Tax Talk

We are gifting the sale proceeds of our flat at Hyderabad which is in my wife's name to our son to help him buy a flat in Chandigarh. He is 38 and holds a good job.

Will this attract any kind of tax and also can the amount be split as gift to spouse and son?

— Sivaraman

Gain, if any, arising on transfer of the house, which is in your wife's name, will be taxable as capital gains in her hands. This is on the assumption that the flat in Hyderabad belongs to her, i.e. it was purchased out of her own sources of income

Further, the sale proceeds of the house may be gifted by your wife to you and/or your son. The sum of money so received by you/your son will not be subject to tax, and will be treated as gift from a relative.

The construction agreement provided for the payment of interest if the possession is delayed for the period of delay at a particular percentage. What is the tax treatment for the said receipt, though called interest essentially in the form of compensation.

Is it a capital receipt as it is essentially a compensation? Or should it be reduced from the cost of acquisition and the reduced cost should be taken for future capital gains? Or should it be treated as interest and tax is paid as part of other income?

— Subramanian

In this case, reference can be drawn to various case laws, which deal with cases wherein compensation is paid to the allottee on account of delay in possession of the flat.

Based on such judicial precedents, it may be said that interest paid for deprivation of house property may not be treated as interest income; applying a percentage is only a measure for quantifying the compensation.

Hence, the interest payment received by you on account of delay in possession is compensatory in nature and may be considered as a capital receipt which is exempt from tax.

However, for the purpose of computing capital gains, it shall be noted that the said amount of compensation received may have the effect of reducing the actual cost of the asset as and when you sell this asset in the future.

I am an employee of Centre for Railway Information Systems which is a society under Ministry of Railways and posted in New Delhi. I have purchased a house in Delhi which is in my name only but the loan we have taken from bank is in my husband's and my name. My husband pays 75 per cent of it. Can we both claim the income tax exemption (for principal and interest) and what will be the share?

— Preeti

While calculating income under the head ‘house property', deduction can be claimed in respect of interest payable on the borrowed capital, for the purpose of purchase of the house. However, the assessee should be the owner of the house property, in respect of which the income is being calculated.

Similarly, deduction in respect of principal repaid on capital borrowed for purchase of the house property can be claimed only by the assessee who is the owner.

Therefore, in your given situation since your husband is not the owner of the house, he may not be able to claim any benefit of the amount paid by him towards interest and principal on the capital borrowed for the purchase of the house.

Mail your queries to taxtalk@thehindu.co.in

(The author is a practising chartered accountant.)

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