Q & A corner

With reference to your article in Business Standard, Weekend June 14/15, 2003 under the heading, 'Loan me a house', you mentioned that on let out property there is no ceiling on interest deduction i.e., full interest paid to the bank against the loan availed, is deductible.

I give below approximate figures:

My yearly salary is Rs 5.25 lakh. I have taken a housing loan in December 2002 against which I get a Rs 1.5 lakh income tax rebate for the next three years after which I will avail of a tax rebate of approximately Rs 1 lakh for the next five years and this will slowly gradient lower for the total loan period of 13 years.

I am giving my flat on rent from next month. I was wondering whether I should declare this rent amount. If I can get the full interest rebate then I would be most happy to declare the rent.

Please do advise me on this.

Anju Desai

Yes, full interest payable or paid on housing loan is deductible. Please realise that your plan not to declare this income would have been illegal. If you do not know how to show the same, go to a good consultant.

You had compared LIC's new Varishta Yojana with the Post Office Monthly Income Scheme. The article mentioned that the PO-MIS (under which I can invest upto Rs 6 lakh) makes better investment sense as LIC's 9 per cent return is taxable whereas POMIS' 8 per cent is tax free. I would like to confirm this "" is the 8 per cent return under Post Office Monthly income scheme tax free?

Anuj Poddar

You have read me wrong. I claim that POMIS is better than the LIC scheme for several reasons ""-

• LIC's pension scheme gives an effective rate of 9.38 per cent on an annualised basis. In POMIS, the monthly payment at 8 per cent p.a., with the bonus of 10 per cent at its maturity period of 6 years, works out at an annualised rate of 9.66 per cent.
• The benefit of Section 80L does not appear to be available on the LIC pension scheme but it is definitely available for POMIS.
• The application of TDS carries a question mark in case of LIC but POMIS definitely does not attract TDS.
• The liquidity of the LIC scheme is very poor when compared with that of POMIS. POMIS allows premature withdrawals any time after the expiry of one year.

Penalty of 5 per cent of deposit amount shall be deducted if withdrawals are effected within three years; no penalty thereafter, other than loss of the bonus.

The LIC has no premature withdrawal facility but offers a loan facility to the extent of 75 per cent of purchase price after three years. The rate of interest on loan is 10.5 per cent.

Moreover, there is no certainty in this respect. The interest rate on loan would be decided by LIC from time to time.

POMIS is available for all, senior citizens or not. The LIC scheme is available only to those who are over 55 years nearest birthday.

And finally, the ceiling on the contribution of POMIS is Rs 3 lakh for single accounts and Rs 6 lakh for joint accounts. This is far superior to the ceiling on the LIC scheme.

All this means that one should look at the 'Varishtha Pension Bima Yojana' only after investing in the POMIS to the hilt.

I have a doubt which even my chartered accountant has not been able to answer. I have an LIC policy, new Jeevan Akshay Policy, Plan 144 and am getting monthly pension of Rs 5,085 from the LIC which is credited to my SB A/C on first of every month.

In one year I receive a total amount of Rs 61,020-taxable as pension. The word pension is not appearing any where in the policy and instead the word "annuity" is mentioned in several places.

My query to you is whether this sum of Rs 61,020 can be considered for computing standard deduction while submitting my I.T return. If so what percentage of rebate will be considered.

S. R. Iyer

The regular payment you get from LIC is not a pension but an annuity. Even if the word pension were used in the name of the scheme, (e.g. Varishtha Pension Bima Yojana), it is not a pension.

For that purpose, either there has to be an employer-employee relationship between the payer and the payee or the payment has to have a nexus with the salary that was earned (e.g. superannuation-linked salary). Consequently, standard deduction will not be available.

This is with reference to your article in the Business Standard. You have mentioned that the LIC Pension Scheme is not attractive compared to post office MIS / PPF due to lower post-tax yield. You have expressed surprise that so many people are buying the scheme.

The answer perhaps lies in the fact that this scheme ensures immunity from declining rates of interest for the pensioner's lifetime. No other scheme has this feature. MIS/PPF post-tax yield may be 8 per cent today, but tomorrow it may come down to 5 per cent to 6 per cent; Pension Yojana will continue to give 9 per cent.

D.K.Tawakley

I agree with you wholeheartedly. However, the future is unpredictable and the MIS returns may descend after six years. What if they rise? I always take action on the basis of the current scenario and not on ifs and buts in the future dimension. Six years is a long period and the tax laws may be amended drastically. The unknown is unknown. It may be better to neglect it.

I have a query relating to RNOR status (Last financial year status was NRI),

1. Is interest taxable on NRE deposit? (deposit start date was last year when status was NRI. At maturity, status is changed to RNOR)
2. Is interest taxable on FCNR deposit?

Rakesh Doshi

Yes. The interest on NRE becomes taxable from the date of permanent return.

The interest on FCNR remains tax-free in the hands of an RNOR. This was the situation before the definition of RNOR was amended and this is the situation now also.

I have a question regarding capital gain tax. Union Budget 2003 has proposed that no long term capital gains tax will arise on BSE 500 securities, purchased between March 1, 2003 and February 28, 2004. Now, my question is

1. If any security purchased within this timeframe causes long term capital loss, will this loss be just ignored or there is some way to set off the loss?
2. If any security purchased before this period causes long term capital loss, will this loss be allowed to be carried forward for the next years, if it cannot be set off in the current year?

Nilay Hazra

If the gain is exempt, so is the loss. In other words, the loss is lost and it has to be ignored. Since the security purchased before this period is not exempt, the loss can be set off against gains as per laid down principles.

The author may be contacted at
anshanbhag@yahoo.com