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April 3, 2000

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"Can one adjust capital loss against capital gains?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

I had taken a loan of Rs 5,00,000. The principal deductions were for 216 months and the interest deductions for 84 months. Interest for the intial Rs 2,50,000 was 4 per cent and for the balance amount was 8 per cent. The interest was calculated on the reducing balance. How should I calculate the rebate?

— Thakur

It would be advisable to insist on an interest certificate, as you can claim rebate for housing loan only on producing the certificate from the lending institution.
Only loans taken and interest thereon paid to specified financial institutions qualify for deduction under the Income Tax Act, 1961. Loans taken from private individuals and interest paid thereon will not qualify for such deductions.

I would like to know wether any deduction is available on the interest earned in the National Savings Scheme. How should one calculate the interest earned per annum?

—Ashish Khandelwal

Under Section 80 L, a deduction is given in respect of income derived as interest earned on NSS subject to the overall ceiling of Rs 12,000 per annum.

Assume two individuals who are equal partners in a firm earning a salary from the firm. Each individual owns a property in his hands and this property is used by their partnership firm to generate income. The firm, also an income tax assessee, has used the property for it's business from which the partners have also drawn salary. Would this property be considered as unproductive from the wealth tax point of view? What would be the wealth tax liability for this property in the hands of the partners as individuals? Would it not be exempt from wealth tax since it is a productive asset? The partners have also used this property for their indivudal work.

— P Ajay

As per Section 2(ea) of the Wealth Tax Act, any house/property which the assessee occupies for the purpose of any business or profession carried on by him is not treated as "asset". In your case too, since the property is owned by the partners and is used for the purpose of business or profession, it would be outside the definition of the term "Asset" irrespective of any salary paid by the firm to the partners. Hence, there would not be any wealth tax liability at the hands of the partners. The treatment would be the same even if the property has been used for individual purposes.

I have not yet submitted the Income Tax return statement for the year 1998-99. How can I do the same now? Could you also furnish details of all the activities like how /where to get application form and documents required.

— Rajeev

There are two factors which shall determine the form that shall be applicable for filing your return of income. One is the type of income that comprises your total income. The second is your net total income for the year 1998-99. To be more precise, you may determine the form applicable to you from the following:

FORM: 2A or 2D ['Saral']
SOURCE OF INCOME: All income except business income.
INCOME LIMIT: Net total income should not exceed Rs 2,00,000 during the year.

FORM: 3 or 2D ['Saral']
SOURCE OF INCOME: All income except business income.
INCOME LIMIT: Total income for the year is above Rs 2,00,000.

FORM: 2 or 2D ['Saral']
SOURCE OF INCOME: Total income includes business income.

You can get these forms from any Income Tax office falling under the jurisdiction of the area in which you stay, you may even get these forms from some specialised stationery shops.
After ascertaining the form applicable to you, you shall have to fill the relevant details on the form. The last date for submitting your income tax return for the year 1998-99 was 30th June 1999 if you are a salaried employee and 30th August 1999 if you had income from business/profession (not being subject to audit).

I am planning to return to India for good and would like to invest around Rs 1.5 million. I would likt to utilise the income from such investments for meeting the household expenses on a continuous basis. Are there any long-term bank deposits, bonds, mutual funds (i.e. for period of 30 to 50 years.) which can give us monthly interest without tax. Which schemes should I invest in, in order to avoid tax.

— Thomas K. Samuel

There are various options available to you for investment in India. As per the recent amendment, dividends are not taxable in the hands of recipient and hence this investment avenue has become lucrative. You can consider investment in Mutual Funds which are predominantly debt oriented i.e they invest their corpus more in Debt instruments rather than equity. This will ensure some safety and also ensure tax free status of your income. You may invest in various schemes covering various risk and return profiles.

I stay with my parents in a house belonging to my father. All these years, I have been showing a payment of House Rent to my father in my tax returns. This year I have purchased a house after procuring a housing loan from my company. My brother stays in this newly procured house and no rent is charged from him.
Can I continue to show payment of House Rent to my father, despite having a house registered in my name and not showing any income from that property?

