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Tax advice
Travel insurance cover: A need or a want?
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Under-construction house and income tax
provisions
Nowadays people prefer booking under-construction properties due to rate difference as compared to ready-to-move-in property and ease of payment. In addition to having credit risk on the builder, buying an under-construction house or constructing house on our own plot has different tax implications than buying a ready-to-move-in house. This also involves different modalities for arranging finance. In this article, I intend to cover both the tax and home loan aspect for an under-construction and self-constructed property. Home loan eligibility
The lenders treat loan taken for ready house property and for an under-construction property on the same footing except that in case of an under-construction property, the lender will disburse the loan in stages on the basis of stage of completion of construction. In case of self-construction, the buyer can go for a composite loan which would include the cost of the plot and the cost of construction, both. It is interesting to note that the bank will not disburse any amount until you have fully paid in your full contribution. The lender releases money in tranches on the basis of certificate provided from an architect or civil engineer. You may also have to submit photograph in support of the stage of completion of the construction. In some cases the lender may depute its own architect for issuing such certificate instead of relying on the certificate furnished by you. Repayment of such loans in the form of EMI (equated monthly instalments) starts once the loan is disbursed fully which normally coincides with completion of the construction. Please note it is not necessary that the EMI will start only from completion of the construction. Till such time your regular EMIs start, you may have to pay interest on the money already disbursed by the lender. This is known as pre-EMI interest. Tax provisions
As per provisions of Section 80C, you are entitled to claim deduction up to Rs 1.50 lakh for principal repayment of the home loan obtained from banks and housing finance companies along with other eligible items like ULIP, PF, PPF, ELSS and NSCs etc. The deduction for repayment of home loan is available only from the year in which possession of the residential house is taken. However, if you have already started paying regular EMIs before completion of the property, you cannot claim any deduction for any principal repayment till construction is complete and possession is taken. Moreover, in case you sell such property within five years from the end of the financial year in which construction is completed, it has tax implications. All the deductions claimed by you on account of such repayment will be reversed and shall be treated as income of the year in which you sell such property. This deduction is available in respect of a residential house property only. In addition to rebate for repayment, you can claim interest paid on such loans under Section 24 (b). The benefit of interest can likewise only be claimed from the year in which construction is completed. However, unlike for principal repayment before completion of the construction, you do not lose your right to claim for interest paid during construction period. For all the interest paid before completion of the construction, you are allowed to claim the accumulated interest paid up to the year before completion of the construction in five equal instatements along with your regular interest for the year. In case the property is self-occupied, the deduction is restricted to Rs 2 lakh. However, this claim of Rs 2 lakh goes down to Rs 30,000 in case construction of the house is not completed within a period of three years from the end of the year in which such loan was taken. In case you have more than one self-occupied property, you have to treat one such property as let-out and others are treated as deemed to have been let-out. The reversal of tax benefits is not applicable in case of interest in cases where the house is sold within five years as explained above. Investment in self-constructed house also entitles you to claim exemption from capital gains on sale of any other capital asset if construction is completed within three years from the date of sale of the asset. This way we see that the construction of house gives you many benefits but the various time limits have to be met so as not to lose the benefits associated with the construction of a
house. The author is CFO, Apnapaisa. The views expressed in this article are his own |
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Interest on post office savings account
exempt up to Rs 3,500
SC Vasudeva During the financial year 2013-14 there was a tax exemption of Rs 2,000 if taxable income was up to Rs 5 lakh. Similarly, interest on bank’s savings a/c up to Rs 10,000 and interest in Post Office deposit up to Rs 7,000 was exempted from tax. The above issues are not clear from the Finance Minister’s statement in the Budget for 2014-15. Please clarify. — Manmohan Singh a) An individual whose total income does not exceed Rs 5 lakh is entitled to a rebate to the extent of an amount equal to 100% of income-tax chargeable on such income or an amount of Rs 2,000 whichever is less. This rebate is allowed under Section 87A of the Income-tax Act, 1961 (The Act). This section continues to be applicable for the financial year 2014-15 and has not been withdrawn. b) Interest on Post Office savings account is exempted to the extent of Rs 3,500 in case of an individual account and Rs 7,000 in case of a joint account. This exemption continues to be applicable for the financial year 2014-15. c) Interest income of savings account with a bank is also not chargeable to tax to the extent of Rs 10,000. This provision continues to be applicable for the financial year 2014-15. This is with reference to the Budget speech of Union Finance Minister in Parliament on July 10. Please advise whether the income-tax exemption limit of Rs 5 lakh in the case of super senior citizen stands for FY 2014-15. — Gurnam Singh
This refers to your advice in The Tribune dated July 21 in reply to a query of Ashwni Kumar. 2. As per part 3 and 4 of form 15G, one can file this form only if his “estimated total income” including interest etc. falls below the taxable limit. But if his income from interest alone is below the taxable limit, and total income is above the taxable limit, then he cannot file form 15G. 3. Perhaps you had advised (correctly) to BK Bindal (14th July) that he can file form 15G, on the presumption that his total income consisted of only interest and was below the taxable limit of Rs 2 lakh. — Gurnam Singh
