The Hindu Business Line : Hold no ground but claim rebate on EMI

I am a salaried employee. My mother owns a plot of land and I wish to construct a house on it by taking a housing loan in my name. Am I eligible to claim tax benefits on the EMI I will pay on the loan? – Swapna

It would be possible for you to claim the interest as deduction under section 24 and also claim deduction under section 80C for the principal repayment (liable to change if Direct Tax Code is implemented). The law recognises dual ownership in respect of immovable property – the ownership of land by one person and that of the building by another.

My wife and I are working and we have decided to purchase a house. We would be taking the housing loan jointly. Are both of us eligible for claiming tax benefits in respect of the EMI paid on housing loan in equal proportion? – Nishant

There would be nothing wrong in both of you claiming as deduction the interest on the housing loan in the proportion of your ownership. You can also claim the principal repayment as deduction in the proportion of your ownership in the property.

In case the property is self-occupied, the deduction in respect of interest would be restricted to Rs 1,50,000. This limit of would apply with reference to each of the co-owners and will not be with reference to the aggregate that can be claimed by all the co-owners. You may note that section 80C provides for a deduction in respect of certain payments and investments, which includes the principal repayment on housing loan, subject to Rs 1,00,000 (liable to change if Direct Tax Code is implemented). This limit would also apply with reference to each of the co-owners and will not be with reference to the aggregate that can be claimed by all the co-owners.

I invested in a plot and paid Rs 7.6 lakh for it over three years ago. I have to pay a balance of Rs 40,000 for the plot. I have not yet taken possession of the land. I can now sell the plot for Rs 10 lakh and my gain on sale of the plot would be Rs 2 lakh. Is this sum taxable; and if so, how can I save the tax payable on the same? – Prabit Kumar Das

It appears that you are not the owner of the land but only has a right on the property – the right to have the land registered in your name on delivering the balance consideration. This right apparently arose more than three years ago and therefore when you sell the right – to have the property registered in the name of a third party on the basis of your right to ownership – the gain will be treated as long-term capital gains.

The gain would be computed by, first, reducing the expenditure incurred in connection with the transfer from the full value of consideration. From this amount, called net consideration, the indexed cost of acquisition is deducted to arrive at the long-term capital gain. Indexed cost of acquisition is arrived at by multiplying cost of acquisition and cost inflation index of the financial year of sale, and dividing that by cost inflation index of the financial year of acquisition.

Exemption can be claimed under sections 54F or 54EC. For claims u/s 54EC, the asset transferred should be a long-term capital asset, the investment should be in bonds of the NHAI or the REC and the bonds should be redeemable after three years. Besides, the investment should be made within six months of the date of transfer of the capital asset. Investment in the bonds cannot exceed Rs 50 lakh.

For claims u/s 54F, the assessee should be an individual or HUF, the gain from the transfer of the long-term capital asset should not being a residential house, the assessee should not within two years purchase or within three years construct any residential house other than the new house.

For claiming exemption under section 54F, the new residential house should have been purchased within one year before or two years after the date of transfer or the construction of the new residential house should have been completed before the expiry of three years from the date of transfer of the capital asset.

For claiming exemption under section 54F, the amount not utilised for the purchase or construction of the new asset before the due date for furnishing the return of income for the relevant assessment year may be deposited before the due date for furnishing the return of income in any bank or institution in “capital gains account scheme”. The proof of having made the investment should be furnished with the return of income for the amount to be deemed to have been used for purchase or construction of the new asset.

The amount so invested may be withdrawn for the purchase or construction of the new asset within the specified time. If within three years from the date of transfer of the original asset the money is not utilised for investment in the new asset, the money would be treated as income of the year in which the three-year period from the date of transfer of the original asset expires.