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Home loan tax issues? Here's help

April 10, 2008 10:36 IST
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You have purchased a home by taking a loan and don't know about the tax benefits you can avail of?

The building is still under construction and you are lost as to how you can claim tax exemption on interest you are paying to your bank? Are you eligible to get the interest amount you paid once you get the possession of your home?

Also, have you combined your salary with that of your father/mother to increase your home loan amount eligibility? How, who and how much tax exemption can you claim in such a case?

In a chat with readers on April 9, Get Ahead tax expert Mahesh Padmanabhan answered these and many more queries related to tax claims on home loans, HRA benefits under Section 80GG, capital gains tax and what is the purpose of form 10BA?

For those of you who missed the chat, here is the transcript.

Rs 40, asked, Sir, If I will buy shares and sell it within one year then do I have to pay any tax on it? If my profit will not cross the limit of Rs 1,50,000/ pa (Which is under limit). Please advice.

Mahesh Padmanabhan answers, In case your total taxable income does not exceed the threshold exemption limit, then you would not be liable to any tax even on the short term capital gain.

subhro asked, Hi, I am staying with my parents in a flat. The flat is in my mother's name. Can I claim HRA from my office by showing rent receipts from my mother, as is I am staying in her apartment and paying her rent. If this is possible as per rules of Income tax dept., this income of my mother will be regarded as Income from house property? How will the tax on house property calculated? please explain in details. thanks in advance.

Mahesh Padmanabhan answers, You would be eligible to claim HRA exemption if you are staying in a rented premise and actually paying rent. As regards your mother, of the total income in terms of rent, she would be eligible to get a standard deduction of 30% and any interest on home loan and the rest would be subject to tax based on the slab rates.

Ritesh Gupta asked, Hi !. Sir, Whether interest earned from IDBI flexibonds is taxable?

Mahesh Padmanabhan answers, Yes it is taxable.

neetu asked, hi mahesh, my hubby does not get his HRA due to which we had requested for a 10BA form for claiming the HRA, as we stay separately from our in-laws in a rented flat, but our CA said that even if my hubby doesn't have a flat in his name, his father has as he is not eligible for section 80GG. kindly explain if this is true, if not then can we go ahead & fill up the 10BA form?

Mahesh Padmanabhan answers, That is not right, in order to claim the benefit of section 80GG there are certain conditions that needs to be met, which are as follows: 1. Taxpayer is an individual 2. Tax payer is a self employed person or an employee who does not get HRA 3. The following persons should not own any residential property at the place of business/employment: Taxpayer His / Her spouse, His / Her minor child, HUF in which taxpayer is a member 4. If taxpayer owns a residential property at any other place, then he / she does not claim benefits of self occupied property. 5. Taxpayer files a declaration in form 10BA. Hence in your case, as your father owns the property, you could claim the section 80GG benefit.

Deepak asked, Hello Mr. Padmanabhan. In case the taxable income from Salary is beyond Rs. 10 Lac per Annum. How is the income tax calculated. My taxable salary is Rs12,58,200.00(Rs. 100000 already deducted) for 2007-2008. How much is the income tax liability? In addition I have short trem capital gain of Rs 17000. What will be my income tax?

Mahesh Padmanabhan answers, Based on the information provided the approximate tax liability would be Rs. 328160 plus surcharge of Rs. 32816 plus educ cess of Rs. 10829 totaling to Rs. 371,805.

Uthra asked, Hi Mahesh, is it the good time to start investments... Seeing this volatility in the market do you think it is good investing in mutual funds now?

Mahesh Padmanabhan answers, Investing in equity (whether directly or through mutual funds) is good if you follow a disciplined approach. SIP is one such mode of investing in mutual funds which looked at from long term perspective minimises the risk and evens out the return. Hence you could venture into equities investing if you are a long term player and are consistent in investing.

basu asked, sir, my annual income due to salary is 3.5 lac. I get tax benefit for 1.5 lac and 1 lac with 80cc. My taxable income is 1 lac. Now suppose i earn 2 lac in one year from share trading, then how much tax i have to pay? Also suppose I lose 1 lac some money in some other activity can i adjust it from money earned from share trading?

