A N Shanbhag: Q&A corner

Answers to queries on taxation of interest, capital gains, and housing loans.

I am a regular tax payer in the 30 per cent slab. I want to invest in the Post Office recurring deposit for 5 years. The present rate of interest is 7.5 per cent annually "" one receives Rs 7,289 at maturity by depositing Rs 100 per month for five years. The PO does not show any annual interest accrued on deposits as shown in case of one time deposits in NSC/KVP.

1. How much do I show as interest in my IT return?
2. Will the interest be added in my income as 'Other Sources of Income' or could it be set off under Section 80L?
3. Instead of showing interest every year, can the total accrued interest be shown at the time of maturity ? Can the same be regarded as long term capital gain thereby applying the prevailing LT capital gain tax rate (which is at present 10 per cent)?

   Sujit Patra

Rule 9(2) states that the amount inclusive of interest will be in the same proportion to the maturity value as the number of monthly deposits made in the account bears to 60. This rule is applicable for discontinued accounts or prematurely closed accounts (after three years as permitted) or death of the account holder. You may extend it for the purpose of arriving at the interest on which tax is payable.

The interest cannot be shown cumulatively and then presented as capital gains. Section 80L is applicable up to Rs 12,000.

I have outstanding long term capital loss in the previous eight years and have shown it in my IT return.

During the current FY, I have made some long term capital gains as well as some long term capital loss with the result that the final position is net capital loss.

Is it permissible to set off long term capital gain of this year (without adjusting the long term capital loss of this year) against the long term capital loss incurred in the preceding eight years and carry forward the long term capital loss of this year for next eight years?

To illustrate with an example.
Long term capital loss (AY - 96-97) - 35,000
Long term capital loss (AY- 97-98) - 20,000
For AY (04-05)
Long term capital gain - 60,000
Long term capital loss - 100,000.
Can I set off the long term capital gain of Rs 60,000 against my previous years losses in AY 96-97 and AY - 97-98 and carry forward the long term capital loss of this year of Rs 100,000 for the next eight years.

Vineet

Section 70 allows set off of loss from any source falling under any head of income against income from any other source under the same head. Section 71 allows balance losses under one head of income to be setoff against income under any other head with three exceptions related to "" i) Capital gains ii) Speculative business and iii) Business of owning and maintaining of horses for races.

In these cases, the net loss can be carried forward for setoff against the profits and gains only from the same source. The excess loss, if any, can be carried forward to the subsequent year. Such a carry forward is allowed for only eight years immediately succeeding the year for which the loss was first incurred.

The loss suffered during the year can be setoff against income under any other head but the carried forward loss can be setoff only against income under the same head.

The main act is silent on whether it is mandatory to setoff this loss against the income when it exists. The Punjab & Haryana high court, in the case of B C S Kartar Chit Fund & Finance Company Pvt. Ltd. v CIT has observed that where losses sustained are not setoff against the profit of the immediately succeeding year or years, they cannot be setoff at a later date. Going by that ratio, you could set-off loss of earlier years first and carry forward the loss of the current year.

Could you clarify the following regarding tax calculation, if I take a housing loan.
Loan amount: Rs 500,000
Loan period: 10 years
Interest rate: 9.25 per cent (monthly rest)
EMI Rs 6,402

1. Under Section 88, how much rebate am I eligible for every year?
2. Under Section 80 L, how much amount can be exempted, to arrive at 'taxable income', every year?

   Sankaran S

The tax concessions are available on the amounts you have paid during the related financial year. The following tax benefits are available on housing loans:
U/s 24 deduction of Rs 30,000 is available on interest on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing, whereas the enhanced limit of Rs 150,000 is applicable on loans taken on or after April 1, 1999 only for acquiring or constructing.

The acquisition or construction should be completed within 3 years from the end of the year in which the capital was borrowed. The loan taken prior to April 1, 1999 will carry deduction of interest up to Rs 30,000 only. In any case the total amount of deduction of interest on borrowed capital will not exceed Rs 150,000 in a year.

A rebate u/s 88 up to Rs 20,000, within the overall general limit of Rs 70,000 for the repayment made of the principal amount is available.

Both the concessions, rebate on repayment of capital and deduction of interest, are allowed only when the income from house property becomes chargeable to tax. Thus, construction should be complete and the municipal annual value known.

The interest for the years prior to the year in which the property was completed, shall be deducted in equal instalments for the year during which it was completed and each of the four immediately succeeding years. Unfortunately, there is no corresponding provision for the tax rebate.

This is an interesting feature. If the construction or acquisition is completed anytime in a FY, the interest paid during the entire FY is deemed to be the normal interest though a part of the FY is pre-construction period.

Since you have not indicated when you have taken the loan, please be guided by the dates and the limits mentioned in the aforementioned paras.

The author may be contacted at
anshanbhag@yahoo.com