Deductions and rebates

T. Banusekar

WHAT are the various deductions and rebates available? What does the 2001-02 Finance Bill hold for the salaried employee? What are the pros and cons of Gift Tax? This week, `Tax Talk' will answer these queries and cover some related issues.

Query

I took a housing loan of Rs 1,41,000 in 1990 to construct a house. The construction was completed and the building was occupied in the previous year 1990-91. I have now taken a fresh loan of Rs 1,57,000 to complete some pending construction work and repair. Would I be entitled to a deduction under Section 24 for the interest on Rs 1,57,000? Can I avail the rebate under Section 88 on repayment of the loan?

B. L. Diman

Reply

Interest is allowed as a deduction under Section 24, provided the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital. The reader would, therefore, be entitled to the deduction under Section 24 in respect of the interest on the loan of Rs 1,57,000.

As for rebate under Section 88, it is available on repayment of amounts borrowed by the assessee from certain specified institutions.

From the query it is not clear as to whether the loan of Rs 1,57,000 has been taken from any such institution. In any case it would not make a difference, for no rebate will be allowed in respect of any payment towards, or by way of cost of any addition or alteration to, or renovation or repair of, the house property carried out after the issue of the completion certificate by the authorities, or after the house property or any part thereof has either been occupied by the assessee, or any other person on his behalf, or has been let out.

Query

The 2001 Finance Bill proposes to reduce the surcharge of 12 per cent and 17 per cent as it stands presently to 2 per cent. I am a salaried employee and for 2000-01, my employer deducted tax at source taking into account the surcharge at 12 per cent. Since the Finance Bill has been tabled and passed by the Parliament with effect from April 1 2001, I believe I can claim as refund, as the surcharge is only 2 per cent for the incomes earned in the previous year 2000-01. Please clarify.

Varughese K. J.

Reply

The reader is not correct in his understanding. The surcharge stands reduced to 2 per cent only for incomes earned in previous year 2001-02, that is, for the assessment year 2002-03. Incidentally, it may be mentioned that in case of salaries, the employer while deducting tax at source, needs to increase the tax by a surcharge of 17 per cent if the employee's income exceeds Rs 1,50,000.

Query

I am a non-resident in accordance with the Income-Tax Act. I have some NRNR deposits that have not yet matured. I would like to give some of these deposits to my daughter who got married in May, 2000. This I would like to give as gift or as share of property. I would also like to give some gifts from out of the NRNR deposits to my son-in-law. Please clarify whether:

* The income from the gifts will be clubbed in my hands;

* The amount gifted will be treated as an income of my daughter/son-in-law.

Some gifts have been received by my daughter in cash from our relatives and friends at the time of her marriage. Part of these have been deposited in her name. I would like to know whether:

* Any tax is payable by my daughter on the gifts.

* If so, is there any exemption above which tax is payable.

Deepak, Thrissur

Reply

The income arising out of the gift will not be clubbed in the reader's hands unless the daughter is a minor.

* The amount gifted or given by way of share of property to the daughter, gifted to the son-in-law, etc. will not be treated as income in the hands of the recipients.

* No gift tax is attracted in respect of gifts made on or after October 1, 1998. Therefore, the amount received by the recipient at the time of marriage will not attract gift tax. It may be noted that even prior to October 1998, in case of gifts, tax was payable on the gift by the donor and not by the donee.

Query

I have given donations to a society, which has been approved under Section 80G of the Income-Tax Act. Based on a certificate given by the society, I claimed deduction from tax under Section 80G. I understand the society is involved in some activities that may disentitle it to the approval under Section 80G. I seek your clarification on:

* Whether the I-T Department would be justified in cancelling the approval granted under Section 80G.

* In the event of the approval being cancelled, what will be the consequence as far as my eligibility to claim deduction under Section 80G is concerned.

* What will be the effect of other donations received by the society after the approval's cancellation.

S. Abraham

Reply

The Commissioner of Income-Tax may grant approval under Section 80G(5) to a trust that is established for a charitable purpose. Such approval shall have effect for such assessment year/years for which the approval is granted not exceeding five assessment years as may be specified in the approval. In the event of a trust or a society doing such activities as would disentitle it to the approval, it would be open to the I-T Commissioner to cancel the approval granted.

As regards the deduction under Section 80G available, there should be no difficulty in claiming it so long as the donation was given when the society was approved under Section 80G. In this context attention is invited to these decisions of the Income Tax Appellate Tribunal: DCIT versus Lee and Muirhead Ltd (1997) 60 ITD 57 (Mumbai); Jalan Nagar Tea Estate Pvt Ltd versus DCIT (1991) 38 ITD 281 (Gua).

Though a decision contrary to this is available in T. M. Yusuf versus ITO (1998) 64 ITD 84 (Chennai) it is submitted with respect that the earlier view seems to be the better one. It may be noted that these decisions were rendered in the context of Section 35CCA of the I-T Act.

Donations made after the withdrawal of approval will not be entitled to deduction under Section 80G. In the context of section 35CCA it has been held in the case of CIT versus Bachraj Dugar (1998) 232 ITR 290 (Guah) that withdrawal of approval can only be prospective and not retrospective.

(The author is a practising Chartered Accountant, Chennai.)

Business Line invites queries on personal taxation issues to this column. They will be answered in the first Sunday's issue of Business Line every month. Queries may be addressed to Tax Talk, Business Line, Kasturi Buildings, 859, Anna Salai, Chennai 600002, or by e-mail to vaidy@thehindu.co.in