Q. Is the income earned from trading in futures and options (F&O) considered capital gain? Can I offset the losses from F&O and get deduction for the tax I have paid?
A. The profit from derivative trading such as futures and options will come under the head 'Income from business and profession'. As for the loss suffered in derivative trading, it can be offset against the profit made in equity trading, and vice versa. Also, as this income comes under the head 'Business income', it is taxable at the normal rates applicable to an individual. The securities transaction tax (STT) paid on F&O trading can be claimed as a business expense from the profits. This tax cannot be claimed as an expense by an individual who trades in shares but has profits from equity trading taxed under the head 'Capital gains'.
Q. I am planning to buy a house jointly with my wife. She will be taking a loan from a bank, while I intend to take one from my father at a nominal interest. Can both, my wife and I, claim home loan rebates?
A. Yes, both you and your wife can claim home loan rebates. The loan repayment comprises two parts-principal and interest. The repayment of principal is allowed as deduction under Section 80C up to a maximum of Rs 1 lakh. But this deduction is not available if the loan is taken from an unrecognised financial institution. So, no deduction will be allowed for the principal that you repay your father.
The interest paid on the loan is deductible under the head 'Income from house property' and is allowed even if the loan is taken from a nonfinancial institution. So, if you take a loan from your father, the interest component will be deductible. For claiming this deduction, you must have proof that you actually paid the interest.
Q. I am studying for my MBA through correspondence and get Rs 40,000 as education reimbursement from my employer. Can I avail of any tax exemption?
A. There is no provision in the Income Tax Act for any concession on education fee reimbursement given by an employer. Hence, your education reimbursement will be fully taxable. You can claim exemption only under Section 80C for the tuition fee paid for your own children. Another provision is under Section 80E, where the interest paid on an education loan is deductible.
Q. I will be retiring soon and wish to commute a part of my pension. I will also receive pension from an LIC policy in a few months. Can I commute a part of this as well? What will be my taxability?
A. The pension received by an employee is taxable under the head, 'Salary'. The commuted value of pension is exempt under Section 10(10A) of the Income Tax Act. The amount of exemption depends on whether you have received gratuity at the time of retirement. If you have, the commuted value of one-third of the pension is exempt from tax. But if you haven't received gratuity, the commuted value of half the pension is exempt from tax, while the remaining portion of the commuted pension is taxable.
Yes, you can commute a part of the pension that you receive from LIC. The payment received as commutation of pension from LIC or any other approved insurer is fully exempt from tax. The pension received from LIC is not from an employer, hence, it is taxable under the head 'Income from other sources'.