— S S Mani

As per the provisions of the Income Tax Act, 1961, an assessee can either claim an exemption from House Rent allowance under the Head " Income from Salary" and offer "Income from House Property" for taxation or forego the exemption on account of House Rent paid and claim a deduction on account of interest under the Head " Income from House Property".
Claiming an exemption under section 10(13A) as well as a deduction for interest under section 24(1)(vi) would be contradictory, as an individual cannot reside at a rented premise as well as in an ownership premise simultaneously.

It would be ideal for the assessee to forego the exemption for HRA and, claim a deduction for interest on housing loan under the head Income from House Property; however the HRA exemption once foregone, cannot be claimed in any other assessment year until the house property is sold, or there is a shift in the place of employment.

Do I have to pay tax on the money I saved from my travelling allowance?

— Sanjay Badala

Under section 10(14) read along with rule 2bb, if the travelling allowance referred to by you, pertains to conveyance between your residence and place of work, a flat exemption of Rs 800 per month is granted. If the travelling allowance referred to you, is for meeting the expenses incurred by you during the performance of your office duties, the same is exempt only to the extent utilised by you for the said purposes. Any excess allowance after meeting the expense will be taxable in your hands.

During a financial year you are permitted to adjust short-term capital gain/loss and long-term capital gain/loss so as to arrive at net capital gain and then pay capital gain tax. Which one: Long-term or short-term? If you have a capital loss you can carry it forward for 8 years. Say next year you make a short-term capital gain. Just as you are permitted to adjust short-term capital gain/loss and long-term capital gain/loss so as to arrive at net capital gain in a financial year, can you adjust the brought forward capital loss against the short-term capital gain in this year?

— Kashyap

As regards the provisions of sec 70, short-term/long-term capital losses can be set off against, short-term/long-term capital gains during the period. Income tax is payable on income earned during a year, hence if the income against which the capital loss is set off is long-term, tax-rate applicable for long-term capital gains shall be levied, as the case may be. If the capital loss is set off against short-term capital gains, the income will be taxed in the form of short-term capital gains. Sec 74, of the Income Tax Act, 1961 states that bought forward capital losses can be set off against any income under the head capital gains, hence bought forward capital losses can be set off against income from short-term/long-term capital gains during the subsequent years.

What is the current rate of depreciation for computer hardware?

— S Krishnamoorthy

At present for the assessment years 1999-2000 and 2000-01, the rate of depreciation applicable to computer hardware is 60 per cent.

Can short-term and long-term capital loss be set-off against income from Salary for the FY 1999-2000?

— N D S Chari

As per the provisions of section 71 of the Income Tax Act, 1961 pertaining to Inter-head adjustments, loss under the head capital gain cannot be set off against income under other heads of income. In view of the above, long term/short term capital loss cannot be set off against salary income for the financial year 1999-2000.

My annual salary is Rs 84,000 (consolidated). What will be my tax liability? Am I eligible for any reduction for House Rent ? My organization does not give any HRA. My salary is consolidated without any salary breakups and deductions. I am paying a rent of Rs 1,500 per month. I do not have any savings.

Ramesh Pagidimarry

Your tax liability shall be Rs 900. Since you are not granted any House Rent Allowance by your employer, you won't get any exemption for house rent paid by you.
However, you shall be eligible for a deduction under section 80GG for Rs 9,600 (excess of rent over 10 per cent of total income), in respect of the rent paid by you. Your computation will be as under: -

Source of Income Amount Remarks
Salary 84,000  
Less: - Standard Deduction 25,000 In case salary income less than Rs 1,00,000 then 1/3rd of gross salary or Rs 25,000 whichever is less
Total Income 59,000  
Less: - Deduction under section 80 GG 9,600  
Net Taxable Income 49,400  
Tax Nil Since below Rs 50,000 no tax will be levied

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