Tax concessions available only to property owners

In the case of single premium insurance plans, I am told that in some cases the maturity proceeds could be taxable. Can you throw some more light on the tax provisions that are applicable? Most agents or even brochures are silent on this point.

Topics

1. Manoj
2. K.M.Rana
3. N. Ramakrishnan
4. Satish
5. Lokesh Dhureja

Manoj

Though it is generally believed that insurance policy proceeds are free of tax, as per Sec 10(10D), if the premium payable on any insurance plan in any year exceeds 20% of the sum assured, the proceeds cease to be exempt and instead will be fully taxable. In the case of single premium plans, check the percentage of the premium to the sum assured. If the same is more than 20%, then any proceeds (except on death of the policy holder) would be taxable.

I want to construct the first floor in my independent house. I want to take a loan from a bank for this. Can I get any income tax benefit on payment of principal and interest on loan?

K.M.Rana

The deductions u/s 80C on principal payment of housing loan and the Rs 1.50 lakh u/s 24 on interest payable on loan taken are available only for acquiring or constructing a house. The first floor that you intend to construct is already on an existing house and as such does not qualify as a separate house. Therefore you will not be eligible for any concession.

However, the interest on housing loan for acquiring, constructing, repairing, renewing or reconstructing the house is deductible u/s 24 with a ceiling of Rs 30,000. It is our opinion that the first floor construction would be eligible for this Rs 30,000 deduction.

I wish to reconstruct an ancestral property at my native place. The property is registered in the name of my grandfather [father's father]. Both, my grandfather and father are not alive. I want to finance the reconstruction by selling a flat that I own in another city. Following are my doubts:

1. Can the capital gains arising out of selling my flat be used for reconstruction of my ancestral property?

2. How will this be shown in my tax returns?

3.If I deposit the money from sale of my flat in a 'Capital Gain Account' with a bank and utilise it for reconstruction, what documents should be submitted as proof of having used the money for reconstruction of ancestral property?

N. Ramakrishnan

1.Tax concessions are available only to the owner of the property. Since the property continues to be in the name of your grandfather, you will not be eligible for the same unless you get the property transferred in your name.

2.Even if you get it transferred in your name, note that the interest payable on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing the property is deductible with a ceiling of Rs 30,000 on self-occupied property. The enhanced limit of Rs 1,50,000 is applicable on loans taken on or after 1.4.99 but only for acquiring or constructing. The lower limit of Rs 30,000 continues to be applicable for loans taken for repairing, renewing or reconstructing. Sec 80C deduction is also available only for acquiring or constructing.

3.The exemption of tax on long-term capital gains u/s 54 is available only if the long-term capital gains are invested in purchasing or constructing a house and not for repairing or reconstruction. So, depositing the money in a Capital Gains Account Scheme will not help.

I had invested in NSS-87 since its inception till it was replaced by NSS-92.

However, I continued with the scheme till July 2008 when I closed my account for good and earned a sizable amount. This was my first and last withdrawal during the entire period of 20 years.

I am a senior citizen of 68 years of age and till now I fell into the non-taxable income bracket.

Please advise me as to what will be my tax liabiliy for AY 2009-10.

Can I claim tax relief under NSS-92, as it was only an extension of NSS-87 with different nomenclature?

Satish

You are under the wrong impression that NSS-92 is an extension of NSS-87. These are two distinct and separate schemes. The balance from NSS-87 could not be transferred to NSS-92.

If the account holder withdraws from NSS-87 when he is alive, the entire amount of withdrawal is taxed in his hands.

Withdrawal by the nominee after the death of the account holder is not exigible to tax. Moreover, if the amount of withdrawal is Rs 2,500 or more, TDS is applied at the rates applicable during the year of withdrawal.

Please note that you can invest up to Rs 1 lakh in avenues u/s 80C (PPF, NSC, Life Insurance, etc) to claim deduction from income over and above the tax threshold of Rs 2.25 lakh for senior citizens.

1) I get Rs 2,200 worth Sodexo Meal vouchers per month. Ours is a five-day week at office. How much tax exemption can I get? Will it be the full amount or @Rs 50 per day i.e. Rs 1,100 per month?

2) If I work on a holiday or sit late in office and make arrangements for food and pay myself and my employer later on reimburses, will it be taxable or not?

Lokesh Dhureja

As per Sec 115WB (2), where the employer is a company, a firm, an AOP or BOI, a local authority and an artificial judicial person, any expenditure on or payment for food or beverages provided by the employer to his employees in an office or factory is not considered as a perk. Neither the employer pays FBT nor does the employee pay any income tax thereon.

The same is the case for expenditure on or payment through paid vouchers, which are not transferable and usable only at eating joints or outlets.

However, there are some employers such as an individual, HUF, any charitable trust or institution registered u/s 12AA political party who are not liable to pay this FBT. In their case:

The value of free food and non-alcoholic beverages provided by such an employer, shall be the expenditure incurred by the employer, unless these are provided during working hours at office premises or through paid non-transferable vouchers usable only at eating joints, up to Rs 50 per meal or tea or snacks. Such a facility provided during working hours in a remote area or an off-shore installation has no limit.

Any excess paid over the limits specified above will get taxed in the hands of the employee.

The authors may be contacted at wonderlandconsultants@yahoo.com