Q. I purchased a flat with a loan in September 2003 and rented it out. I bought another flat with a loan in November 2005. I receive HRA of Rs 4,000 a month. Can I claim tax deduction for the interest payment and principal repayment of both loans?
A. The interest on capital borrowed and the principal repayment of the borrowed capital of both properties can be claimed as a deduction. The interest on the loan for the flat in which you are staying will be allowed as a deduction under Section 24, with a limit of Rs 1.5 lakh a year. But there is no ceiling on the interest repayment for the flat which is let out. The principal repayment of both the housing loans can be claimed as a deduction under Section 80C subject to a limit of Rs 1 lakh a year. It may be noted that the tax exemption for principal repayment under Section 80C will be in respect of various other payments and investments such as NSCs, Public Provident Fund, equity-linked savings schemes, pension plans, insurance and so on.
Since you live in your own house and do not pay rent, the house rent allowance you receive from your employer would be fully taxable in your hands. You may also note that the net annual value in respect of the selfoccupied property would be taken at nil and the net annual value of the flat that is rented out would be taken as the sum for which the property can reasonably be expected to let from year to year or the rent receivable, whichever is higher. A deduction of 30% of this amount is allowable in computing the income from house property.
Q. Will the short-term capital gains from the sale of shares be clubbed with my salary income and taxed at the normal rate or at a flat rate of 10%?
A. The tax rate on short-term capital gains on sale of shares will depend on whether the shares are sold through a recognised stock exchange or otherwise. If they are sold through a recognised stock exchange, securities transaction tax would be paid at the time of the sale. In that case such capital gains will be taxable at a flat rate of 10%, plus the appropriate surcharge and additional surcharge. If the shares are not sold through a recognised stock exchange, the short-term gains will be clubbed with the individual's income and taxed at the normal rates.
Q. Can short-term capital losses be set off against short-term capital gains of the same year? Are there any income tax exemptions on short-term gains from the sale of shares?
A. Short-term capital losses of a year can be set off against the short-term capital gains of the same year. No tax exemptions are available on the short-term capital gains from the sale of shares.
Q. I am a stocks investor and sometimes sell shares on the day of purchase itself without taking delivery. On other occasions, I sell and then repurchase on the same day if the price falls. Are these transactions speculative in nature?
A. Section 43(5) of the Income Tax Act deems a transaction to be speculative in nature if the buying and selling of goods or commodities, including shares and scrips, is without delivery. The section provides for certain exceptions. It can be seen that this provision creates a deeming fiction whereby if there is no delivery, the transaction is treated as speculative.
Q. Instead of going to a bank, I took a loan from my family members to construct a house. I am paying interest to them on this loan.Am I eligible to claim the home loan related tax benefits available to those borrowing from a bank?
A. You are eligible to claim the same tax benefits as avai lable to any other home loan customer as far as interest payment is concerned. Deduction of the interest paid is allowed under Section 24(b) in case of home loans taken from family members. However, there must be a genuine flow of interest payment to the lender and necessary evidence must be available. You will need a certificate from the lenders saying that they have received interest from you on the loan. This must be submitted along with the tax return.
However, you cannot avail of deduction under Section 80C on principal repayment of the housing loan from family members.
Therefore, the shares that are purchased and sold by you without delivery will have to be treated as speculative. Transactions where there is delivery will, however, not be treated as speculative.
Q. My salary is less than Rs 1 lakh and I do not file tax returns. From my savings I have invested in shares to the tune of Rs 1.25 lakh. If I sell these shares within one year of the purchase date, do I need to file a return of income and pa y tax?
A. Firstly, congratulations for making money on the stock markets and investing well above your annual salary. But you would have to file a return of income if your total income exceeds Rs 1 lakh, including your salary and the gains from the sale of shares. The gains from the sale of shares should normally be treated as short-term capital gains in your hands as you are holding them for less than 12 months. Shortterm capital gains will be taxed at 10%. Therefore, even if your salary is less than Rs 1 lakh, you will have to file returns if you make short-term capital gains and pay a 10% tax on those gains.
Q. My family comprises myself, my wife and son. How can I form an HUF when none of my elders are alive?
A. You can form an HUF in your own name, wherein you would be the karta of the HUF and your wife and son would be the coparceners (a person who shares equally with others in an inheritance). A female member cannot be a karta. In your case, you are the eldest and can form an HUF in your own name. You can contact your bank to open an HUF account. Get a rubber stamp made of your name. Income of the karta and HUF will not be clubbed. Typically a husband and wife can open HUF and save tax.
Q. I am a housewife and do not have any income. If I receive gifts from my husband and parents and if these gifts exceed Rs 1.5 lakh in a financial year will I be liable to pa y tax?
A. Under Section 56(v) of the Income Tax Act any sum of money exceeding Rs 50,000 per annum received without consideration by an individual or HUF from any person is to be treated as income chargeable under the head “income from other sources”. However, the section also states that the sum received without consideration will not be treated as income if it comes from a relative, including spouse and parents. The gifts received from your husband and parents will, therefore, not be treated as your income.
Q. I had filed an appeal for refund for the assessment year 2004-5.As a result of the appellate order, I got a Rs 20,000 refund but no interest. Am I entitled to interest?
A. You are entitled to interest on the refund in accordance with Section 244A. If the assessing officer refuses to pay you interest, you may approach the higher authorities, such as the Joint Commissioner or Commissioner of Income Tax. If even that doesn’t work, approach the tax ombudsman or go to court.