I have invested Rs 1 lakh for five years in the tax planner scheme exempted under Section 80C with compounding interest till the end with “No loan no preclosure” and will be getting Rs 1.76 lakh at the end of five years.

Please clarify if the interest will be included in the taxable income on the yearly basis, or the interest is also deemed to be reinvested, which will be eligible for Section 80C deductions as in National Saving Scheme Certificate.
P.T. Raghavan
Via email

The interest accrued every year will not be treated as reinvested under Section 80C in case of investment made in the term deposit (for a fixed period of not less than five years with a scheduled bank). You will not be eligible to claim this benefit, which is applicable in case of investment made in the National Savings Certificate.
According to Section 145, income chargeable under the heads ‘Profits and Gains of business or profession’ and ‘Income from other sources’ will be computed in accordance with either cash or mercantile system of the accounting system regularly employed by the assessee. Hence, you can treat the interest received on the investment made in the term deposit based on the method of accounting followed.
However, it is suggested that accrual basis of accounting is a better option, since tax is deducted by the bank at the end of financial year and also the income on the term deposit gets spread over a period of five years instead of the lumpsum amount getting taxed in the year of receipt.

I want clarifications on TDS, which is charged over rent income. I own a commercial place in my mother’s name, who is 61 years old. We have rented it out to a coffee shop recently. Our tenants say that TDS will be deducted at the source directly. Is this required?
Girish
Via email

According to Section 194(I), any person responsible for paying rent will be liable to deduct tax at source, where the aggregate of the amounts paid or credited to the account of the recipient exceeds Rs 1.2 lakh during the fiscal.
If the person paying rent is an individual or HUF, the applicability of this section arises only if their sales, gross receipts or turnover exceed the limits prescribed under Section 44AB in the immediately preceding year.
The aforesaid limit of Rs 1.2 lakh has been increased to Rs 1.8 lakh from the financial year 2010-11 onwards and shall be applicable with effect from 1st July 2010.

My son has been sent to the US on deputation for three years by his company in April 2010. He has availed housing loan from HDFC two years back. When he was in India, he was availing tax benefits. Now, his salary is paid in the US in dollars after deducting US federal taxes. Please clarify as to how can he avail tax-benefits in India?
Y. Rajendran
Via email

The status of your son for financial year 2010-11 will be “non-resident”. For an NRI, only his Indian income gets taxed in his hands. Similarly, he will be eligible to claim the tax benefits only against his income liable to be taxed in India.

(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)