Tax Talk

I have taken a joint loan with my father for construction of a house. The property is jointly owned too. In the loan sanction papers, my father's name is first and my name is second. My employer says that since my name is second, the interest on loan and principal payment cannot be considered for TDS purpose and that I have to claim the same while filing my returns. Is my employer right?

— Gopinath Prabhu

According to the Income-tax Act, 1961, an employer is required to deduct tax at source from the salaries paid to the employee, at the average rate of income tax applicable for that financial year. Where the employee receives any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head “Income from house property”) for the same financial year chargeable, he may report the same to his employer in the prescribed form and on receiving the form the employer shall take — (i) such other income and tax, if any, deducted thereon (provided this does not result in lowering of the tax to deducted at source from the salary); and (ii) the loss, if any, under the head “Income from house property”, also into account for the purposes of making the deduction.

According to the Act, principal payment made by the assessee for the repayment of home loan is deductible from the taxable income subject to certain conditions. In case of joint loans, only that portion of the principal and interest is deductible under the respective sections which has been paid by the assessee.

Hence, if the principal and interest payment has been made by you (which can be substantiated through your bank statement), and you declare it to your employer in the prescribed form that your father is claiming certain percentage as deductions in respect of the interest and principal, then the employer should take the balance percentage into consideration while calculating your tax deductible at source.

I recently sold a plot for Rs 26 lakh. I had purchased it in 1998 for Rs 2.25 Lakh.

My query is:

i) How is the tax on the sale calculated?

ii) One option to avoid tax is to invest in another property for a minimum of 3 years. I don't want to invest in property again. Is there any other option available to avoid the tax?

— T P Bhola

(i) According to the Income-tax laws, long-term capital gains shall be computed by deducting from the gross sale consideration received or accruing on sale of the long-term asset the following amounts:

- The indexed cost of acquisition of the asset and the indexed cost of improvement;

- Expenditure incurred wholly and exclusively in connection with such transfer.

Since the plot was purchased in 1998, it is a long-term capital asset. The year 1998 shall be considered as the base year for the indexation of the cost of acquisition. The indexed cost of acquisition and any expenditure incurred wholly and exclusively for the sale of plot shall be deducted for the sale proceeds to arrive at the long-term capital gains/loss. The resulting gain, if any, will be subject to tax at rate of 20.6 per cent (inclusive of education cess and secondary and higher secondary education cess).

(ii) In case you do not want to invest in another house property, then you may invest the capital gains up to Rs 50 lakh in the bonds issued in this respect by National Highways Authority of India and Rural Electrification Corporation Ltd, with a lock-in period of three years.

(Mail your queries to >taxtalk@thehindu.co.in)

(The author is a practising chartered accountant)

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