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QUERY CORNER: Tax Exemption
February, 02nd 2010

I sold my flat at Rs 15.50 lakh in August 2009. I booked a flat for Rs 20 lakh and the agreement will be entered in December 2009-Feb 2010. I will pay Rs 15.50 lakh by April 2011 and take a loan for the balance amount. Will I be able to claim the long-term gain on sale of my flat by utilising the sale proceeds in this way? Or by which date should I get the possession to claim the long-term tax benefit under Section 54?

SK Gokhale

To be eligible to claim exemption under section 54, you have to invest the amount of long-term capital gain arising from sale of your flat in a new residential house. Section 54 also stipulates that the new residential house can be either purchased within two years from the date of sale or constructed within three years from the date of sale of the old house.

Unfortunately, what constitutes a purchase is not clearly specified in the law. In my view, it would be safer to consider that the purchase transaction is completed on the date of possession. Accordingly, you should obtain possession by August 2011.

What is the rule position of claiming income-tax benefits on home loan for husband and spouse if the interest component is Rs 3 lakh and the principle component is more than Rs 75,000. Similarly, if the interest component is less than Rs 1.5 lakh and the principle component is less than Rs 75,000.

Ravi Gupta

The following rules apply in either of the scenarios:
a) Deduction on interest and principal can be claimed in the ratio in which EMI is borne by each of the co-borrowers. Of course, the co-borrowers should also be registered co-owners of the property
b) If the property is self-occupied, the deduction on interest is restricted to Rs 150,000 per year per co-borrower and
c) Deduction on principal repayment is covered under Section 80C of the Income Tax Act, 1961. The aggregate of deductions under sections 80C, 80CCC and 80CCD can not exceed Rs 100,000 per year per individual.

My CTC includes HRA of Rs 34,244 per month. I am living in a self-leased accommodation, in New Delhi costing Rs 30,000 per month. Would it be more tax prudent to take the accommodation on company lease compared to a personal lease?

AK Mehta

If you opt for company lease, the perquisite value of such an accommodation is added to your taxable income. Perquisite value is lower of the rent paid by the employer and 15% taxable salary income computed in a prescribed manner. If you opt for self lease, you will be eligible to claim HRA exemption. You need to compute your total taxable salary income under both the options and should select the one which is more tax-efficient.

If you pay rental higher than your HRA, then beyond a point you cant increase your HRA exemption amount.

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