You can avail tax benefits by showing payments on a housing loan. To do so, you must obtain an Income tax certificate which will be issued to you once a year. This will contain the total amount of interest and capital repaid during the year. This is a must to claim a tax benefit in respect of self occupied property.

You need to submit this as part of your personal Income tax returns and then calculate your liability.

Remember to check the maximum amount that is allowable under current rules for the financial year.

A. TAX BENEFITS

I . UNDER INCOME TAX ACT 1961

a) Benefits to the Borrowers of the Housing Loans:

i.) Under second proviso to section 24(b) of the Income tax Act, 1961, a sum of Rs.1,50,000/- is available for deduction as interest paid on the loan availed for the purpose of acquisition / construction of the house property after 1st day of April 1999, provided such construction / acquisition must be completed within 3 years from the date the capital was borrowed.

ii.) If the property is acquired / constructed out of he borrowed amount, the interest on such loan for the periods prior to the period in which such property has been acquired or constructed shall be deducted in equal Installments from the year of construction / acquisition with four immediately succeeding years.

iii.) The above deduction indicated at (i) and (ii) above will be allowed only when the borrower furnishes a certificate indicating the amount borrowed and interest payable for the acquisition / construction of the property.

iv.) The principal re-payment on the housing loan is liable for deduction for individuals and HUF to the extent of Rs. 1,00,000/- under section 80C of the Income tax Act, 1961.

II. WEALTH TAX ACT, 1957

a) Under the Wealth tax Act, 1957, Section 5(1) indicates that an assessee can hold one property as a self occupied property and the same be exempt from eligible assets liable to Wealth tax.

b) If an assessee, holds more than one property, then the second property for the purpose of Wealth tax has to be valued as per the Wealth Tax Rules 1958 and the value in excess of Rs. 15,00,000/- is liable to Wealth tax. However if there is any liability against the said asset, the same is to be deducted before computing the taxable wealth.

c) If the assessee holds more than one property and the second property as let out for more than 300 days in previous year, then such property is not considered as eligible asset for calculation of taxable wealth.

 

B. TAX IMPLICATIONS

If the property on which deduction claimed under section 80C is transferred by the assessee before the expiry of 5 years from the end of financial year in which possession of such property is obtained by him, then no deduction shall be allowed in the year of transfer and the deduction already allowed shall be added to the income of the assessee in the year of transfer and taxed accordingly.

TAX BENEFITS TO THE COMPANY AND ITS SHAREHOLDERS

To the Resident Member of the Company

B. Under the Income Tax Act, 1961

1.) Dividend Income received from Domestic Companies is exempt under section 10(34)
of the Income-tax act, 1961.

2.) The shareholders are not liable to pay long term capital gains tax in respect of shares of the company held by then for a period of more than twelve months by virtue of Section
10(38) of the Act, subject to the fulfillment of the following conditions:

(a) The transaction of sale of such equity share is entered into on or after 1 October, 2004.

(b) The transaction is chargeable to securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004.

Proviso to the section specifies that in case of individual and HUF, where the total income as reduced by such short term capital gains is below the maximum amount not chargeable to tax, then such short term capital gains shall b reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to tax and the tax on the balance of such short term capital gains shall be computed at the rate of ten percent.

3.) Short term capital gains arising on transfer of the company’s shares would be liable to tax at the rate of 10% (plus applicable surcharge and education cess) by virtue of Section
111A if the following conditions are satisfied :

(a) The transaction of sale of such equity share is entered into on or after 1 October, 2004.

(b) The transaction is chargeable to securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004.

Further, the public issue of shares of the Company would also qualify as an eligible issue of capital and long term capital gains would qualify for the benefit of Section 54ED of the Act if the capital gains are invested in shares of the Company.

Under Wealth Tax Act, 1957.

Shares held in Domestic Company are not “asset” under the Wealth-Tax Act 1957, hence not liable to wealth tax in the hands of the holder of the said shares

To The Non-Resident Members Of The Company

C. Under the Income Tax Act, 1961

1.) Under Section 115E of the Act, where shares in the company are acquired or subscribed for in convertible foreign exchange by a Non Resident Indian, capital gains arising to the non-resident Indian on transfer of shares held for a period exceeding 12 months, shall, of the Act, be concessionally taxed at the rate of 10% (plus applicable surcharge and education cess). (Reference may also be made to the provisions of Section 115D of the Act).

2.) Under section 115F of the Income Tax Act, 1961 the Long Term Capital gain as referred to in 1 above shall be exempted from income tax entirely / proportionately if he / she invest all or a portion of the net consideration in specified assets as defined in section 115C (f) of the Income Tax Act, 1961 within 6 months of the date of transfer. The amount so exempted shall, however, be chargeable to tax under the provisions of section 115F(2) if the specified assets are transferred or converted into money within three years from the date of acquisition thereof as specified in the said section.

3.) Under provisions of Section 115G of the Act, it shall not be necessary for a Non-Resident Indian to furnish his return of Income if his only source of income is investment income or long term capital gains or both arising out of assets acquired, purchased or subscribed in convertible foreign exchange and tax deductible at source has been deducted there from.

