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My wife had invested Rs 60,000 as FDR (fixed deposit receipts) and Rs 30,000 in mutual funds, eligible for deduction under Section 80C in assessment year (AY) 2008-09. Return was duly filed before July 31, 2008.

On her demise in August this year I wish to withdraw the amount from FDR and mutual funds now, that is, in AY 2009-10 Since they have a lock-in period of three years, would I be liable to pay tax on it?

Himanshu Taneja, email

Section 159 fastens the legal representative(s) with the liabilities and responsibilities which the deceased himself/herself would have shouldered had he/she been alive. In fact, in terms of Section 159(3) a legal representative is deemed to be an assessee but his liability shall not be more than what the estate can meet.

The legal representative will have to file return on her behalf for the previous year 2008-09 if one is warranted, that is, if the deceased’s total income was more than the tax-free income.

As far as units under ELSS invested by her are concerned, well there is no scope for withdrawal before three years because the scheme notified by the Central Government for this purpose does not contemplate redemption earlier.

There are two units in a house. One is self-occupied and the other is let out. How to deduct the municipal taxes, interest and standard deduction because the first two are common to both the units?

Nagu, email

The self-occupied portion presumably is the only self-occupied house you have got. In that case, this portion would be the one that would be claimed for nil annual value. No municipal tax is deductible from the self-occupied house. However, this does not mean that you can load the entire municipal tax against the let-out portion.

Therefore, from the annual value of the let-out portion, you would be able to deduct only 50 per cent of the municipal taxes assuming both the portions are identical. Interest similarly would be divided into two parts.

The one relatable to the self-occupied part would be deductible subject to a ceiling of Rs 30,000 or Rs 1.5 lakh as the case may be depending upon whether you qualify for the heightened deduction or not. The portion relatable to the let-out part is deductible without any limit. Standard deduction being a percentage poses no problems because it is 30 per cent of the net annual value of the let-out portion.

S. MURLIDHARAN

More Stories on : Income Tax | For the Asking

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