“WHETHER HOUSING LOAN BENEFIT IS AVAILABLE AGAINST THE DEMAND OVERDRAFT LOAN AVAILED BY ME?”

TAX TALK-22.04.2013-THE HITAVADA

TAX TALK  

BY CA. NARESH JAKHOTIA

Chartered Accountant

“WHETHER HOUSING LOAN BENEFIT IS AVAILABLE AGAINST THE DEMAND OVERDRAFT LOAN AVAILED BY ME?”

Query 1]

1.      I am an re-employed ex-servicemen drawing defense pension @ Rs. 10,756/- per month. I am also drawing salary from my re-employment @ Rs. 32,000/- per month on which I am paying applicable IT as TDS after deductions under 80C and others. My query is -Whether I am liable to pay IT on pension income and what are the provisions for exemption of pension income from IT?

2.      Secondly, I have taken a demand loan of Rs. 4,50,000/- in 2011 and invested that amount for purchase of plot with already constructed house. I did not mention the purpose of loan in my DL application to banker as I was not aware of any provision of housing loan exemption from IT. Also the OD account created for this purpose is flexible means I repay my full salary in the account and withdraws as required (through ATM) to meet my other domestic requirements. Kindly guide me how can I get IT exemption from this transactions under 24(b)? Can I ask my banker to treat this loan as house loan and issue me TDS certificate now? Can I reflect these transactions from back date i.e., 2011? Please guide. [pradeepfadnis@yahoo.com] 

Opinion:

1.      Both, the Salary Income as well as pension income, received by you is taxable under the head “Income from Salary”. Its only the amount of disability pension receivable from Ministry of Defence is totally exempt by virtue of Instruction No 136 dated 14^th January, 1970 [F.No.34/3/68-IT(A.I) & Instructions No. 2 dated 2^nd July, 2002 [F. No. 200/51/99-IT(A.I)] issued by Central Board of Direct Taxes.

2.      Considering the overall scheme of deduction u/s 24(b) towards Interest on Housing Loan and u/s 80C towards the principal repayment of the housing loan, I am of the considered opinion that you cannot claim the deduction [U/s 24(b) & U/s 80C] against the Demand Overdraft Loan availed by you.

Query 2]

I have sold two plots which were developed under Talegaon Dabhade pattern and were from Non-Agriculture Layout land at Village Shankarpur, Nagpur (Gramin) in Nagpur District in March-2013 for Rs. 7 Lacs each. Thus, I have received total amount of Rs. 14 Lacs. I have purchased the said two plots in the year 2005 for around Rs. 2 Lacs. I want to know whether the amount received from above transaction comes under the purview of Capital Gain tax? I am also planning it to reinvest in purchase of flat in Nagpur. Please guide me whether the tax can be saved if I invest in the flat? [Prakash Bhaskarrao Kapse-kapseprakash@rediffmail.com]

Opinion:

1.      The transactions would come in the capital gain tax purview and the difference between the sale consideration and the indexed cost of acquisition would be taxable long term capital gain.

2.      The long term capital gain tax arising from the transfer of plot could be saved u/s 54F if you invest the sale consideration for purchase of a residential house property/flat.

3.      Time limit to Purchase the Property:
Exemption u/s 54F is available if the Assessee invests net sale consideration for purchase of a residential house property
a] within One year before or two years after the date of transfer; or
b] constructs a residential house within a period of three years from the date of the transfer of the original house.

4.      Scheme of Deposits:
Although under section 54F, the taxpayer is allowed 2 years to purchase or 3 years for construction of the house property, but the capital gain on transfer of the original assets is taxable in the previous year in which the transfer took place. The return of income of that previous year is to be filed before the specified date i.e., due date. Hence, the tax payer will have to take a decision for the purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable.
To avoid the above situation, the Income Tax Act has specified an alternative in the form of a Deposit under the Capital Gain Deposit Accounts Scheme-1988 (CGDAS). The amount of net sale consideration, which is not utilized by the assessee for purchase or constructions of the new house before the due date of furnishing the return of income, need to be deposited by him/her under the Capital Gain Accounts Scheme, before the DUE DATE of furnishing the return. After Deposits, the amount already utilized by the assessee for purchase/ constructions of the new house, along with the amount so deposited, shall be eligible for exemption under section 54F in the year in which LTCG has arisen. Later on, whenever you purchase the flat within a specified time slot, you can make the payment from the CGDAS.

Query 3]

Myself & my friends have similar query about Mutual Funds, including Tax Free Mutual Fund in which lock-in period is 3 years. What I found is that in many Funds, we get dividends which normally are not more 10%. These are not taxable. It’s OK. But when we want to encash the Mutual Fund investments, in return, it gives much less than amount invested.  For example, if Rs. 1 Lacs is kept and when we ask for maturity value, it is hardly Rs. 70 or 80 thousand. It means a big loss. Even if we calculate the IT relief we enjoyed (10% or 20%) at the time of investments, the yield in long run, say 4/5 years, is a loss. It seems better to keep money in Fixed Deposit which gives some 10% assured income. We can pay income tax on such interest and can easily get minimum 9% net interest return. In this situation, do you suggest to go for Mutual Funds? You may kindly reply to this query through the Tax Talk Column. [Bhaurao Hedaoo- blhedaoo@hotmail.com]

Opinion:

One must understand that Equity mutual funds means stock market by proxy. When you buy a unit of mutual fund, you are buying a small basket consisting of very small portion of different shares that the particular fund has purchased. So a mutual fund investor is in reality an investor in the stock market. In the long run, theoretically speaking, mutual fund should give a return more or less equal to the market return. In the short run, the divergence between stock market return and the mutual fund return is because of selection of different shares in their basket as compared to the shares in the market basket.

Historically over a long period of time stock market has given much higher return than the fixed income instruments. However this may hold true only in the long run, in the short run market idiosyncrasies and noise determines the price. The risk reward ratio in the stock market is high which means that while you take a high risk, the reward potential is also high (high risk means that if the spiral works against you, it may wipe off your capital too).

In comparison, fixed income securities are fairly stable, and their return predictable with mathematical accuracy. But, they do not offer the kind of appreciation that stock market may offer.

Having explained that, it is for an individual to decide which would be a better investment for him. A judicious mix of the two is suggested, so that you can take advantage of capital appreciation from your mutual fund investment, and continue to get a fixed return on your fixed income securities. What is the right mix for you will depend upon your risk appetite, and investment time-frame.