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I want to transfer around Rs 20 lakh to my mother’s bank account and then invest it in her name in bank fixed deposit. Please advice me whether interest earned on these FDs would be taxable in my hands. Suppose she has no other incomeand her total annual interest income is Rs 2 lakh, of which, she invests Rs 1 lakh under Section 80 C, then would she not be paying any tax on interest income? Please explain the tax implication of this transaction.

Gaurav, email

You are your mother’s relative as defined in Section 56. Therefore, gift received by her from you is completely exempt from tax. Under Section 64, income from assets transferred to spouse and daughter-in-law bounce back to the transferor. Fortunately for you, you are not hit by this section, the donee being your mother. But on the income generated from out of the sum gifted by you, she would have to pay tax.

If she happens to be a senior citizen having completed 65 years of age or more at any time during the relevant previous year, the tax-free limit for her is Rs 1.95 lakh. If she is not a senior citizen, the tax-free limit for her is Rs 1.45 lakh. She may accordingly tone down her investment under Section 80C if she wants to invest only the bare minimum so as to be out of the clutches of taxation.

What per cent of basic salary is HRA?

Liritta Sanju, email

There is no hard and fast rule. In government and government organisations, HRA (house rent allowance) has normally been 30 per cent of the basic salary. But there is no law which requires HRA to be maintained at this level. It can be more or less or nothing at all.

Is the exemption from the regime of Minimum Alternative Tax (MAT) available to units in Special Economic Zones irrespective of whether their income is exempt under Section 10A or 10AA? Is the entire income exempt from the purview of MAT or only the income from business?

Sasidaran, email

The exemption from operation of MAT is conferred by Section 115JB (6). It talks of units in SEZs. Therefore, it matters very little which section it claims exemption under — 10A or 10AA. As to your second query, the section itself makes it clear that the reprieve from MAT is only in respect of income from business emanating from the unit in SEZ.

We purchased an apartment in January 2006, which is under construction. The apartment and the home loan are both jointly in the names of my wife and myself. We have been paying pre-EMI interest to the bank since March 2006. We started paying the EMI from September 2007. For the assessment year 2007-2008, can we both, husband and wife individually, claim tax relief under the two sections for principal and interest? The construction is expected to be completed by December 2007. In which assessment year(s) can we claim relief, on the pre-EMI interest already paid from March 2006 till March 2007?

Adil Hasan, Bangalore

The house would be ready only by December 2007. No deduction for principal can be claimed under Section 80C until the house becomes capable of being assessed under the head ‘income from house property’. Ditto for interest under Section 24. The principal paid from September 2007 onwards till the completion of the house will go abegging begetting you no tax benefit under Section 80C. The interest incurred during the construction period however would beget you tax benefit. The interest for the period January 2006 to March 31, 2007, will qualify for deduction in five equal instalments commencing from the AY 2008-9, that is, from the financial or previous year ending March 31, 2008.

Assuming you are equal owners, and pay the instalments to the bank equally, the tax benefits would accrue to you equally. The bank however would give a receipt without enquiring as to the source of repayment. Accordingly, the onus is on you to prove whether you actually paid equally.

For example, if your wife pays seven instalments per year and you the remaining five, the deduction under Section 80C would be granted accordingly discarding your claim of equal ownership.

S. MURLIDHARAN

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