Amendment) Act, 2006, among other things, amended Section 194-I to bring in rent of furniture, machinery, etc.; before this amendment only rent for buildings was under its purview. The amendment came into effect from July 13, 2006, the day the President signed the Act into law. Since the payment is made directly to Mr Z, you have to ascertain whether the rental to him would be more than Rs 1.2 lakh during the financial year starting from the day of coming into force of this amendment, the limit up to which no tax is required to be deducted at source.

Home loan

My brother and I are joint owners of a house in Ludhiana and have taken a home loan from ICICI Bank. Both of us are claiming deduction on interest and principal repayment at the rate of 50 per cent (both having half share). In mid FY 2006-07, that is, in October 2006, my brother got transferred to NOIDA. He now works in NOIDA but lives in Delhi paying a rent of Rs 3500 per month.

He gets a House Rent Allowance of Rs 4000 p.m. His portion of the Ludhiana house has been let out on a monthly rent of Rs. 2000. What would be his tax treatment for Assessment Year 2007-08? Can he claim both housing loan and HRA deductions?

Jaspal, Ludhiana

This is clearly covered by Section 26. You are co-owners with clear-cut shares. The respective share of income would be included in your income as well as in that of your brother. The deduction under Section 80C for the home loan will be available on the basis of the respective actual contribution during the year towards the repayment of the principal.

A part of the house has been let out for a part of the year. Before his departure to Delhi, I presume the house was fully self-occupied. If the Ludhiana house is the only house you two have, both of you can claim exemption from tax by claiming nil annual value for the self-occupied portion.

The rented portion would be taxable at the rate of Rs 1,000 each in the hands of the co-owners. You cannot say that his share has been let out and he alone should be taxed because the house is registered in your joint names. Your brother, of course, can claim exemption for the HRA he gets from his employer.

FDI vs FII

What are the economic reasons for preferring foreign direct investment (FDI) over foreign institutional investment?

Mansi, email

FDI is on a par with primary issue except that the subscription is in foreign exchange. Just as funds given by investors in a primary issue go into the coffers of the company, the FDI also contributes to the share capital. Foreign institutional investment (FII) is a secondary market activity. It happens in the stock exchanges without involving financially the company whose shares are bought and sold — the transaction is between a buyer and a seller.

FIIs have a short-term horizon. Foreign institutional investors keep shuffling their portfolio and book profits from time to time and repatriate funds to their home country as well. All these make the contribution of foreign institutional investors hot money that can flee anytime unless we follow countries such as Vietnam and impose a tax if funds are repatriated within one year or so. FDI is more durable and is, thus, an all-weather friend.

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

http://MentorQA.blogspot.com

S. Murlidharan

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