Q: I want to pre-pay my existing home loan and take another loan to buy a house.Will I be eligible for the same tax deductions on the second loan? Can I use both houses as personal residences?
—Prem Sagar
A. The interest paid on the second home loan will be allowed as a deduction if the second loan has been taken solely to repay the original loan. In your case, the deduction cannot be claimed since the second loan has been taken to buy a second home.
Even if you do not rent out the second house, you can treat only one house as self-occupied. The other house will be treated as a rented-out property and its annual value (the sum for which the property might be expected to let out) will be determined. This deemed rental income will be added to your taxable income.
Under Section 80C, the repayment of the principal amount of the loan qualifies for deduction up to Rs 1 lakh a year. In case of a self-occupied house, the maximum amount of interest that qualifies for deduction is Rs 1.5 lakh. But in case a property is rented out and the income from the rent is included in the gross total income, the entire amount of interest paid qualifies for deduction.
Q. I hold shares of a company that has made a buyback offer for 20% of the share capital. If I accept the open offer, will I have to pay capital gains tax since the sale is not through a recognised stock exchange?
—Ramesh Sehgal
A. If you accept the offer, you will be liable to pay capital gains tax if the sale price of your shares is higher than the purchase price. If you have held the shares for more than a year, the profit will be treated as a long-term capital gain. If the holding period is less than a year, it will be a short-term capital gain.
Since your transaction is likely to take place outside the exchange, you will be liable to pay a flat 10% tax on the long-term capital gain or 20% tax after adjusting for inflation by indexation. If the profit is a short-term capital gain, it will be clubbed with your income and taxed at the applicable slab rate. If the transaction is through a recognised stock exchange and the securities transaction tax has been paid, long-term capital gains are exempt from tax and short-term gains are taxed at a flat rate of 10%.
Q. Is tax deducted at source (TDS) from the interest earned on a fixed deposit or do we have to show it in our income and then pay tax on it?
—Mahesh Natarajan
A. Banks are supposed to deduct tax at source if the aggregate amount of interest exceeds Rs 10,000 a year per bank branch. So, if your fixed deposits earn more than Rs 10,000 as interest from any bank branch during a financial year, then tax at the rate of 10% plus surcharge and cess will be deducted by the bank. The TDS is at a flat rate, irrespective of your applicable tax slab. In case your income (as the assessee) is taxed at a higher rate than the TDS rate, you have to deposit the balance tax as advance tax or selfassessment tax.
The bank branch will issue you a TDS certificate stating the amount of interest earned and the amount of tax deducted on that. At the time of filing your return, you can claim this amount of tax deducted from your gross tax liability. For tax purposes, the amount of gross interest earned by you before TDS will be included in your income under the head of income from other sources.
Q. I recently changed my job and want to withdraw my provident fund (PF) with my previous employer.Will I have to pay tax on the withdrawn amount?
—Deepak Gupta
A. If you have been a part of a recognised PF for five years or more, the amount withdrawn will be exempt from tax. But if you resign from the job before the completion of five years, the amount you withdraw will be included in your total income and taxed at the normal rate.
Apart from this, the tax relief or deductions allowed to you on the PF contributions in the previous years shall be withdrawn and you will have to pay the tax. Further, the employer’s contribution plus the interest on that, which was not taxed earlier, will be taxable as profit in lieu of salary. However, you can claim relief under Section 89(1) for this income.
Q. I received some bonus shares last year. If I sell these shares after holding them for more than a year, how will the profit be treated for tax purposes? What is the cost of the original shares after the bonus issue?
—Shruti Singh
A. If you sell bonus shares after holding them for more than a year, the entire amount you get for the sale will be treated as a long-term capital gain and will be exempt from tax. However, the sale should be through a recognised stock exchange and securities transaction tax should be paid, otherwise the longterm gain is taxable at the rate of 10%. The cost of bonus shares will be taken as nil, while the cost of original shares will be the amount actually paid to acquire them.
Q. My income tax refund for the year 2003-4 reached me in 2005-6 with the wrong account details. My repeated attempts to get the issue resolved have been in vain. Can I claim the refund against my returns this year?
—Rajan Nair
A. If you had mentioned the correct account number in your return and the mistake was of the income tax office, you can rectify this by making a personal visit to the office.
Show the officer concerned a copy of the acknowledgement of your return and a copy of your bank statement where your account number is mentioned. However, if the mistake was at your end, you might be asked to furnish a letter of indemnity, as well as the copy of the acknowledgement of your return and a copy of your bank statement with account number. In both cases, the correct account details will be endorsed on the cheque. In case this option fails, you can also contact the tax ombudsman (details available in the MONEY TODAY issue dated 7 February 2008).
Q. For the past two financial years, my TDS has been more than the income tax. However, I have still not received a refund cheque. How do I get it?
—Mangesh Chaturvedi
A. You have not mentioned whether or not you filed your income tax returns for the past two years. Even if your TDS is more than the actual amount of tax due on your income, you are eligible for a refund only if you have filed your returns.
It generally takes two to three months before an assessee receives the refund. If you filed your return within the due date, you are also entitled to interest on the refund under Section 244A. If you have filed your return, write to the assessing officer to process the refund.
For their reference, it is a good idea for you to enclose a copy of the return. In case the problem persists, you can approach the tax ombudsman of your area.
