Deductions for housing loans

T. Banusekar

I WORK as an executive in a public sector company. While deducting tax at source, my employer takes cognisance of the interest paid on housing loan to the extent of Rs 30,000. I pay to the financial institution from where I have taken the housing loan of Rs 40,000 by way of interest. I also pay as interest Rs 50,000 on private loans taken from my relatives for purchasing the flat.

My employer says that only interest paid to the financial institution can be considered while deducting tax at source. He also says that it will not be possible to allow interest as a deduction at various ceiling limits - Rs 30,000; Rs 1,00,000 and Rs 1,50,000 for different employees being the limits prescribed under Section 24, as the computer programme used by them is inadequate to deal with the situations.

Kindly clarify whether it is obligatory on the part of the employer to take cognisance of the interest on housing loan taken from persons? Also clarify whether it is mandatory on the part of the employer to consider the different limits prescribed under Section 24 in respect of interest on housing loan?

Vanitha

Reply:

Though the reader's query does not point to the property being self-occupied, it clearly appears that the property in question must be self-occupied. One has concluded thus, because only in respect of self-occupied property, the law prescribes a limit on the quantum of interest that can be claimed as a deduction.

At the outset, it is clarified that the quantum of interest that can be claimed as a deduction under Section 24 is as shown in the Table.

Since the annual value of a self-occupied property is taken as Nil and interest on borrowed capital is the only deduction available, the entire interest on housing loan subject to the limits stated in the Table, will be a loss under the head "Income from House Property".

Section 192 of the Income-Tax Act requires that any person responsible for paying any income chargeable under the head "Salaries", shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax. If an employee has, in addition to the income chargeable under "Salary", any income chargeable under any other head of income (not being a loss under any such head other than a loss under the head "Income from House Property") in the same financial year, he "may" send to the person responsible for making the payment particulars of:

* such other income and of any tax deducted thereon;

* the loss, if any, under the head "Income from House Property".

The particulars are to be given by the employee in form No. 12C and thereupon the person responsible for paying the salary "shall" take:

* such other income and tax, if any, deducted thereon and;

* the loss under the head "Income from House Property".

It is, therefore, mandatory for the employer to take cognisance of the interest on housing loan in arriving at the tax that needs to be deducted at source in respect of the salary income. The quantum of interest to be considered by the employer should be in accordance with the limits stated in the Table.

Section 24 which allows a deduction in respect of interest on housing loan does not make any distinction between a loan taken from a housing finance institution and a loan taken from private parties. Section 192 which requires an employer to deduct tax at source on salary also does not make any such distinction. Therefore, the employer is bound to take into account the interest on housing loan taken from private parties also for determining the quantum of tax to be deducted at source, provided the same is furnished by the employee to the employer.

Query

My wife was suffering from cancer and, was treated for the same. The expenditure on the medical treatment I incurred was Rs 70,000 out of which Rs 35,000 was reimbursed by my employer. Will this amount reimbursed by my employer be treated as a perquisite?

Telu Ram

Reply

If an employee incurs any medical expenditure either on himself or on any member of his family, the same will not be treated as a perquisite when it is paid or reimbursed by the employer in the following cases:

* Expenditure incurred in a hospital owned and maintained by the employer;

* Expenditure incurred in a Government hospital or public hospital or in a private hospital approved by the Chief Commissioner of Income-Tax;

* Stay and medical expenditure incurred in connection with treatment outside India to the extent permitted by the RBI in respect of the patient and one attendant;

* Travel expenditure incurred on medical treatment outside India provided the gross total income of the employee does not exceed Rs 2 lakh;

* Any other medical expenditure to the extent of Rs 15,000 per annum.

In the reader's case, without particulars, it is not possible to conclude whether the reimbursement by the employer would be treated as a perquisite or not. However, it can be said that if the employer has reimbursed the expenditure incurred in the employer's own hospital or in a Government/public/private hospital approved by the Chief Commissioner of Income-Tax, it will not be treated as a perquisite.

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.)