REPLY :  

Instead of purchasing the flat in your name and subsequently transferring to your wife, it would be advisable to directly purchase the flat in her name by way of transferring or gifting the purchase consideration to her prior to purchase of the flat.

Any person who transfers any house property, without adequate consideration to the spouse, is considered as deemed owner for the purpose of charging tax under income from house property. Thus even if you transfer the property to your wife, you would still loose the exemption enjoyed under ‘one-house-kept-vacant’ rule.

Instead of transferring the flat, if you transfer the purchase consideration to your wife and she purchases the flat in her own name, then her income out of the flat so purchased is supposed to be clubbed with your income. But at the same time she would be eligible to the benefit of self-occupied-property rule, whereby income of one house property held for self- occupation is considered as nil. Hence nothing would be added to your income in real sense to increase your tax liability.

REPLY :  

I am afraid, for the purpose of claiming deduction under Section 54 of the Income-tax Act, the cost incurred in construction or purchase of residential house, within the stipulated period is to be considered. In case of purchase of residential house or a flat, the time limit is ‘one year before or two years after the date of transfer’ and in case of construction the time limit is ‘three years within the date of transfer of the property’.

There is no doubt that the cost of land is to be considered as part of overall construction cost, but the plot should have been purchased within a period of three years from the date of transfer (Department Circular No: 667 dated 18.10.93). You are constructing house on a plot purchased earlier than the time frame prescribed and hence you would not be able to reduce cost of land while calculating capital gains.

REPLY :  

The employer is not correct in refusing to set off loss suffered by you on account of payment of interest. While deducting tax due on the salaries the Drawing and Disbursing Officer (DDO) is bound to take into consideration other incomes and loss from house property (if any) if a declaration is provided by the employee on Form 12C. He shall also take into account any tax deducted on such incomes before he arrives at the tax due to be deducted on salary.

The employer acts almost like an assessing officer and is also supposed to provide usual deductions and rebates while calculating the tax due. For the benefit of readers at large I have listed down some of the adjustments instances which the employer must do while estimating income of the employee and calculating tax due:

• Add salary income from any previous employer or another employer if the employee is employed simultaneously at more than one place.
• Add income from any other head such as interest from banks, securities, house property, business, etc.
• Reduce loss from house property, if any.
• Allow deductions on account payment for annuity plan of LIC /other insurers; Mediclaim; medical treatment of handicapped children; medical treatment of specified disease; repayments of education loan; donations to specified bodies (50%), interest incomes under section 80 L, etc.
• Allow rebates under section 88 for investments.
• Allow rebate of Rs. 15000 to senior citizens.
• Allow Rebate of Rs. 5000 to women assessee.
• Provide relief on account of arrears received by the employee in the current year.

Having said that, if the Drawing and Disbursing Officer, while allowing the rebate is not satisfied about the genuineness of the claim regarding deposit/subscription/payment he should not allow the rebates and the employee is free to claim the rebate by filing the return. 

REPLY :  

Deduction of interest paid or payable on housing loan from the ‘House Property Income’ is available from the year in which the property is acquired, constructed, repaired, renewed or reconstructed. Since you have not yet acquired the property you shall be able to claim deductions only form the year in which you finally acquire the property. Interest for the period prior to the year of acquisition is allowable as deduction in five equal installments from the year in which you acquire the property. For post acquisition period you can claim yearly deduction of Rs. 30,000 p.a. which may increase to Rs.150000 provided the housing loan was taken after 1.4.99 and property is acquired before 1.4. 2003.~

While receiving HRA, there is no bar on claiming relief on account rent paid even if you have any other property in the same city, the income whereof would be taxed as income from the house property.

REPLY :  

Yes. Tax rebate under section 88 can be claimed on the amount paid for stamp duty, registration fee and other expenses for the purpose of transfer of house property, income whereof is taxable under the head house property. Total amount on which tax rebate would be available is limited to Rs. 20,000 p.a.

REPLY :  

Family arrangements made orally are valid and do not require registration unless reduced to writing. But if such arrangements require some immovable properties to be transferred and registered in the names of other members, compliance under Registration Act and Transfer of Properties Act is compulsory

Release of interest, in immovable property, by a member of HUF to other members constitutes transfer. Release deed with respect to the property beyond the prescribed limit is required to be compulsorily registered under section 17 of the Registration Act, 1908. In the absence of such registration, the release deed cannot be acted upon. Further the deed must be submitted for registration within four months of execution to avoid fine and inconvenience.

