DEDUCTION

Query 1]

I would like to seek your opinion with reference to deduction on repayment of housing loan & Interest under the following scenarios:

1. House is jointly own by husband and wife. Loan is in the name of both.  Their share in the property & loan is not define.  Wife is not working. Husband is paying entire EMI.  Whether full benefits are to be extend to the husband alone?
2. House is jointly owned by husband and wife. Loan is in the name of both.  Their share in the property and loan is not defined. Wife is working and paying full EMI from her account and wants to claim entire benefit of repayment of loan and interest and willing to give undertaking to the extent that husband will not claim exemption from his office.
3. House is own by both husband and wife. Bank insisted for adding spouse’s name as co-borrower.  His / Her income was not consider for Loan.  Their share in the property is not define.  Whether full benefits can be extend to either who is paying full EMI?
4. House is own by wife. Loan is in the name of both.  Wife is not working. Husband is paying entire EMI.  Whether husband can claim full benefits?
5. House is own by wife. Loan is in the name of both.  Wife is working. Husband is paying entire EMI.  Whether husband can claim full benefits?
6. In your earlier tax –talk, you have specifically mention that benefit is to be extended to the extent of their share in house property if the house property is jointly own by husband and wife. However, in the earlier issues of tax talk, it was mention that if the property is jointly own by husband and wife (implied 50%) and their loan is in the ratio of say 70:30 or 80:20, then benefits can be claim by both in the proportion of their ratio of loan. [shakskane@gmail.co]

Opinion:

Ownership is a condition precedent for claiming deduction towards Interest u/s 24(b) and towards Principal Repayment u/s 80C. It may be note that Right to claim deductions originate from ownership. Without ownership, deduction would not be admissible. With this basic concept, the admissibility of the deduction in the instances elaborated by you are as under:

1. The mere fact that Husband is paying the entire EMI or wife is not working or not claiming the deduction or is not having taxable income doesn’t automatically make Husband eligible for deduction u/s 24(b) or U/s 80C. Depending upon the ratio of husband in the loan, he can claim proportionate deduction.
2. Similar to above, the submission by the wife that Husband will not claim the deduction doesn’t mechanically make her eligible to claim entire amount as deduction. In the absence of anything to the contrary as to the ratio in the property & loan, it is presumed at 50:50 & subject to payment by each of the co-owner, the claim can be done in 50:50 ratio only.
3. If it can be proved that Husband is the actual & beneficial owner and wife name is included for the name sake and wife doesn’t have any financial involvement / interest, the entire amount of deduction could be claimed by the Husband.
4. If wife is the actual and beneficial owner of the house property, the deduction cannot be claim by Husband for the mere reason that the repayment is done by Husband. As already mentioned, Right to claim deductions flow from ownership.
5. Subject to repayment by the wife, she is the only person who can claim deduction (as she is the owner of the house property). As discussed earlier, without ownership, husband would not be able to claim deduction u/s 24(b) or U/s 80C.
6. The ratio of the co-owners “in the loan” could be different from the ratio “in the ownership” . If it is so, the deduction would be admissible in the ratio of share of loan and not in the ratio of ownership of the house property. Unless there is anything to prove otherwise, the ownership / loan ratio is normally presume at 50:50 ratio.

Query 2]

Please help me to plan my financial tax planning. I am the only legal heir for one “Ancestral farm land property” which is ready for sale & I am likely to get amount of more than Rs. 75 Lacs.

My queries are:

1. What will be tax liability?
2. How to save Tax?
3. How to plan the investment of the amount so as to have a zero tax liability? [ssnaik66@gmail.com]

Opinion:

1. In normal course, any income from transfer of agricultural land, which is being use for agricultural purpose, shall be tax free if the agricultural land is not situate:
   (a) in any area which is comprise within the jurisdiction of  a municipality (Whether known as a municipality, municipal corporation, notifie area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which the relevant figures have been publishe before the first day of the previous year; or
   (b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in items (a), as the central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Official Gazette.
   In short, Profit arising on sale of Rural Agricultural land used for agricultural activity situated beyond notified municipal limit or a cantonment board with a population of less than 10,000 would be tax free.
2. If the agricultural land sold by you is not a rural agricultural land as elaborated above, the long term capital gain (LTCG) would be required to be computed & the same would be taxable @ 20% .
3. Computing Long Term Capital Gain (LTCG):
   a] The property to be sale is an ancestral property (acquire before 01.04.1981). The fair market value of the property as on 01.04.1981 can be take as cost of acquisition for computing the LTCG.
   b] The fair market value of the property as take above can be index by multiplying it with cost inflation index (CII) for the F.Y. of the year in which it is sale to arrive at the index cost of acquisition. It may be note that CII for the FY 2012-13 has not yet been notifies.
   c] The difference between the sale price. (or the Government valuation if it is higher than the sale price) and the indexed cost of acquisition as computed in (b) above, would be the amount of LTCG.

4. Saving Income Tax on LTCG arising on sale of Urban Agricultural Land:
   Tax on long term capital gain arising on sale of urban agricultural land can be saved by claiming an exemption u/s 54B or U/s 54F or U/s 54EC.

   i) Exemption Under Section 54B:

   The main stipulations incorporated in section 54B are as under: –
   a) Capital gain arises on transfer of Agricultural Land.
   b) The Agricultural Land is use by the tax payer or his parents for agricultural purpose for a period of two years immediately preceding. The date of transfer.
   c) The taxpayers has purchase another land for agricultural purposes within a period of two years from the date of transfer.

   ii) Exemption Under Section 54EC:

   To save tax u/s 54EC, One can invest. The amount of LTCG in the Specified bonds REC/ NHAI within a period of 6 months from the date of transfer.

   ii) Exemption Under Section 54F:

   For exemption u/s 54F, subject to various other terms / stipulations. You have to invest the amount of net sale consideration for purchase of a residential house property within a prescribed period.

DEDUCTION

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