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T. Banusekar

I HAVE a term deposit in a bank. On the security of this deposit, I have taken a loan from the same bank which loan I have used for making deposits in companies.

Can I claim a deduction of the interest paid on the loan from the interest on term deposit with the bank, as the loan has been taken on the security of the deposit? Is there any maximum ceiling up to which an individual can retain cash in hand?

Gurbachan Singh

Reply

Interest from bank deposits will normally be chargeable to tax under the head "Income from Other Sources". Under this head among other deductions, a deduction can be claimed in respect of such expenditure incurred for the purpose of making or earning such income.

It cannot be said that the interest paid on the loan is incurred for making or earning the income by way of interest from bank deposits. It would, therefore, not be possible to claim the interest paid on the loan as a deduction against the interest from bank deposits.

The loan, however, is taken for the purpose of investment in company deposits.

The interest on loan is, therefore, an expenditure incurred for the purpose of making or earning the interest from company deposits. The interest on the loan can, therefore, be reduced from the interest income from company deposits.

There is no limit on the cash that can be held in hand by an individual. It may, however, be noted that in case of individuals and HUF's, cash in hand in excess of Rs 50,000 is treated as an asset under the Wealth Tax Act. It may also be noted that no wealth tax is leviable on the value of assets upto Rs 15 lakh.

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