4.) As per Section 115-I of the Act, a non-resident Indian (i.e. an individual being a citizen of India or person of India origin who is not a “resident” ) elects not to be governed by the provision of Chapter XII-A of the Income Tax Act, 1961, than his/her total income shall be computed and charged in accordance with other provisions of the Act.

5.) By virtue of Section 10(34) of the Act, income earned by way of dividend income from domestic company referred to in Section 115-O of the Act, are exempt from tax in the hands of the shareholders.

6.) Where any Double Taxation Avoidance Agreement [DTA] entered into by India with any other country provides for a concessional tax rate or exemption in respect of income from the investment in the company’s shares, those beneficial provisions shall prevail over the provisions of the Income Tax Act, 1961 in that regard.

Share held in Domestic Company are not “asset” under the Wealth-Tax Act 1957, hence not liable to wealth tax in the hands of the holder of the said shares.

To The Foreign Institutional Investors (FII’s)

D. Under the Income Tax Act, 1961

1.) Under Section 115AD (1) (b) (ii) of the Act, Income by way of Short Term Capital Gain arising from the transfer of shares held in the Company for a period of less than twelve months will be taxable @ 30% (plus applicable surcharge).

2.) Under Section 115AD (1) (b) (iii) of the Act, Income by way of Long Term Capital Gain arising from the transfer of shares held in the Company will be taxable @ 10% (plus applicable surcharge)

3.) Income by way of dividend received on shares of the Company is exempt µ/s. 10(34) of the Income Tax Act, 1961.

4.) Where any Double Taxation Avoidance Agreement [DTA] entered into by India with any other country provides for a concessional tax rate or exemption in respect of income from the investment in the company’s shares, those beneficial provisions shall prevail over the provisions of the Income Tax Act, 1961 in that regard.

Notes :

i) All the above benefits are as per the current tax laws as amended by the Finance Act, 2005.

ii) The current position of tax benefits available to the company and to its shareholders is provided for general information purposes only. In view of the individual nature of tax consequences, each investor is advised to consult his/ her own tax advisor with respect to specific tax consequences of his/her participation in the issue.

iii) The tax benefits listed above are not exhaustive and are based on information explanations and representations obtained from the Company and on the basis of our understanding of the business activities and operations of the company. While all reasonable care has been taken in the preparation of this opinion, M.P. Chitale & Co. accepts no responsibility for any errors or omissions therein or for any loss sustained by any person who relies on it.

iv) Unless otherwise specified, sections referred to are sections of the Income Tax Act, 1961 (the Act).

To the Company

A. Under the Income Tax Act, 1961

1. In accordance with and subject to the provisions of Section 112 of the Income Tax Act, 1961, long term capital gain accruing to the Company will be subject to tax as stated below instead of normal rate of 35% (plus applicable surcharge) applicable to the Company.

• If long term capital gain is computed with indexation @ 20% (plus applicable surcharge).
  
• If long term capital gain is computed without indexation @ 10% (plus applicable surcharge).

The Company is eligible to claim exemption in respect of tax on long term capital gains µ/s. 54EC and 54ED if the amount of capital gains is invested in certain specified bonds/securities subject to the fulfillment of the conditions specified in those sections.

2. The Company is not liable to pay long term capital gains tax in respect of shares of the company held by then for a period of more than twelve months by virtue of Section 10(38) of the Act, subject to the fulfillment of the following conditions;

(a) The transaction of sale of such equity share is entered into on or after 1 October, 2004.

(b) The transaction is chargeable to securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004.

(a) The transaction of sale of such equity share is entered into on or after 1 October, 2004.

(b) The transaction is chargeable to securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004.

4. Benefits of unabsorbed business / long term capital losses and allowances

Company has unabsorbed losses / allowances under the Act, which can be carried forward for set off against the income under the Act of future years as under:

i As per Section 72 of the Act, Company can carry forward the unabsorbed business losses for a period of eight assessment years immediately succeeding the assessment year in which the loss was first computed.

ii As per Section 32 of the Act, Company can carry forward the unabsorbed depreciation allowance of earlier years for an indefinite period to be set off against business income under the Act of future years.

iii As per Section 74 of the Act, Company can carry forward the unabsorbed long term capital losses for a period of eight assessment years immediately succeeding the assessment year in which the loss was first computed to be set off against long term capital gains under the Act of future years.

5. The Company is entitled to a deduction of 40% of its profits from the business of providing long term finance µ/s 36(1) (viii) of the Income-tax Act, 1961. The said deduction is subject to the condition that the Company is required to create and maintain a special reserve to the extent of deduction. If the aggregate amount carried to such reserve exceeds twice the amount of the paid up share capital and general reserves of the Company, the deduction is restricted to such amount only.

6. Divided Income received from Domestic Companies is exempt under section 10(34) of the Income-tax Act, 1961.

7. In accordance with and subject to the provisions of Section 10(35) of the Act, the following income shall be exempt in the hands of the Company:

i) Income received in respect of the units of a Mutual Fund specified under Clause (23D) of Section 10 of the Act; or

ii) Income received in respect of units from the Administrator of the specified undertaking; or

iii) Income received in respect of units from the specified company.

Under Wealth Tax Act, 1957.

The Company is liable to pay wealth tax as per the provisions of Wealth Tax Act, 1957 at the rate of 1% in respect of certain assets owned by the Company, subject to the basic exemption of Rs.15 lacs.