“PREVENTIVE HEALTHCARE OFFERS TAX BENEFIT”

TAX TALK-08.09.2014-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant

“PREVENTIVE HEALTHCARE OFFERS TAX BENEFIT”

Query 1]

I have recently retired from Central Government Service. CGHS contribution deducted during the service period was exempted u/s 80D of IT Act.  On retirement, a lump sum amount of Rs. 60,000/-is to be deposited with CGHS, as lifetime contribution for self and family. My query is, whether this lump sum amount (Rs 60,000/-) is also covered u/s 80D and if yes to what extent? [saxenarakesh1954@gmail.com]

Opinion:

1.      Section 80D offers deduction to Individual / HUF taxpayer towards the following payment:
a] Payment of health insurance premium of assessee or his family or his parents
b] Contribution to the Central Government Health Scheme (CGHS).
c] Payment for preventive health check-up of the assessee or his family or his parents.
Amount of Deduction:
Deduction can be claimed by an individual in respect of the medical insurance premium paid up to Rs 15,000/- for himself, spouse and dependent children. Additionally, he can also claim deduction for the medical insurance premium up to Rs 15,000 for his parent(s). The aforesaid deductions shall be Rs 20,000/- in case the premium is paid for senior citizen (60 years or more).
Precaution:
i] Ensure to make the payment of premium by cheque only. However, payment for preventive health care can be made in cash also
ii] There is a max ceiling of Rs. 5,000/- on preventive health check up within the overall cap as mentioned above.

2.      There are many assessee who are not aware of tax sops available towards preventive health check up. It may be noted that an individual assessee can claim deduction towards payment on account of preventive health check up of himself, spouse, dependant children or parents. The total deduction towards preventive health check up cannot exceeds Rs. 5,000/-. The said deduction is admissible u/s 80D of the Income Tax Act-1961 & is subject to overall cap of Rs. 15,000/- or Rs. 20,000/-as discussed above.

3.      In your specific case, amount deposited in central government health scheme (CGHS) is eligible for deduction u/s 80D as deduction towards medical insurance premia. The deduction is subject to overall maximum cap of Rs. 15,000/- or Rs. 20,000/- as mentioned in (1) above.

Query 2]

With reference to Tax Talk dated 18.08.2014 & 21.07.2014 on treatment of interest on second housing loan, I have one query regarding set off of loss from second HP with salary income and whether the maximum limit of Rs. 1.50 Lakh [Rs. 2.00 Lacs from AY 15-16] on housing loan interest is applicable to only one residential house or also includes interest on loan in respect of "Deemed to be let out property ". To elaborate I am giving following example:

“A” is an employee of a PSU and draws salary of Rs. 10 Lacs [ignore deductions under chapter VI-A]. He owns a house property in Nagpur which is used by him for his residence and has paid interest of Rs. 40,000/- on housing loan during the FY 2013-14.

“A” also owns another house at Nasik and has paid interest of Rs. 80,000/- during the FY 2013-14 on housing loan taken for purchase of second house. He has not let out the Nasik property and it is considered as "Deemed to be let out property". Annual Value of Nasik house is Rs. 50,000/-.

My query is, whether “A” can set off loss from house property of Rs. 40,000 [Nagpur house] or can he claim set off of loss of Rs. 70,000/- [Rs. 40,000/- of Nagpur house and Rs. 30,000/- of Nasik house] from his salary income?

In the above example, if interest paid on Nasik property were Rs. 1,75,000/-, annual value being same, will there be any change in the treatment.

What will be the position if “A” owns more than two properties and all are shown as "Deemed to be let out"?

It is assumed that “A” has no income from any other source for the FY 2013-14.

Kindly advise. [kedar*******1959@gmail.com]

Opinion:

Tax treatment of the second house property is not same or similar as that applicable to first house property. If taxpayers have two or more houses which are used for own residence, then assessee have the option to choose one of the house (according to his own choice) as self-occupied house, for which an assessee would like to get an exemption from tax and its annual value will be considered as Nil. The second house (or other houses) shall be deemed to be have to been let out [whether or not actually let out] & would be taxable on the basis of its annual value.

[The annual value means the amount for which the property might reasonably be expected to be let out from year to year. Annual value of property is considered as higher of (i) Actual rent received a year or (ii) Reasonable expected rent of the property. The annual value is always taken to be NIL in case of one self-occupied property.]

Effectively, if Assessee owns more than one house property & is kept for own use,
a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above.
It may interestingly be noted that the maximum deduction cap of Rs. 1.50 Lacs (Rs. 2 Lacs w.e.f. FY 2014-15) towards interest is only in respect of self occupied house property and not in respect of let out or deemed to be let out property. In respect of let out or deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.

However, for the second house property, no deduction u/s 80C is available for repayment towards the principal portion of housing loan.

In the specific case mentioned by you, if neither of the house property (Nagpur & Nashik) is let out, you can treat anyone house property is self occupied house property and can claim actual interest paid as deduction u/s 24(b) subject to maximum cap of Rs. 1.50 Lacs (Rs. 2 Lacs w.e.f. FY 2014-15).

In short, in the first instance illustrated by you, loss of Rs. 70,000/- would be adjustable against the salary income. In the second instance mentioned by you, the Nashik house property could be deemed to have been let out and the actual interest (i.e., Rs. 1.75 Lacs) would be deductible without any maximum cap of Rs. 1.50 or Rs. 2 Lacs as such.

Ideally, in such scenario, it is always advisable to treat the property with higher interest commitment as property “deemed to have been let out”.