Mahesh Padmanabhan answers, The working mentioned here are based on the proposed rates for FY 2008-09. Theoretically working you might have a net taxable income of Rs. 3.5 Lakhs (i.e. Rs. 3.5 of salary – Rs. 1 of sec 80C – Rs. 1 (assumed as house loan interest) + Rs. 2 lakh of share trading business) Accordingly, your tax would work to approximately Rs. 25,000 plus cess of 3% if the share activity is treated as business. In case the share activity is treated as capital gains then your tax would be Rs. 20,000 plus cess of 3%. In your case you cannot set off the other head loss against short term capital gain.

Babu asked, Me & my wife both are working in private organisation and our combined take home salary is ~ Rs. 90000. We would like to know about the planning for tax and savings. Our long term goal is to have a net cash amount of Rs 50 Lakhs after 12 years when our son reaches the age of 18.

Mahesh Padmanabhan answers, While it is difficult to start explaining tax planning measures without enough details and on combined salary working; at least your query on long term goal can be answered now. If you invest about Rs. 20,000 per month at an compunded rate of 8% for 12 years you could reach the Rs. 50 Lakh mark. The equation changes if your investment is in say equity / MF at an average yield of say 12% then you would need to invest Rs. 15,500 per month.

ravimittal asked, What do u say about ULIPS? I find them good because of the switching falicity available. Like in today's scenario when everything is 25-27% down one can save by switching to govt bonds (scheme) in ULIPS.

Mahesh Padmanabhan answers, You are right in terms of the flexibility offered by ULIPs to switch between equity and debt composition. But here you would need to be aware of the equity market movements and accordingly take your decision based on that. You could also do the same thing with MF so as to switch between equity fund to a debt fund. The cost of switching has to be compared with the cost of insurance to see which one is better.

riyas asked, Hi Mahesh, what is the best time to invest in MF. Is this the right approach to buy more MF units everytime when there is a big correction in the market?

Mahesh Padmanabhan answers, While it is always good to buy when the markets are low and sell when the markets are high, theoretically this is hard to predict for a retail investor. Hence it is always advisable to use the SIP mode to marginalise the downward correction risk. Alternately you could use SIP for regular investing and make chunk investments when there is a correction.

shelly asked, hi , i am married & purchased a medicliam for which paying premium of Rs.12000/- for my parents. Do i get tax exemption for that?

Mahesh Padmanabhan answers, yes you would get a deduction for the mediclaim premium paid by you for self and/or your parents.

amitg asked, Hi,My annual income is more than 10 lacs.Do i need to pay surcharge? or surcharge is only applicable when total taxable income is more than 10 lacs?

Mahesh Padmanabhan answers, Surcharge is applicable on the net taxable income if it exceeds Rs. 10 Lakhs and not if your gross income exceeds Rs. 10 lakhs

MTK asked, Can we save on tax by gifting some money to parents? Gift should be in which form cash/cheque? How do I declare that in my Income tax return form? Do my parents also have to show this in their income? My dad is now retired and earns from the pension and mom is house wife.

Mahesh Padmanabhan answers, There is no separate exemption or deduction for making gifts. Hence you would not be eligible to get any tax exemption on the same. However as the gift is being given to your father, there would be no gift tax liability on him. It is better to give this gift in Cheque and document the gift deed on a stamp paper.

tes asked,  I owe one rupee income tax this year (Due to a rounding off error during my last pay slip. TDS stood at 43201 whereas Tax to be paid was 43202. Do I still need to pay that one rupee and How?

Mahesh Padmanabhan answers, Though it seems far fetched but it would be better for you to pay off the tax and close the matter. Else you could get your Form 16 revised.

bhavesh asked, I am doing Ph.D. in Mechanical Engineering I have paid a total fees of Rs 23,500 out of which 7500 is tuition fees. can I get any tax relief for that fees?

