Rebates, deductions and capital gains

T. Banusekar

Query

An individual has purchased a vacant land. For registration of the same, stamp duty and registration fee have been paid. No house property has been built on the land. Will the duty and registration fee qualify for rebate under Section 88? If yes, clarify whether this will qualify for rebate in the year in which the land is purchased, or in the year in which the house is constructed on such land if such year is different from the year in which the land is purchased?

R. Srinivasan

Reply

Stamp duty, registration fee and other expenses for the transfer of a house property being purchased, or constructed out of borrowed funds from certain specified institutions or from a bank will qualify for rebate under Section 88. The Section specifies that the stamp duty and registration fee paid by the reader for transfer of a vacant land to the reader will not qualify for rebate under Section 88.

However, the same should qualify for rebate, for Section 88 refers to construction out of borrowed funds that should naturally include the charges and fee on the cost of land purchased for in such a case, no stamp duty or registration fee will be paid for the construction, but can only be on the purchase of the land used for constructing the residential house.

It may also be noted that a contrary view in the matter will lead to a situation where registration fee and stamp duty on land will qualify for rebate under Section 88, where a house is purchased while the same will not qualify when a house is constructed, that could not have been the intention. Given this view, the same should qualify for rebate only when the house is constructed.

Query

As a result of the Pay Commission's recommendations, I received arrears of salary for 1995-96 and 1996-97 in 1997-98. While filing my return for 1997-98 (Assessment Year 1998-99), I was unaware that a relief is available under Section 89(1) in respect of the arrears of salary. I, therefore, failed to claim the same. Can I revise the return and claim a refund in respect of the excess tax paid?

I already own a house. I now want to take an additional loan from a nationalised bank for extension of the house by constructing additional rooms. Will the interest on such loan qualify for deduction under Section 24, and will the repayment of principal qualify for rebate under Section 88?

Anonymous

Reply

Where an assessee has filed a return under Section 139(1) or in response to a notice under Section 142(1) and where there is an omission or wrong statement in such return, a revised return may be filed. No revised return, however, can be filed after the expiry of one year from the end of the relevant assessment year or after completion of assessment.

In the reader's case, the said one year from the end of the relevant assessment year has already expired on March 31, 2000. Therefore, the question of filing a revised return and claiming a refund at this stage does not arise. The only option available to the assessee will be to make an application to the Board under Section 119(2)(b). The Board, under this Section, may authorise an Income-Tax Authority to admit an application or claim for any exemption, deduction, refund or any other relief after the expiry of the period specified under the Act for making such application or claim.

In computing income from house property, deduction under Section 24, can be claimed in respect of interest on money borrowed for purchase, construction, repairs, renewals or reconstruction of the property. The reader will, therefore, be entitled to claim the interest paid on the additional loan taken as a deduction.

Rebate under Section 88 is available only in respect of the principal repayment on a housing loan taken from specified institutions (including nationalised banks) on purchase or construction of a residential house. It, therefore, appears that the reader cannot claim rebate under Section 88 in respect of the loan taken for constructing additional rooms to the house already owned by him.

Query

I had invested in my minor daughter's name, Rs 25,000 in Rajalakshmi Unit Scheme, 1992. On premature termination of the scheme on August 30, 2000, a sum of Rs 82,712.49 was received from the UTI. Is the difference of Rs 57,712.49 taxable as long-term capital gains, or is the same taxable as interest?

C. K. Nair

Reply

The UTI, on a year-to-year basis, would have declared a dividend under the scheme. This sum would have to be offered as dividend income on a year-to-year basis if the assessee is following the mercantile system of accounting in respect of this source. This, however, will be subject to the deduction that would have been available under Section 80L up to assessment year 1997-98, and thereafter, will have been exempt under Section 10(33).

In respect of this source of income, if the reader is following the cash system of accounting, the sums declared by the UTI on a year-to-year basis, as dividend, will be the dividend income of the assessment year, 2001-2002 (previous year 2000-2001) in which case the same would be fully exempt under Section 10(33).

Any sum received in excess of the amount invested as increased by the total amount of dividend will be taxable as long-term capital gains subject to the benefit of indexation. Likewise, a long-term capital loss may also be computed on the scheme's termination.

Business Line invites queries on personal taxation issues to this column. They will be answered in the forthcoming issues of Business Line. 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. (Readers are requested to mention `Tax Talk' in the subject line of their e-mails.)