TAX TALK-22.08.2011-THE HITAVADA

TAX TALK-22.08.2011-THE HITAVADA
TAX TALK BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“NO LOAN SHOULD BE TAKEN AGAINST LTCG BONDS”
Query 1]
a] Sir, I have paid the insurance premium of the policy taken out by my mother as proposer for me. Similarly, I have also paid the premium of my younger brother. The premiums were paid by me by cheques only & my bank passbook reflects both the above payments. The LIC Premium receipts are, however, issued in their name (Mother & Brother). I want to know whether I will be able to get income tax deductions towards these payments. Similarly, if I make the LIC Premium payment of my father in the F.Y. 2011-12, whether I will be eligible for income tax deduction? Please elaborate.
b] I have read in the earlier issues regarding the investment in the REC/ NHAI Bonds for saving Long Term Capital Gain Tax. Accordingly, I have invested in the bonds issued by NHAI, 1 ½ years back. I am in need of some amount for purchase of one agricultural Land. The bank is not willing to give the loan for purchase of that agricultural land but has agreed to give the loan against the pledge of the NHAI Bonds. One of my Relative who is also legal consultant has advised me to avail the loan against the pledge of these bonds. I remember of having read the caution given in the Tax Talk against loan on the security of the NHAI Bonds. I shall be thankful if you can guide. Whether I can take the loan against the pledge of these bonds? Is there any restriction/ barrier under the Income Tax Law against such transactions? Please elaborate & advise. I shall be very much thankful if you can kindly re-produce the relevant part of the Income Tax Act. [Kailash A. Agrawal]
Opinion:
1. You will be eligible for deduction u/s 80C of the Income Tax Act- 1961 on the LIC Premium paid by you in respect of the policy taken in your name even though the proposer of the policy is your mother and the receipt is in her name.
2. In the case of Individual Assessee, deduction u/s 80C towards Life Insurance premium is available towards the premium payment of the following:
a] Self
b] Spouse
c] Any child of such Individual.
3. You will not be eligible for deduction in respect of the Life Insurance Premium payment done by you in respect of the policy standing in the name of your Brother & Father.
4. A perfect recall. If one has claimed an exemption from LTCG by investing in the specified bonds issued by REC/NHAI then no loan should be taken against the security of such bonds, else the exemption granted earlier would be withdrawn. For the benefit of our all our readers, the relevant part of section 54EC (2) as well as Explanations thereto is reproduced hereunder:
“(2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head Capital gains relating to long-term capital asset of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money.
Explanation: In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken”

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