REPLY :  

No, you would not be eligible for claiming a higher deduction while calculating income form house property because deduction can be claimed on the actual interest paid or payable by you. Notional interest of 4% on which you are asked to pay income tax is only to evaluate the taxable salary in your hand and has nothing to do with deduction under income form house property.

REPLY :  

No doubt the interest paid on fresh loan taken to repay old loan taken for the purpose of acquisition or construction of the house property, is also eligible under Section 24 of the Income Tax Act for deduction from house property income, but higher rebate of Rs. 1.5 lacs in case of self occupied property is allowed only in a case where the original loan was taken on or after 1st April 1999 and the house has been acquired or constructed before 31st March 2003.

Requirement to produce certificate from the lender is only to support to your existing claim as suggested in the recent amendment in the Budget 2002. Your claim for higher deduction is not tenable.

REPLY :  

For earning rental income and to be liable for paying tax on such rental income, it is not necessary that registration or sale deed be made out in your name. This matter was considered by the Supreme Court in the case of CIT Vs. Podar Cement Pvt. Ltd. and it was held that so long as a person is entitled to receive income from the property in his own right and not on behalf of some one else, it is not required that there must be a registered sale deed in favour of the assessee to treat his as the owner for the purpose of taxing rental income. The fact that registration is not yet made does not affect the chargeability of such income as income from house property.

REPLY :  

Earlier the provisions of Income Tax Act were harsh in case of vacant properties. Even Supreme Court has held that where a house property could not be let out for whole of the year, the notional income from such property is taxable. This was held on the ground that the vacancy allowance was available in case of property which is let out but remained vacant for any part of the year.

However, an amendment has been made through finance bill 2001, wherein Section 23 has been amended and w.e.f. financial year 2001-02 in case of a house property which is let and was vacant during the whole or any part of the previous year then the rent received or receivable, if it is less than the amount for which the property may be let out reasonably, shall be taken as annual value of the property. Since, you could not let out the property for whole of the year the annual value in your case will be nil.

REPLY :  

A person is entitled to a deduction under Section 24(1) on interest on capital borrowed, which is utilized in the acquisition, construction, repairs, renewal or reconstruction of the property, the income from which is chargeable under the head “Income from House Property”. However, Section 24(1) of the Income Tax Act does not specifically provide for allow-ability of interest on loan borrowed for acquisition of land for construction purposes. But in CIT vs. Devendra Brothers & Co. (1993) 200 ITR 146, 148 and 149, it was held that if there is a nexus between the capital borrowed and the acquisition of the property then interest can be claimed under Section 24(1). So in my opinion acquisition of land and construction of house is a composite transaction and interest paid on acquisition of land can be claimed under Section 24(1) since the acquisition of the plot is necessary for the construction of the property and therefore.

REPLY :  

If a person sells a capital asset being a residential house property held by him for a period of more than 36 months, and invests the whole or part of the capital gain for purchasing or constructing another residential house property then he is allowed a deduction from his total capital gains, to the extent of capital gain invested in the new residential house property.

A person can also get a deduction from his total Long Term Capital Gains if he invests some part of his capital gains for the purchase of some Govt. bonds such as issued by NABARD, National Highway Authority of India, Rural Electrification Corporation Limited or National Housing Bank. This should also be kept in mind that the above two deductions are available only if the person selling the house himself invests the amount of capital gains into Govt. Bonds or a new house in his own name.

For calculating the capital gains, not only the price to be received is important but also the cost of acquisition. In case of property held for more than 36 months the law allows increase in the cost by way of cost inflation index, where the actual cost is multiplied by a factor. However in case a property is inherited or gifted, although the actual cost of the previous owner ( in case of property purchased or constructed before 1.1.1981 the assessee has the option to consider the market value of the property as on 1

In your case, since you have inherited the property.Now we shall discuss the abovesaid provisions in your context.

As far as your share is concerned you can claim exemptions on account of new residential property and Specified Govt. Bonds as well. But if you want to gift some parts of your capital gains to your close relatives that should be in form of Govt. bonds only as exemption on account of residential property is in respect of one house only. The exact amount of capital gains cannot be calculated having regard to the information provided by you as you didn’t mentioned that when did you acquired that property.

