The Hindu Business Line : A plot that gets complicated

At the start of the financial year 2006-07, I owned two house properties jointly with my husband. My husband left for an overseas assignment in November 2005. I sold one of the houses in April 2006 on the basis of a power of attorney executed in my favour by my husband. The sale consideration was Rs 7.50 lakh. This house was purchased by us in 1999 for Rs 7.25 lakh. The proceeds of sale have been invested in a plot of land purchased in my name. The other house has been let out from July 2006 and the rent is credited to my bank account. There are also credits in my bank account of Rs 20,000 every month which is the sum drawn by me from my husband's NRE account and also a commission on insurance business of roughly Rs 10,000 for the year on which tax is deducted at source. I pay an EMI of Rs 11,794 on the housing loan of the second house, which is now let on rent, insurance premiums and also use the funds in the bank for my living expenses. What will be the tax implications in my hand for the assessment year 2007-08? — Shanthi

Since the property which has been sold was acquired in 1999 there will be no long term capital gains as the cost of acquisition after indexation would exceed the consideration on sale of the property. There will only be a long-term capital loss which can be carried forward.

The income from house property will be assessable in your hands on the basis of your share. If the property has been acquired out of your husband's income, the entire rent would be assessed in his hands. The only other income that you have is Rs 10,000 being insurance commission. If the rental income is assessable in your hands, you may claim the benefit of deduction under Section.80C in respect of as much of the principal that is relatable to your borrowings and which is paid but not exceeding your income.

The interest on the housing loan can also be claimed on a proportionate basis. If your income exceeds the maximum amount not chargeable to tax you may file a return and pay the tax after adjusting the tax deducted at source on the commission.

If your income does not exceed the maximum amount not chargeable to tax or if the tax payable is less than the tax deducted at source, you may file a return claiming refund of the tax deducted at source on the insurance commission.

I am a government servant earning around Rs1,55,000 annually. I have invested in PPF and contributed to PF Rs.20,000 in the aggregate. I have short-term capital gains of Rs 25,000 and long-term capital gains of Rs 7,000, both from dealing in shares where the Securities Transaction Tax has been paid at the time of sale. For the financial year 2006-07, how will the tax be worked out on the basis of the above incomes? — E. S. Yunus Basha

The salary of Rs1,55,000 will be taxed at the normal rate. The long-term capital gains will be exempt under Section 10(38) and the short-term capital gains will be taxed at 10 per cent, in accordance with Section 111A. You will also be eligible for a deduction of Rs 20,000 under Section.80C for contributions to PF and PPF. The tax on your salary (after reducing the deduction available under Section 80C of Rs 20,000) will be Rs 3,500. The tax on short-term capital gains will be Rs 2,500.

The aggregate tax will thus be Rs 6,000 This is to be increased by an additional surcharge of 2 per cent thereby making your tax liability Rs 6,120.

My brother has been working in West Africa, for a Hong Kong company since February 2005. He has been in India from February to June 2006 and for the rest of the period in West Africa. His employer is directly crediting the salary of Rs 15,000 into his bank account in India. I would like to know the residential status of my brother and also the tax liability for the financial year 2006-07. Will he have to file a return in India for 2006-07? He is not liable to tax in West Africa. — Manjula

For the financial year 2006-07, your brother would be a non-resident in accordance with Section 6 of the Income-Tax Act. However, since his salary is received in India, the same will be taxable in India as it will fall within the scope of income as defined in Section 5. Assuming that the salary is the only income of your brother, his tax liability would be Rs 11,220 (including the additional surcharge of 2 per cent).

It is also assumed that your brother will not be eligible for any deductions such as under Section.80C. Your brother will have to file a return of income in India for the financial year 2006-07. You have not stated the country in which your brother is employed to examine whether he can get the benefit of the Double Taxation Avoidance Agreement between India and that country.

Can an individual suffering from arthritis claim the benefit of deduction under Section 80DDB? — Ketul Shah

Section 80DDB allows a deduction to a resident individual if he incurs expenditure on medial treatment of a disease or an ailment specified by the Board if the treatment is for himself or a dependent.

The deduction will be the amount actually incurred or Rs 40,000 whichever is less (Rs 60,000 if the patient is a senior citizen). For claiming this deduction, the assessee must furnish a certificate in the prescribed form from a specialist working in a government hospital. The diseases and ailments are prescribed in Rule 11DD.

This Rule does not refer to arthritis, as a prescribed ailment and hence you cannot get the deduction under this Section for the amount spent in its treatment.

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