Gifts to your children are tax free, but execute deed for authenticity

I recently sold a house for Rs 27 lakh and have kept the amount in two bank accounts. I want to gift this amount to my son, who is unemployed. I want to know if the gift to my son will be liable to income-tax either to me or to my son. If yes, how much tax will I have to pay? Can I make the payment in two or three cheques for the gift and mention the same in the gift deed? Should the gift deed be registered in the sub-registrar's office?

G.K Rao

Under the Income-Tax Act, 1961, any amount received by an individual without consideration from relatives is exempt from tax. The definition of relatives includes “any lineal ascendant or descendant of the individual”. Therefore, amount paid by you to your son should be exempt from tax in his hands.

Also, there is no restriction on the numbers of gift transactions to be made during the financial year to relatives. However, any income earned thereafter on the investment of the gift amount by your son may be taxable in his hands.

However, it is always advisable, from a documentation perspective, to execute a gift deed to substantiate the genuineness of the transaction.

I have been working with a public sector organisation. I took a housing loan from my employer in 2002 and constructed a house in my native place. The housing loan recovery is regularly done through deductions from my salary. The house is being used by my parents.

I am working in Coimbatore. I have taken another housing loan through a public sector bank for a house in which I am now residing. This house is 50 km from the previously purchased house and it is not in the same city or same town. Is the present housing loan from bank eligible for income-tax exemption for principal and interest?

— M. Thirumalaisamy

As you own more than one residential house property, any one of them may be considered as self-occupied property (SOP) with NIL annual value. The other property should be considered as deemed to be let-out property (DLOP) and offered to tax with deemed rental value.

With respect to deduction for interest payment, towards the SOP, you can claim a deduction up to a maximum of Rs 1,50,000 per annum while towards the DLOP you can claim a deduction of the actual interest paid in the financial year.

With respect to deduction for principal repayment, the amount may be claimed towards both the loans, subject to the threshold of Rs 100,000 under Section 80C of the Act.

I have taken a housing loan my wife as the main applicant and me as the co-applicant. The property is in the name of my wife and she doesn't have any other income. As a co-applicant I am paying the EMI as the loan was sanctioned based on my salary. I would like to know if I can claim rebate on the entire principal and interest paid on the loan for my tax calculation? Can I claim exemption on HRA if I pay the rent to my wife for the property?

Bharani

For the purpose of claiming deduction in respect of interest and principal repayment towards housing loan under section 24 and 80C of the Act, respectively, income from such house property should be chargeable to tax in the hands of the individual as an owner and loan should be repaid by the individual as a borrower of loan.

As the EMIs towards the purchase of the house property are being paid by you and not your wife, you may be considered as the deemed owner of the property. In such case, the interest paid on loan for the said property (restricted to Rs 1,50,000 for self-occupied property) could be availed as a deduction from your taxable income under Section 24 of the Act. The principal repayment may also be eligible for a deduction subject to the overall maximum deduction of Rs 1,00,000 under Section 80C of the Act. However, it would be advisable to become a co-owner of the property and avail the above deductions.

As you may be deemed owner or owner of the property, HRA exemption will not be available to you on payment of rent to wife towards the property.

(The author is Executive Director, Tax, KPMG)

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