Query corner: Taxation

Tax rebate on under-construction home

My wife and I jointly availed of a housing loan of Rs 28.5 lakh on March 30, 2010. The property is under construction with possession expected by end 2011. I fall in the 30% tax bracket and my wife in the 20% one. Can I take rebate in 2010-11 on interest being paid in a ratio other than 50:50. If so, what is the procedure to be followed? — LM Bagga

First of all, please note that you can claim tax deductions on interest payable and principal amounts repaid in respect of your housing loan only from the year of possession. Hence, if you do not receive possession by March 31, 2011 you will not be eligible to claim either of the deductions for FY11. In case you wish to claim the tax deductions on interest payable and principal repayments made in respect of your housing loan in equal proportion, you should bear the EMI in equal proportion. In case, it is your bank account which is auto debited by your bank every month, your wife should transfer 50% of the EMI amount to your account every month towards her contribution.

Tax exemption on VRS dues

I have been working for an MNC for nine years. I have now decided to quit and will not be working for the next two years. My currently salary is Rs 20 lakh and the company is giving a compensation of three months’ salary, gratuity and 42 days leave salary at the time of leaving. Please let me know how I can save maximum income for this? — Antony K

The government has framed guidelines for Voluntary Retirement Scheme (Rule 2BA of the I-T Rules). You will have to check if your company meets the entire guidelines to provide you tax exemption under Section 10(10C) of the I-T Act.

Long-term capital assets

My brother is a US Citizen. He bought a flat for Rs 28 lakh in Kolkata on December 8, 2008. He wants to sell it now and has got an offer for Rs 62 lakh. What are the tax implications? Will he be able to repatriate the proceeds of sale in US dollars? — P Mukerji

The property should be held for more than 36 months to qualify as a long-term capital asset. The above sale transaction will, therefore, result in short-term capital gains. Income tax on the same would be payable as per slab rates. He would be able to repatriate only that portion of the cost which was brought into India in convertible foreign currency.

Tax exemption on sale of residence
I have sold a residential house and want to invest the entire long-term capital gains in a multi-storeyed residential flat under construction. I should buy the flat from an allotee and not the builder and will pay the entire cost of flat immediately. The possession of the flat will be handed over by the builder in 4-5 years. Will I be entitled for exemption of long-term capital gains? — Pratima Goel

Section 54 stipulates exemption on long-term capital gains arising on sale of a residential house. The section requires that a house should be purchased within three years from the date of sale of the old house or within year before the date of sale of the old house. Unfortunately, what constitutes a purchase is not specified by the law. My view is that purchase in such cases is completed only when possession is obtained. Since, you are expecting to obtain the possession only after three years there is a likelihood that your exemption claim would be disallowed by the I-T department.
Taxing mutual funds

My son is an NRI and has booked a short-term capital gain of Rs 25,000 on sale of mutual funds in India. He has no other income. What are the tax implications? — P Ray Chowdhury

If the mutual fund is equity-oriented then basic exemption cannot be claimed and under section 111A, income tax is required to be paid @ 15.45% on the amount of gain. However, if the mutual fund is non-equity oriented then no income tax would be payable as basic exemption can be claimed.