Tax Talk

My annual income is Rs 5 lakh. My question is about the income tax relief available on purchasing a new house.

I sold my house in September 2011 and purchased a new house in December 2011 spending the selling price of old house and balance Rs 12 lakh availing a loan from Bank of Baroda.

I have spent Rs 1.5 lakh towards stamp duty and around Rs 30, 000 towards registration fee.

Can I get any income tax relief for these two amounts during FY 2011-12 and if so, under which sections.

— Santhosh G

The capital gain arising on sale of the residential house can be claimed exempt under Section 54 of the Income Tax Act, 1961 (‘the Act'), provided the house which is sold is a long term capital asset i.e. the property is held for a period of more than 36 months. Further, the assessee has, within a period of one year before or two years after the date of transfer of the house, purchased another residential house.

In order to claim exemption under section 54 you are required to invest the amount of capital gain for the purchase of new house. Assuming that the property sold was held for more than 36 months, the capital gain to the extent invested by you for acquiring the new house shall be eligible for exemption. In the given situation, the entire sale consideration is invested, hence the whole of capital gain can be claimed as exempt.

Further, we would like to highlight that no additional benefit under Section 54 can be availed in respect of the amount spent on registration charges and stamp duty.

Expenditure on account of stamp duty and registration fees of Rs 1,50,000 and Rs 30,000 respectively is capital in nature and is incurred to acquire the title to the property and shall form part of the cost of the property and will be deducted from the sale consideration while calculating capital gains in future.

Further, deduction under Section 80C can also be availed with regard to the stamp duty and registration fees paid for the purpose of transfer of house to the assessee, according to the limits prescribed.

I would like to know the difference between tax applied to interest income from a Fixed Deposit and Recurring Deposit.

— Sangita

Interest income earned from a fixed deposit and recurring deposit shall form part of your total income as both are taxable under the head “Income from other sources”.

The interest income from fixed deposit and recurring deposit will be taxed at the prevailing slab rates applicable to you.

Further, in case of interest income from fixed deposit, the bank will deduct tax at source (TDS) at the rate of 10 per cent (i.e. prevailing rate) provided the interest accrued on your deposit exceeds Rs 10,000 in a financial year. Please note that the limit of Rs 10,000 is branch specific. However, there is no TDS applicable in case of interest accrued on recurring deposit/any deposit other than a time deposit.

(The author is a practising chartered accountant.)

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