A person filing form 15G is required to give a declaration that his income referred to in column 22 for the previous year ending or (say) 31.3.2015 relevant to the Assessment Year 2015-16 would not exceed the maximum amount which is not chargeable to income-tax. Form 15G does not have part 3 and 4 as referred to by you in the query. You are, therefore, requested to look into the form again which includes 23 columns and five schedules wherein various details required by the tax department have to be filled in. There is thus no ambiguity with regard to the reply given in response to a query of Ashwni Kumar. I have a joint savings account in bank in India with my son, who is an NRI. I want to get some fixed deposits jointly keeping in his name first. He does not have any other source of income. The interest accrued will be less than taxable income. My question is: a) Can he request the bank not to deduct TDS on the interest accrued? b) Will he be required to file ITR? — Dr Jagdish Markanday According to the provisions of Section 195 of the Income-tax Act, any person responsible for paying to a non-resident, any interest for any other sum chargeable under the provisions of the Act (not being income chargeable under the head salaries) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate in force. Therefore, tax on interest accrued on fixed deposit will have to be deducted by the bank in accordance with the provisions of the above section. However, your son can approach the tax department under sub-section (3) of Section 195 by making an application in the prescribed form for the grant of a certificate authorising him to receive such interest without deduction of tax at source. Such certificate is normally issued for limited period and will have to be renewed after the expiry of such period. If such certificate is obtained and furnished to the bank, bank would not deduct tax at source on such income. It may be added that the reply to your query is based on the presumption that the fixed deposit is out of the amount lying in Non Resident Ordinary Account. Your son will have to file return in case his income for the financial year exceeds the maximum amount up to which tax is not payable. The filing of return would also be necessary in case tax is deducted at source and he intends to claim refund of tax deducted at source because his income for the financial year is below taxable limit.
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Travel insurance cover: A need or a want?
The
right kind of coverage can be a blessing, when the unexpected happens while you are on a holiday. The common types of coverage that you should consider while buying policy (travel insurance) are — medical insurance, contents insurance — insurance of belongings (mobile, jewellery, camera etc.), delay and cancellation of flights, airline and tour operator insolvency.
The Ebola outbreak has been the talk of the travel industry, as it severely affected travel plan for leisure and business. The Ebola virus disease (EVD) or Ebola hemorrhagic fever (EHF) is a disease of humans and other primates caused by the ebola virus. The outbreak of Ebola in Western Africa has struck fear into visitors to the region. The disease has a fatality rate of up to 90%, so travellers need to understand just how the virus spreads. Ebola spreads only through contact with bodily fluids, including saliva, blood, vomit and even sweat. So it is much easier to contain, and outbreaks have typically been limited to rural areas. Medical insurance:
Getting sick or sustaining an injury on an overseas trip can be a huge expense. Depending on where you are travelling, medical bills could be unaffordable. Insurance could help you pay the hospital bills or fly home, as needed. While the odds of getting Ebola are very slim, here’s what we need to do when travelling: Avoid areas in western Africa where the outbreak has been reported:
These include Ghana, Guinea, Sierra Leone, Nigeria and Liberia. Historically, the greatest outbreaks have been been reported across these countries, although Nigeria has seen less than a dozen cases as this article was being completed. Keep track of airline policies focused on containing the outbreak: Some airlines, including British Airways and Emirates, cancelled flights to West Africa earlier this month. The Centers for Disease Control (CDC) has issued guidelines to American carriers, instructing them on what to look out for and how to manage any potential issues related to the disease, whose incubation period can be as long as 22 days. Monitor the CDC website:
The Centers for Disease Control has regular updates. It also includes postings from the Transportation Security Administration about any health-related travel risks (like Middle-East Respiratory Syndrome). Be aware of health risks when travelling:
Consult a travel agent who is an expert in the area you are travelling to, as well as the World Health Organization (WHO) website, which provides a list of infectious diseases to be aware of when abroad. Wash your hands often and be
careful what you touch Know that the Ebola outbreak is not occurring in most of the Africa — Ebola is not currently affecting destinations in Africa that most tourists visit, including South Africa, Botswana, Kenya, Tanzania, Egypt, Morocco, Namibia, Zambia, Zimbabwe, Uganda and Rwanda. Travel insurance is not only cancellation insurance. Make sure you buy travel insurance before you travel. What should be kept in mind while buying travel insurance: Look for policies that include medical expenses for emergencies. Some policies provide special assistance services, including emergency medical transport. Travel insurance typically is 5 to 8%
of the total trip cost. While travel insurance is not a preventative measure against the Ebola virus, it may make it easier in the unfortunate event that a member of your group is struck by any illness. Ebola is not listed as exclusion by most of the providers. This means that coverage is still available for cancellation, interruption, medical emergency and medical evacuation if a traveller contracts Ebola before or during their
trip. The author is senior VP & Head — General Insurance, Bajaj Capital Ltd. The views expressed in this
article are his own |
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Nowadays people prefer booking under-construction properties due to rate difference as compared to ready-to-move-in property and ease of payment. In addition to having credit risk on the builder, buying an under-construction house or constructing house on our own plot has different tax implications than buying a ready-to-move-in house.
