“LOAN AGAINST FDR & DEDUCTION TOWARDS HOUSING LOAN”

TAX TALK-17.12.2012-THE HITAVADA

TAX TALK 

BY CA. NARESH JAKHOTIA

Chartered Accountant

“LOAN AGAINST FDR & DEDUCTION TOWARDS HOUSING LOAN”

Query 1]

I have sold my Plot. Now I am planning to purchase a flat at Nagpur. I want to know that which expenditures from the amount I received from sale of plot, are exempt while purchasing the flat? Whether expenditures on stamp papers other taxes such as service tax, VAT, and expenditures on Interior decoration, Modular Kitchen, Painting cost, POP ceilings, Electricity connection charges, water connection charges, One time maintenance cost by Builder, club house charges, Electric items like fans, sanitory items, Solar heater cost or any other statutory expenditures made on Flat to be ready for residence can be included for exemption purpose?  Please tell all the expenditures we can make to get exemption under section 54?  [R.V.Deshmukh- rvdsh@rediffmail.com]

Opinion:

Subject to various other terms & Stipulations, Assessee can save amount of Long Term Capital Gain (LTCG) arising from transfer of plot by investing the amount of net sale consideration for Purchase of another house property. If all the expenses as mentioned above are forming the integral part of the purchase price, exemption could be claimed u/s 54F. However, if the expenditure (like POP, Solar heater etc) is incurred additionally as a luxury measure subsequently (after the house is habitable), then the additional amount may not be considered for the purpose of claiming an exemption.

Query 2]

Sir, if a person has kept Rs. 30/- Lacs in a bank as fixed deposit and if he raised the demand loan/overdraft for purchase of a plot or flat, whether he can claim exemptions available in IT Laws while repaying the installments and interest? I presume but please confirm that it will be termed as a loan taken from the bank irrespective of the fact whether the loan is from own deposits or otherwise, and he can very well claim repayment of installments & interest and ask for tax exemption? Kindly clarify and oblige.

Opinion:

1.      Deduction towards Interest on Borrowed Capital:
Deduction is admissible u/s 24(b) for the interest on amount borrowed for purchase/ construction of the house property. For claiming the deduction, assessee has to get a certificate from the lender about the interest paid for purchase/construction of the house property.

2.      Deduction towards Principal Repayment of the Loan:
The deduction is admissible in respect of repayment of loan taken for purchase or construction of the house property.

Query 3]

I am a senior citizen living in my own flat which was bought by me about ten years back. There is no other flat/house in my name and the present value of my flat has increased substantially as compared to my buying price. I wish to sale my flat and stay near to my only daughter, who stays in different city, due to age related problems.  In this regard I have some queries related to income tax as below:

1.      If I sale my flat and stay in my daughter's flat as tenant what tax implication will be on the sale value of the flat?

2.      If a flat is bought with the help of my daughter and I sale my present flat after 2-3 years how the sale value will be taxed?

3.      Can my daughter take loan from bank/financial institution to buy a flat in my name?

4.      If my daughter buys a flat in her name through bank loan and I pay her EMI through accrued interest of fixed deposit of the sale value of my present flat as tenant, how tax will be fixed on me/her?

5.      If the entire sale value is transferred to her account since she bought the flat (though in her own name) for my stay, will she be taxed?

Point wise early response will be of immense help for taking correct decision. [D.S.Basu-ds_basu@yahoo.co.in]

  
Opinion:

1.      On sale of flat, the resultant Long Term Capital Gain (LTCG) would be taxable in your hands.

2.      If you sale the existing flat within a period of one year after buying the new flat and if the investment in the new house property is more than the amount of LTCG than the entire amount of LTCG could be claimed as exempt u/s  54 of the Income Tax Act-1961. If however, you sale the existing flat after a period of one year from the date of buying new flat, then the exemption would not be available against the amount of LTCG and the amount of LTCG would be taxable.

3.      Normally, Bank can sanction the loan of flat by taking your daughter as a co-applicant in the loan documentations. It appears that you are incorporating her name in the loan documents for availing the housing loan only. If it is so, then in such case, incorporating her name in the loan document won’t carry any tax implications.

4.      If you sale the flat and invest the sale consideration in Bank FDR, the resultant interest income would be taxable in your hands. The payment of EMI by you in your Daughter’s loan A/c could either be considered as Loan or Gift to your Daughter, as per your intention. In either case, the amount would not be taxable as her income.

5.      If you gift the entire amount to your daughter for purchase of flat, there will not be any tax on the amount of gift in the hands of your daughter. But, it appears that your daughter is already owner of one house property and the new property will be the 2^nd house property in her name. The second house property carries a different tax treatment as compared to first house property. The detailed discussion on the topic has been covered in my Tax Talk Dated 29.10.2012. The same can further be retrieved from www.ehitavada.com or from www.nareshjakhotia.blogspot.com.