I am availing of tax benefit on my home loan and have recently bought a second house. The EMI for the second loan is more than that for the first one. Can I claim tax benefit on the second house? What is the tax implication of owning two houses?
—Rajan Ganesh, Chennai
Yes, you can avail of tax benefit on the second house by claiming it as self-occupied. If you own two houses, you can claim only one as self-occupied, while the other will be considered as let-out property. The notional rent on the second house will be added to your income and will be taxed as per the applicable tax slab. However, you will be allowed to deduct the interest on the home loan from the notional rent. If you want to save tax, invest in your spouse's name if she owns no other residential property. You will also have to pay wealth tax on the second house as only one residential property is exempt from it. To avoid this, you could invest in commercial property.
My wife owns a flat, which was bought by her father a long time ago but was registered in her name 13 years ago. Now she plans to sell the property. Does she have to pay tax on the capital gain? If yes, how much tax is due? Can she save this tax?
Even if the flat had been gifted to your wife by her father, the period for which it was held by him will be considered while computing capital gains. The inflation indexed cost will be computed from the day he bought the flat. The long-term capital gain (LTCG) will be taxed at 20 per cent. For example, if the flat was purchased by your wife's father in 1996-97 for Rs 1 lakh and she sold it in March 2010 for Rs 2.5 lakh, the tax will be calculated as follows:
Here, the cost inflation index for 2009-10 is 632, while the CII for 1996-97 is 305. The CII is listed in various newspapers and Websites such as www.incometaxindia.gov.in/general/computation.asp. You can save tax by investing the sale proceeds in another residential property either a year before selling the house or two years after the sale. If you are constructing a house, the period is extended to three years. Your wife can save tax on LTCG by investing the capital gain up to Rs 50 lakh within six months in bonds of the National Highway Authority of India or the Rural Electrification Corporation.
My monthly income is Rs 24,000 and I have made tax-saving investments of Rs 12,000. My employer has deducted Rs 10,000 as tax. Can I save this tax? How can this amount be refunded to me?
—B.K. Awasthi, Surendranagar
To calculate the amount of tax you have to pay, we are assuming that you have no other income and that your age is below 60 years. Your annual income is Rs 2.88 lakh. After deducting the taxsaving investment of Rs 12,000, your taxable income is Rs 2.76 lakh. For men, income up to Rs 1.6 lakh is exempt from tax, while income between Rs 1.6 lakh and Rs 3 lakh is taxed at 10 per cent. Hence, you will have to pay tax only on the balance Rs 1.16 lakh at 10 per cent, which comes to Rs 11,600. As your employer has already deducted Rs 10,000, you will have to pay tax of Rs 1,600. One is eligible for a refund if the tax deducted by the employer is more than that owed. You can reduce your taxable income by investing Rs 88,000 in tax-saving instruments under Section 80C before 31 March. These include the Public Provident Fund, five-year FDs, National Savings Certificates, tax-saving mutual funds, life insurance policies, Ulips and pension plans. Tuition fee paid for up to two children is also eligible for tax deduction, as is the principal repayment of a home loan (see Money Today, February 2010). If you invest this amount, your tax liability will reduce to Rs 2,800 and you will be eligible for a refund of Rs 7,200.
I purchased a house in April 2009 with a home loan, for which I'm paying an EMI. This house has been lying vacant while I live in a rented property. Can I claim HRA exemption as well as tax benefit on the loan interest?
—Dhaval Vora, Gandhidham
Yes, you can claim house rent allowance (HRA) exemption as well as tax benefit on the home loan. According to Section 23(2) of the Income Tax Act, a property that cannot be occupied because the owner is employed at a distant location does not have to pay tax under 'Income from house property'.
The HRA exemption will be allowed on the basis of actual rent paid in the year.
I am an NRI and remit about Rs 70,000 every month to my wife's account in India. She does not have any other source of income. Will she be taxed for this amount? If she invests the money in a bank fixed deposit and earns an interest, will she have to pay tax?
-Ashok, New Delhi
You do not have to pay any tax if you are remitting money to your wife's account. As money gifted by a relative is tax-free, your wife will not have to pay tax on the remitted amount. However, as the money has been gifted by you, the income earned from the interest on fixed deposit will be clubbed with your income and you will have to pay tax on it. Your wife will not be liable to pay tax on the interest income.
I am 60 years old and have invested Rs 25 lakh in bank fixed deposits, from which I earn an interest of Rs 2.2 lakh. What is my tax liability? Where can I invest so that I don't have to pay any tax?
—A.S. Rao, Rourkela
The exemption limit for men is Rs 1.6 lakh. If you do not have any other income, your tax liability will be Rs 6,180, including education cess of 3 per cent. To save this tax, you will have to invest Rs 60,000 in tax-saving instruments under Section 80C. You can invest in the PPF, NSCs, five-year FDs, equity-linked saving schemes or life insurance policies. As you are 60 years old, the Senior Citizens Savings Scheme will be appropriate for you. The scheme is managed by the government and offers 9 per cent assured returns in quarterly pension payments. You have not mentioned if tax has been deducted at source (TDS), which is mandatory if your income from bank FDs exceeds a certain limit. The TDS should be adjusted against your total tax liability. If your bank(s) have deducted TDS before paying you interest, this amount should be claimed as a refund. Assuming that 10 per cent TDS was deducted, your total income from interest will be Rs 2.45 lakh. In this case, you will have to save Rs 85,000. But the TDS of about Rs 24,500 will be refunded to you when you file your return. Even if you do not make any tax-saving investment, you will be eligible to claim a refund of about Rs 16,000.
I was seriously injured in a mishap due to a car driver's negligence. He has paid me a compensation of Rs 5 lakh in an out-of-court settlement. Will I have to pay tax on it? Can I claim my medical insurance for the expenses incurred?
—A.K. Gupta, Kota
If you had received this money from an insurance company or as compensation under any Act, it would have been tax-free. However, as it is an out-of-court settlement, you will have to pay income tax on this amount. The sum received will have to be mentioned under the head 'Income from other sources' in your tax return. As far as medical insurance is concerned, you can claim reimbursement of the expenses incurred, but this amount will be deducted from the compensation you receive from the Motor Accident Claims Tribunal.