REPLY :  

No, you would not be eligible for claiming a higher deduction while calculating income form house property because deduction can be claimed on the actual interest paid or payable by you. Notional interest of 4% on which you are asked to pay income tax is only to evaluate the taxable salary in your hand and has nothing to do with deduction under income form house property.

REPLY :  

Facts of the case are:

You availed loan in year 1996 and the same was paid-off in 1997 and 1998 along with the interest thereon.

You applied for renewal of loan after 1.4.99 and availed the same in year 1999 and 2000.Construction is completed in Feb 2001 and you have occupied the flat.

Applicable Law: Two-tier system of deduction of interest on borrowed capital is provided in the law.

One- Interest up to the period prior to previous year of completion of construction is allowed as deduction in five equal annual installments from the previous year from which the house is completed. Therefor you are eligible to claim interest paid/payable by you for the financial years from 1996 to year 2000 in five equal installments starting from A.Y 2001-2002 onwards.

Two - Interest pertaining to year in which the construction /acquisition is completed and subsequent years, a yearly deduction is allowed till the time interest is paid.

For loan availed after 1.4.99 deduction up to Rs. 75,000 p.a. was allowable as mentioned by you. However the limit was further raised to Rs. 1,00,000 for A.Y. 2001-2002. Recent budget has proposed to enhance the limit to Rs. 1,50,000 for the A.Y. 2002-03.

Most relevant aspect to avail enhanced deduction on account of interest on borrowed capital is not the date on which the construction began. Rather it is the date on which the loan was borrowed. Though strictly speaking, you were sanctioned the loan in the year 1996 but the loan so availed was paid off by you. You further borrowed fresh loan after 1.4.99. In my opinion it should be eligible for enhanced deduction and you can offset this amount against other incomes.

It would not be out of place to mention that above limits are applicable only in case of self occupied house properties where annual value is treated as nil.

In case of other house properties, there is no limit up to which one can claim deduction on account of interest paid on borrowed capital.

REPLY :  

It is normal to receive advance money in case of property transactions. Such advances protect the interest of seller in case the sale transaction is not carried through and is rescinded by the buyer for any reason. In such an event, depending upon the terms and conditions laid beforehand between the seller and the buyer, the seller may forfeit the advance.

Advance money received in case of sale transaction, which gets concluded, is adjusted towards the sale consideration i.e. it is part of sale consideration received in advance.

Any advance money received in unsuccessful sale attempt and forfeited by you will on the other hand reduce cost of acquisition.

In your case it appears that you forfeited the advance received by you and the buyer as fait accompli also accepted the same. It is a matter of coincidence that ultimately you sold the property to the same buyer in the second attempt and the second attempt was independent of the first. In other words there is no indication that the advance received at first instance was in any case connected with the ultimate sale.

Indexed cost of acquisition, indexed cost of improvement and sales consideration determines capital gains or losses at the time of sale or transfer of capital asset.

In this case of inherited property, cost of acquisition may be taken as lower of (i) Fair Market Value (FMV) as on 1.4.1981 or (ii) Original cost to the person from whom you have inherited the property.

Since you are holding this property since 1978 you may opt for FMV as on 1.4.1981 as your cost of acquisition.

Since you are holding this property since 1978 you may opt for FMV as on 1.4.1981 as your cost of acquisition.

Overall impact of the advance so forfeited would be that the indexed cost would stand reduced and hence result in higher capital gain.

REPLY :   

Point wise answer to your queries is as under:

