Rebate on HRA only if rent actually paid

SC VASUDEVA

Q. I am working as a senior assistant in the Punjab Government. I had taken a built house loan amounting to Rs 10 lakh from Axis Bank in 2013. Now, I intend to transfer the loan either to a nationalised bank or HDFC Bank on account of low rate of interest there. I also intend to extend my built house loan. Please advise whether the interest accrued on extension of the built house loan can be deducted from my gross income under Section 24(i)(iv)? If so, will the payment amount be considered under Section 80C?

The sale deed is in the name of my wife. Can I take an HRA receipt from her to claim rebate in income tax?

— Sanjeev Bansal

A. Your queries are replied hereunder:

a) It is presumed that extension on the built house referred to in the query implies constructing an additional floor on the built-up house. In such a case, deduction of the amount of interest paid on the amount borrowed for constructing an additional floor would be allowable under Section 24 of the Income-tax Act, 1961 (The Act). You would also be entitled to claim benefit under Section 80C of the Act for the repayment of the principal amount. Please note that maximum deduction allowable under Section 80C of the Act is limited to Rs 1,50,000 which includes various other payments specified in the said section.

b) An exemption for HRA to the extent permitted under Income-tax Rules 1962 (The Rules) is allowable only if an assessee has actually incurred an amount towards the payment of rent for the residential accommodation occupied by him. Such an exemption will not be admissible by simply obtaining a receipt from your wife.

Q. I wish to sell my property (a vacant plot) gifted by my father/mother. The plot was registered in my name in 1998. Is there any rebate on LTCG tax if the son wants to sell inherited property before the death of his parents?

2. After receiving the registration amount and depositing the same into bank, can I transfer some portion of this amount to my own son who has availed an education loan from a foreign country for his MBA studies abroad so that he can repay his loan?

— Sreenivasan

A. a) The amount of long-term capital gain is computed by taking into account the cost incurred by the person for the purchase of the plot and deducting the same from the full value of consideration received or accruing on the sale of the capital asset which would the plot of land in your case. The cost so incurred is also allowed to be indexed on the basis of the cost inflation index notified by the Government of India. For example, the amount incurred in 1998 will be multiplied by the index notified for financial year 2016-17 and divided by the notified index applicable for the financial year 1998-99. The indexed cost so computed shall be deducted from the sale consideration to arrive at the amount of capital gain chargeable to tax. Apart from the benefit of indexation, the amount of long-term capital gain is taxed at a reduced rate of 20.6%.

b) You can utilise the amount of sale consideration excluding the amount of tax payable on the amount of capital gain and can gift any amount in lump sum in rupee currency to your son who can utilise the same for repaying the loan in accordance with the requirements of Foreign Exchange Regulations laid down by the RBI.

Q. I had booked an under-construction flat in June 2014 in Pune (Maharashtra). At that time, the builder said service tax @ 3.09% will have to be paid on agreement value. Now the flat is ready (in February 2017) for possession, but now the builder is asking for service tax on clubhouse membership also. Is it correct? Please confirm. At the time of booking, the builder had provided the cost sheet in writing and there was no mention about service tax on clubhouse membership. Please advise.

— Amit N Sonar

A. Service tax on yearly or one-time membership fee and monthly subscription fee is payable by the club. The club is permitted under the applicable law to collect service tax from its members on the fee so payable to the club. The amount of service tax on such a fee should thus be payable by you.