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Can the service tax paid be deducted from income tax?

Service tax cannot be deducted from the income tax payable by an assessee. However, the cost of any service availed of for business is considered a deductible expense as ‘Income from business or profession’.

Print Edition: December 11, 2008

I want to encash a part of my earned leave. Will this amount be taxable? I will be retiring in 2009. Will the encashment affect the tax exemption I will get at the time?
— Gopal Sharma

No tax exemption is available if you encash earned leave while you are in service. The encashed amount will be taxed as your salary income.

The encashment of earned leave at retirement is exempt from tax up to Rs 3 lakh. The number of earned leave days eligible for encashment are calculated by multiplying 30 days’ earned leave for every one year of completed service with the total service period. The average salary for the last 10 months is taken into account for calculating the encashable earned leave. When you retire, the amount of leave encashed by you during the service period will be reduced from the total amount calculated.

I charge my tenant on a fixed basis for providing electricity, water, watchman, etc. Are these services taxable under rental income?
— Jaipal Yadav

Services such as supplying electricity and water, maintenance of common areas, watchman, etc, are not included in the rental income of the property. These are separate from the renting of the house. The payment received by you from your tenant for these services will come under the head ‘Income from business or profession’. The actual expenses incurred by you for providing these services can be claimed as a deduction from the total amount received for rendering of these services to your tenant.

Can the service tax paid be deducted from income tax?
— Vandana Sen

Service tax cannot be deducted from the income tax payable by an assessee. However, the cost of any service availed of for business, including the service tax paid, is considered a deductible expense while computing the income under the head ‘Income from business or profession’. For example, your business telephone bill, including the service tax, is a deductible expense.

My son is working and is also pursuing an MBA. He has taken a loan from me for paying the fee of the course. Can I get tax benefit on the loan? Can he claim deduction under Section 80C for tuition fee paid?
— Rajan Mehra

No, you are not entitled to any tax benefit for the loan given by you to your son for pursuing his MBA, nor can your son get any tax benefit for the repayment of this loan. The repayment of interest on loan qualifies for deduction under Section 80E only if the individual has taken a loan from a financial institution or an approved charitable institution. Also, your son cannot claim deduction under Section 80C for payment of tuition fee to a university for pursuing the MBA degree. Tuition fee can be claimed as a deduction only if it is paid for children who are financially dependent on their parents.

How will I be taxed on the gains if I sell my land?
— Gautam Naik

If you sell land within three years of buying it, you will have to pay tax at the slab rates applicable to you on the short-term capital gain. If you sell the property after three years, the long-term capital gain will be taxed at 20%. To save long-term capital gain tax, you can invest in 54 EC bonds, such as the Rural Electrification Corporation (REC) and the National Highway Authority of India (NHAI) bonds. You can also buy a house in the next two years or buy land and build a house on it in the next three years.

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