Mahesh Padmanabhan answers, The deduction for tuition fees would be available only if the same is paid to any University/college/educational institution in India for full time education. Hence if you are employed and are also pursuing PhD then this deduction would not be eligible.

vicky asked, I have purchased one flat at Chennai on 01April 2006. Now I have been shifted to Pune. I want to sell that flat and buy a new one at Pune. Please let me know if i have to pay any tax on the profit margin?

Mahesh Padmanabhan answers, As the period of holding is below 36 months, the capital gains would be taxable at the applicable slab rate.

Lokesh asked, Which is better one NSC or PPF? which will give me maximun returns?

Mahesh Padmanabhan answers, PPF interest is tax free while NSC interest is taxable. Hence theoretically PPF is a better investment option.

balbir asked, Is there any limit for depositing the money in PPF account in a year?

Mahesh Padmanabhan answers, Rs. 70000 per account is the ceiling investment amount. Hence if you have separate accounts for your spouse/children, you could separately invest this amount in each of these accounts.

prashant asked, Hi, I have purchased a flat in 2006. i combined my salary with my dad's salary slip to get the desired amount of loan. now my main question is that I am only paying the entire EMI of the housing loan and i am declaring the IT with the help of Tax provisional certificate, Can my dad also claim for the same in his declarations with the same tax provisional certificate?

Mahesh Padmanabhan answers, Theoretically EMI is generally taken from a single account and hence if the emi is going from your account, your father can also claim exemption if he transfers his share of emi to your account. Alternately, if your father takes care of the house hold expenses and this is shown as his share, then again he could make the claim. please note that to avail of the deduction, your father should be a co-applicant to the loan and also the co-owner of the house.

Saurabh asked, In which NGOs i can donate to get exemption from Tax under section 80G and what is the limit and is this separate from Section 80C?

Mahesh Padmanabhan answers, Section 80G deduction for donation is separate from section 80C deduction for certain investments / expenses. Hence if you make any donation to eligible institutions, you could separately claim the deduction for the eligible portion of the donation. CRY, UNICEF, World Vision, Help Age etc are some institutions where you could make the donation. before you make the donation, enquire if the institution has approval from the IT department.

venu asked, Hi Mahesh, i have taken a housing loan to built a home in my native place. But im staying in a rental home. shall i claim HRA as well? shall i show the housing loan?

Mahesh Padmanabhan answers, Yes you can claim exemption for HRA as well as deduction for interest on home loan. Construction of the home should be completed to avail of the interest deduction.

anita asked, hi , i will be NRI this year as I have settled abroad. Do i still have to file a return next year and how do i file my this year's return as i won't be coming back till next year?

Mahesh Padmanabhan answers, Suppose we assume that you have shifted base out of India in FY 2007-08, then if you have any taxable income in India during the period of stay in india, then you would need to file returns before july 31, 2008. As regards FY 2008-09, in case you do not have any income in india then you need not file any returns in India.

tax991 asked, If i gift around 5 lacks to my mother, what tax implication it will have on my mom's tax returns? As of now she does not file IT returns. Thanks.

Mahesh Padmanabhan answers, Gift to a relative is not taxable in the hands of the donee. Hence there would be no impact on your mother's tax due to the gift.

gouniyal asked, I have booked a flat and taken home loan since the building is under-construction my CA is saying we can't avail tax benefit until possession of Flat. Please clarify?

Mahesh Padmanabhan answers, That's right, the deduction for interest on housing loan is available only on completion of the house property. The interest that you pay during the construction period is to be accumulated and deduction is to be taken in 5 equal annual installments from the year the construction is completed. Please note that this amount is subject to the ceiling restriction of Rs. 1.5 Lakhs for self occupied property.

Mahesh Padmanabhan says, Thank you friends, for a good interactive session. It's time to sign off, have a good day. Team RelaxwithTax.

Mahesh Padmanabhan is principal advisor -- direct taxes group, RelaxWithTax Consultants Pvt Ltd, a Mumbai-based personal taxation and finance solutions provider.

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