Interest on home loans from in-laws deductible
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I have been told that I can invest maximum Rs 4.5 lakh in a single post office monthly income account. If I opt for a joint account with my wife, it seems I can invest Rs 9 lakh. But half of such investment will treated as hers.
In such a scenario, will my wife be liable to tax if her income crosses the exemption limit? Since the interest is automatically credited to our joint savings bank account in the same post office, how will the income be treated for tax? Do I have to pay the tax on the entire interest or will it be divided between me and my wife?
K. Ramanathan, Chennai
You can invest Rs 9 lakh jointly with your wife. The income arising out of investments made out of your funds will form a part of your income and will not be taxable in the hands of your spouse. Section 64(1) provides that in computing the total income of an individual, there will be included all such income arising directly or indirectly to any person or association of persons from assets transferred otherwise than for adequate consideration to the extent to which the income from such assets is for the immediate and deferred benefit of the individual’s spouse.
If an employee dies and his nominees receive the accumulated balance in the PF account, will it be exempt in the hands of such nominees? If a person after the retirement was engaged on a retainer fee by his former employer, will reimbursed medical expenses be taxable in his hands?
Vasu, Via e-mail
According to Section 10 (12), the accumulated balance due and payable to an employee in a recognised provident fund account is exempt to the extent stipulated in the Schedule IV. The exemption is available provided the employee has rendered continuous service for five years, which may however be relaxed under certain circumstances.
There is nothing in Section 10 (12) or in schedule, to indicate that the exemption will be available to the nominees on the death of the employee.
Reimbursement of medical expenses even if subject to production of bills will be taxable as business income in the hands of former employee, who is now engaged as a retainer of the company. Section 28 provides that the value of any benefit or perquisite arising from business or the exercise of a profession is to be taxed as business income.
I have recently purchased a property by borrowing money from my in-law, who is a retired central government employee. The total cost of the property is Rs 4.5 lakh. I am repaying the amount in Rs 6,000 monthly instalments with an interest rate of nine per cent per annum for 10 years. Could you tell me how it is treated for tax?
J.R. Chowdhury, Via e-mail
You can certainly claim deduction under Section 24 towards interest paid on housing loan taken from your in-laws. However, you will not be eligible to claim deduction under Section 80 C for the principal repayment of housing loan since it is applicable only for loan taken from specific entities.
(Kamal Rathi is a chartered accountant,
representing Rathi & Malani, a Hyderabad-based
accounting firm. Readers can mail their queries on income tax to kamalrathi.ca@gmail.com.)
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