• As far as the quantum of deduction in the A.Y. 2002-03 is concerned please note that there are different limits according to the year(s) in which the loan was taken and the property was acquired. Only in a case where the amount is borrowed on or after 1.4.99 and where the house is acquired before 1.4.2003, the enhanced limit of Rs: 1,50,000 apply. In all other cases the limit is Rs: 30,000 only. In your case also the maximum amount shall be only Rs: 30,000.
• There is no bar on borrowing money from any source for the purpose of purchase or construction in order to qualify for deduction of interest. Section 24 does not specify any particular lender(s) and hence you are entitled to deduction of interest on money borrowed from a small finance company.
• It is not necessary to be a registered owner of the house to take benefit under this section. In CIT vs. Podar Cement Pvt. Ltd., Supreme Court has ruled that though under the common law, owner means a person who has got valid title legally conveyed to him but in the context of section 22 of the Income Tax Act the objective is `to tax the income’ and an `owner’ is a person who is entitled to receive income from the property in his own legal right. The department has in its Circular No.495, dated 22nd September 1987 enlarged the meaning of ownership of house property by including cases where property is physically transferred to the purchaser on power of attorney, after receiving the consideration without getting the sale registered under Transfer of Property Act. The purchaser by virtue of power of attorney enjoys the ownership of property and hence entitled to claim deduction of interest.
• In case of co-owners where the shares are definite and ascertainable, the income under house property is assessed separately in their hands. Thus both of you are separately entitled to deduction upto Rs. 30,000 each on account of interest paid by each of you. Mumbai High Court in case of CIT vs. Abdullabhai M. Moonim took similar view.
• Repayment of installment up to Rs. 20,000 p.a. is eligible for tax rebate under section 88.But this rebate is available to only those borrowers who have borrowed from specified lenders. You have to find out whether the lending company from whom you have borrowed the amount falls under such specified lenders. Please note that as mentioned in reply no (ii) above, there is no such stipulation with regard to deduction of interest. 

REPLY :  

There are some peculiarities with regard to capital gains applicable in case of assets inherited by the legal heirs.

In case of capital assets acquired by way of succession, inheritance, will, gift, or partition of HUF, the period for which the capital asset was held by the previous owner is added to the period for which the asset is held by new owner for the purpose of calculating nature of the asset. Therefore, even though you became legal owner in 1999, the house would be treated as long term capital asset in your hands.

Cost of acquisition as paid by your father or the fair market value of the house as on 1.4.1981, whichever is beneficial, would be taken as cost of acquisition in your hand, since you have become the owner through succession.

Again, indexation is applied differently. Normally, indexation factor applicable to the year of acquisition or 1981, whichever is beneficial should have applied. But in case of succession, indexation factor applicable for the year of succession i.e. 1998, would apply.

It must be noticed that for determining the nature of asset whether short term or long term, the date of holding takes into account the period for which the asset was held by the previous owner i.e. your father. But when it comes to determining the year from which the indexation benefit is to be given the year of succession is considered.

REPLY :  

Where the property has been acquired with borrowed capital the amount of interest payable on such capital is allowed as a deduction under the head ‘Income from house property’.

Interest on borrowing can be claimed as deduction only by the person who has acquired or constructed the property with the borrowed fund. In other words the relationship of borrower and lender must come into existence before it can be said that any amount or any other money is borrowed for the purpose of construction or acquisition of house property by one person from another. There must be a real transaction of borrowing and lending.

By agreeing to repay the loan borrowed by someone, you do not become borrower. The best solution is to renegotiate the deal involving the lender, whereby you take a fresh loan from the lender after extinguishing the first loan.

REPLY :  

Section 54 facilitates exchange of one residential house with another one without attracting capital gains provided certain conditions are fulfilled.

The underlying idea is to allow flexibility in switching over to a desirable house without levy of capital gains. Unfortunately, such flexibility does not cover growing needs where, in exchange of one house two or more houses are proposed to be taken.

Similar view has been held by Bombay High Court in K.C Kaushik Vs. P.B. Rane, wherein the court held that in case a person has purchased more than one house within the period prescribed in section 54, it is for him to claim relief against the purchase of any one house chosen by him, provided the other conditions mentioned in the section are satisfied.

REPLY :  

Briefly stating, Chapter XX- C of Income Tax Act gives pre-emptive right to the Government to acquire those properties that are being sold at an apparent consideration which is lower than market price by 15 % or more. This law is applicable to those cases where the market value of the property, situated in a particular city exceeds the amount specified in the Act. For example, the specified limit is Rs. 50 lacs for properties situated in Delhi. This law is intended to curb black money dealings in the real estate.

However in case of property owned by joint-owners or co-owners or tenants-in-common, the law was being interpreted as if the limit of Rs. 50 lacs apply individually to each of the co-owners. Some High Courts also upheld this view. With the result the family properties were shown to have been held by one or member in their individual capacities as co-owners. This was made easier through the family settlements and gifts, which are not liable for capital gains tax.

Recent judgement of Supreme Court has dealt a severe blow to seller-broker nexus by reversing judgement of some of the High Courts. The Supreme Court has held that the limit applies to the immovable property and not to the owners or co-owners or joint-owners.

Hence in the light of recent ruling you have to follow the procedure specified in Chapter XX–C to effect the transfer of property.