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T. Banusekar

I HAVE taken a housing loan and have already started paying the EMI in respect of the loan. The flat is yet to be completed and possession has not yet been handed over to me. Can I, in the mean time, claim the rebate under the Income-Tax (I-T) Act?

Ramesh Achar

Reply

Rebate under Section 88 in respect of principal repayment can be claimed in the previous year of payment. This will be so even if possession of the flat has not been handed over. This can be claimed since Section 88(2) allows the rebate to be claimed in the year in which the sums are paid or deposited. However, insofar as interest is concerned deduction can be claimed under Section 24 only beginning from the year in which the purchase or construction is completed.

The interest related to the year of such completion can be claimed in full in that year. The interest relating to the earlier years can be claimed in five equal annual instalments beginning from the year in which the purchase or construction is completed. The claim will, however, be restricted to the limits prescribed in the section if the house is self-occupied.

Query

I stay in a rented house in Bangalore. I propose to purchase a house in Hubli. My parents will be staying in this house. Can I get the benefit of exemption under Section 10(13A) in respect of the rent paid and also the benefits for the repayment of principal and payment of interest in respect of the loan that I take for buying the house in Hubli?

Kashinath

Reply

There appears to be no prohibition in making the claim for exemption under Section 10(13A), the claim for deduction under Section 24 and the rebate under Section 88. Section 10(13A) does not impose any condition regarding the assessee's ownership of another house property. The deduction under Section 24 and the rebate under Section 88 are also available since no condition is prescribed in these sections as well to this effect.

Query

A loan of Rs 4 lakh has been taken from a bank for acquiring a property. The stamp duty and registration charges of Rs 49,000 have been claimed by my mother. Can I or my mother, whoever is repaying the loan and paying the interest on the loan, claim the full benefits available under the Act?

Anonymous

Reply

The person who will be entitled to the benefits under Sections 24 and 88 of the Act will be the person who is the owner of the property and also who is actually paying the loan or interest. If you are joint owners and if the repayment of loan and payment of interest is made by you proportionately, you could claim the deduction and rebate to the extent it is paid by each of you and in proportion of your ownership. You may, however, note that each of you can claim the deduction in respect of interest to the extent of Rs 1.5 lakh or as the case may be Rs 30,000 if the property is self-occupied. Similarly, rebate of up to Rs 20,000 can be claimed by each of you. In other words, the limits will not apply with reference to a property but with reference to each assessee.

Query

I purchased a plot and constructed a house utilising a housing loan from my employer during the financial year 1975-76. The loan taken from my employer was to the tune of Rs 28,000. The cost of the plot and the construction thereon amounted to Rs 35,000. I subsequently took an additional housing loan of Rs 60,000 from my employer during the financial year 1986-87 and made a further construction on the same house, at a cost of Rs 62,000.

The outstanding amount of loan along with interest at the time of my retirement in May 1997 was Rs 80,000 (principal Rs 26,000 and interest, Rs 54,000). I now propose to sell this house. How will the long-term capital gains be computed in this case? Are there any investments that can be made to avoid the payment of capital gains tax?

P. K. Srinivasan

Reply

For computing the capital gains, you can take the cost of acquisition as the fair market value as on April 1, 1981. This of course is your option. You may instead choose to take the actual cost of Rs 35,000 if this is more beneficial to you.

This cost of Rs 35,000 or, as the case may be, the fair market value as on April 1,1981 may be indexed by using the index factors of the financial years 1981-82 and 2004-05 (the year of sale) to arrive at the indexed cost of acquisition.

The cost of improvement of Rs.62,000 incurred by you in the financial year 1986-87 may be indexed from that year using the index factor of the financial years 1986-87 and 2004-05 to arrive at the indexed cost of improvement.

The indexed cost of acquisition and the indexed cost of improvement can be reduced from the consideration to arrive at the long-term capital gains. If there is an expenditure incurred in connection with the transfer, the same may also be reduced in arriving at the long-term capital gains.

You may consider investing in another house property to avail of the exemption under Section 54 or choose to invest in certain bonds so as to avail the exemption under Section 54EC. This will be subject to satisfying the conditions in the respective sections.

The cost inflation index of the financial years 1981-82, 1986-87 and 2004-05 are 100, 140 and 480 respectively. It is assumed that you have already claimed the interest on the loans as a deduction.

Query

I had borrowed money from a bank for buying shares. Can the interest be claimed as a deduction in computing the capital gains?

Anil

Reply

If you have otherwise not claimed the deduction in respect of the interest on borrowed capital the same can be added to the cost of acquisition of the shares in computing the capital gains. This will effectively mean that the interest will be available as a deduction in computing the capital gains.

That the interest, which is otherwise not claimed as a deduction, can be added to the cost of acquisition is a view supported by the following decisions: CIT vs Maithreyi Pai (152 ITR 247 Karnataka); CIT vs Mithilesh Kumari (92 ITR 9 Delhi); ACIT vs K. S. Gupta 119 (ITR 372 AP); and Naozar Chenoy vs CIT (234 ITR 95 AP).

Query

The Finance Act 2004 seeks to exempt capital gains arising out of the transfer of listed securities. This being the case, if there is a long term capital loss on transfer of listed securities can the same be set off against long-term capital gains arising from assets that are not exempt.

Venugopalan

Reply

Since the long-term capital gain will be exempt on the transfer of listed securities, the loss, if any, arising from the transfer of such assets will be ignored.

Therefore, the question of set off of any loss arising from the transfer of assets, where the gain is exempt will have to be ignored. You will not be able to set off the loss arising from the transfer of listed securities against any other long-term capital gain.

It is assumed that the conditions in Section 10(38) are satisfied on the transfer of the listed securities for only in such a case does the exemption operate.

Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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