Q. Can I get tax benefit for two properties? I have bought one property by raising a loan I am currently repaying and plan to buy a second one with another loan?
A. Only one residential property entitles you to tax deduction to the tune of Rs 1.5 lakh. You will not get tax deduction if you are planning to club interest amounts of the two loans and claim the deduction. So it is better that you claim for tax deduction on the higher interest amount of the two loans that you plan to take.
Similarly, you will get tax deduction for repayment of the housing loan for only one house, as both the houses are for your own residential use. But if you are giving the other house on rent whatever interest you have given will
be deducted from your rental income.
Q. I want to invest in futures and options, but am not sure if income arisng out of it will be treated as business income or as short-term capital gains.
A. Generally speaking, income from trading in stocks is treated as business income or capital gains depending on the period of holding, the frequency of such transactions, the motive of the transaction which is to be examined on facts, the entries in the books, the infrastructure deployed, the source of funds, etc. However, in the case of futures and options, apparently the intention is to earn profit and not to hold them as an investment. It is felt that dealing in futures and options will be treated only as business income and not as income chargeable under the head capital gains. Section 43(5) has been amended by the Finance Act, 2005, to provide that trading in derivatives referred to in Section 2(aa) of the SCRA 1956 will not be treated as a speculative transaction if carried on in a recognised stock exchange .
This benefit will be available only if the transaction is carried on through a registered broker or subbroker or by banks or mutual funds. The transaction should be carried out electronically on screen-based systems and should be supported by a time stamp contract note that indicates the client identity and the number allotted under the Sebi Act or the SCR Act or the Depositories Act and also gives the permanent account number of the client.
Q. I had paid additional tax of Rs 20,000 in 2003-4. My employer informed me of this in February 2006. Can I claim refund now? In 2006-7, my tax will be around Rs 25,000; can it be adjusted against the current tax liability?
A. You can’t adjust old refund against the present tax payable, though the Income Tax Department can give this kind of decision if you approach them. Refund of tax is mentioned clearly in form 16. But you can get the refund now as per the provisions of the IT Act even if the time to claim tax refund has lapsed. Refund application form number 30 should be filled and given to the IT department. Your claim will come to you, though a bit late.
Q. Do we get any tax deduction if we invest for a family member?
A. Under section 80C and 80CCC, you can make investments to the tune of Rs 1 lakh in various tax saving instruments. If you invest in insurance and Public Provident Fund in your name or in the name of your spouse or children, you are entitled to get tax deduction. The same, however, does not apply for National Savings Certificate, bank fixed deposits, equity-linked savings scheme and repayment of housing loan, where the investment must be made in your name. Investment in pension plan should also be in your own name. You can avail tax exemption under 80C for the education of two children only and not for siblings.
Q. Is it possible to get tax benefits on fixed deposits?
A. Yes. It applies to the bank fixed deposits that have been made for next five years. It, however, does not include old FDs. Only the interest amount earned on the FD is taxable and not the principal amount. Currently, a sum of up to Rs 1 lakh from your annual income can be invested under section 80C of the Income Tax Act as tax-saving measure. However, this is applicable to only bank FDs and not company FDs.
Q. What is the difference between rebate and deductions?
A. Rebate is the discount given on income tax, whereas the amount deducted from income is referred to as deduction and income tax is calculated on the remaining amount.
Q. What kind of tax exemptions can be claimed by a person retiring this year? Will he be treated normally or as senior citizen whose tax exemption limit is Rs 1.85 lakh?
A. No. He would neither be treated as a senior citizen nor would he get its benefits in the income tax payments. A person becomes a senior citizen at the age of 65 years under the IT Act. All retirement benefits availed by him should, therefore, be mentioned at the time of filing of income tax returns.
Q. In a partnership firm, is it possible to get tax benefits on the expenses incurred on the partner? Is tax deducted at source on such expenses?
A. Expenses incurred by a partner are deductible from the partner’s income from the partnership for income tax purposes. A business partner can get a salary without any TDS deduction. But in case your partner has rented his property to the firm for a sum of Rs 1.20 lakh, the firm will pay the rent after deducting tax from source.
Q. What is the tax deduction for signing up with a health insurer?
A. Yes, you do get tax deduction if you pay premium for a health insurance scheme or a health rider with a life insurance policy. The qualifying amounts under Section 80D is up to Rs 10,000. However, a higher amount of up to Rs 15,000 is permitted if the person, for whose health insurance the premium was paid, was aged 65 years or more at any time during the financial year in which the premium was paid. Such amounts of premium paid would be allowed as deduction from the total income of the assessee.
Q. Are maturity proceeds on life insurance and pension policies taxable?
A. The maturity proceeds of life insurance policies are not taxable. However, under pension plans, up to a third of the maturity amount can be withdrawn in cash and is treated as tax free. An annuity has to be purchased with the remaining amount. Pension receipts from the same will be treated as income and taxed.
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