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May 17, 2000

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"What tax benefits do I get for a dependent cancer patient?"

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 and my wife are both professionally qualified. We live in a house owned by her father and her father has already created a will stating that the ownership would pass on to my wife after his death. I pay rent to my wife. Please advise on the taxability of such income in the hands of my wife and whether she can claim any deduction for the same.

Rajiv Goyal

From the data provided by you we presume that currently the ownership of the house has not been vested in your wife's name. Also you have not mentioned whether your wife currently pays any rent to her father or not. If your wife does not pay any rent to her father then the rent given by you can not be claimed as a deduction since she does not own the property and hence there is no landlord-tenant relationship. In such a case the rent paid by you to your wife will be taxed in your hands.

However if your wife pays rent to her father then you may claim that the relationship between you and your wife is that of subtenant and tenant. The rent paid by a subtenant to a tenant is included in the income of the tenant ( i.e your wife ) as "Income From Other Sources" u/s 56(2) of the I.T. Act, 1961.
Any other expenditure u/s 57(iii) is allowed as a deduction if the following four basic conditions are satisfied:

  • The expenditure must be laid out wholly and exclusively for the purpose of making or earning the income ;
  • The expenditure must not be in the nature of capital expenditure ;
  • It must not be in the nature of the personal expense of the assessee ;
  • It must be laid out in the relevant previous year and not in any prior or subsequent year.

A friend of mine is being offered a package of Rs 666,000 per annum, a company Car (with Rs 36,000 for petrol expenses) and accomodation of 1,100 sq ft. What should be the distribution of the compensation package so as to derive maximum tax concession, and what would be the tax liability?

Rajesh Mohan

Based on the information provided by you it is not possible for us to calculate your friend's tax liability and the distribution of the compensation package. We also need to know the existing policy of your friend's employer with regard to the various perquisites and allowances.
Since your friend's income chargeable to tax under the head salaries exceeds Rs 24,000 he would be a specified employee under the IT Act, 1961 therefore the value of Company accommodation provided to your friend, computed in accordance with the provisions of section 17(2) will be taxable as perquisite in his hands under the said section. Such amount depends on the fair rental value of the property that is being allotted to him and also on the salary package.

The budgeted amount of Rs 36,000 for petrol expenses is in the nature of allowance. This allowance would be exempt from tax only if he is able to prove that he had spent the entire amount wholly, exclusively and necessarily for the purpose of performing the duties of office. The amount exempt in respect of such allowance is the least of the following:

  • Actual expense incurred
  • Amount of allowance

I had inheirited real estate from my father and my share was Rs 50,000. He had constucted the house in FY 88-89. I got my share in FY 93-94. We have sold the property in December, '99. I will appreciate if you could guide me about working out my tax liability.

Dilip Katdare

The tax implications of the capital gains (if any) are dependant on whether the house has been sold by the owner or by you. As you have not provided us with exhaustive details of the case in the question, it is not very clear that whether physical partition was made in 1993-94 or was it just identification of the share in the house property.
In case only the share in the house has been identified and later the house has been sold by the owner, then the capital gains (if any) arising on such sale would be taxed in the hands of the owner and not in your hands.
On the contrary if there has been physical partition of the house and you have inherited the house from your father, the cost of construction of the house to your father in 1988-89 would be deemed to be your cost of acquisition.
We have assumed that you have inherited the house and have made use of an example to clarify this point.

  • Cost of acquisition to your father in 1988-89 : Rs 100,000
  • Sale Consideration in 1999-2000: Rs 250,000
  • Capital Gain with indexation (Dec 1999): Rs 8,385
  • Capital gains tax (indexation option): Rs 1,677
  • Capital gain without indexation (Dec 1999): Rs 150,000
  • Capital gains tax (without indexation option): Rs 15,000

My father is a cancer patient who is dependent on me. As per Sec 80DDB, I can avail upto Rs 40,000 as expenditure towards actual treatment for cancer. He is under medical insurance coverage of Rs 50,000. Will I get tax benefit of Rs 40,000 if the actual expense is say Rs 60,000? Assuming I will get Rs 50,000 back from insurance company as reimbursement, will I get the benefit of Rs 10,000 (Rs 60,000 - Rs 50,000)?

Ramesh Dutta Gupta

The deduction u/s 80DDB is available upto the limits specified therein regardless of the amount expended. The limits specified under this section are:

  • Rs 40,000; or
  • Rs 60,000 in case your dependant father is atleast 65 years of age at any time during the year in which such expenditure was incurred.
However, if any amount is received from an insurer for the medical treatment then such amount received would be deducted from the limit of deduction specified above.

I shall be obliged if you can explain me the following point with the help of an example where PPF is concerned. "From the sixth year onwards you can withdraw once every year, up to the fifteenth year. The amount of withdrawal however, cannot exceed 50 per cent of the balance at the end of the fourth preceding year or the year immediately preceding the year of withdrawal, in whichever year the amount is lower."

Dr Reita Ghosh

LOANS AGAINST PROPERTY

 Year

Balance (Rs)

50% of balance at 4th preceding year (Rs)

50% of balance at end of previous year (Rs)

Eligible to withdraw

(lower of 3 or 4)

1

10,000

-

-

-

2

15,000

-

-

-

3

18,000

-

-

-

4

25,000

-

-

-

5

26,000

-

-

-

6

40,000

15,000*50%=7,500

26,000*50%=13,000

7,500

7

50,000

18,000*50%=9,000

40,000*50%=20,000

9,000

8

52,000

25,000*50%=12,500

50,000*50%=25,000

12,500

9

55,000

26,000*50%=13,000

52,000*50%=26,000

13,000

10

60,000

40,000*50%=20,000

55,000*50%=27,500

20,000

11

70,000

50,000*50%=25,000

60,000*50%=30,000

25,000

12

75,000

50,000*50%=26,000

70,000*50%=35,000

26,000

13

77,000

55,000*50%=27,000

75,000*50%=37,500

27,500

14

80,000

60,000*50%=30,000

77,000*50%=38,500

30,000

15

85,000

70,000*50%=35,000

80,000*50%=40,000

35,000

 

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