Tax payable on rental income may not be the rent charged

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Sunday , May 04, 2008 at 0112 hrs My wife and I have life insurance policies of Rs 25 lakh each. My wife does not have any income. Can I claim deduction u/s 80C in respect of the premium paid for her?

—Vinay

Premiums paid by an individual for life cover taken for self, spouse, and children are eligible for the deduction u/s 80C. The children may be major or minor, married or otherwise.

Incidentally, kindly realise that insurance is needed to take care of the financial stress faced by the family in the case of the death of the breadwinner. It is clear from your query that it is you who are the breadwinner and not your wife.

In which case, it would make more financial sense for you to have taken a policy of Rs 50 lakh in your name instead of distributing the cover, unless there are substantial reasons to do so.

For the FY 08-09, if my income is Rs1.20 lakh and short term gains from shares is Rs 20,000 then total Rs 1.40 lakh being below Rs 1.50 lakh I would not have any tax liability. What if income is Rs 1.20 lakh and the short-term gains is Rs 50,000. Would I have to pay 15% tax for the entire Rs 50,000 or would the 15% tax be payable only on Rs 20,000 (1.20 lakh + Rs 50,000 -Rs 1.50 lakh limit).

Further, can I save u/s 80C to bring my income level down to Rs 1.50 lakh or would I mandatorily have to pay tax for the short-term gains exceeding the maximum non-taxable income? What happens if a person is in the 20% slab and then comes down to the 10% because of Sec 80C, does he pay 10% or 20% on the taxable amount?

—Sudhir Varty

If your total income is Rs 1.70 lakh, out of which short-term gains on equity is Rs 50,000, then you are free to adjust Rs 30,000 of such capital gains against the balance threshold and pay the 15% tax only on the remaining Rs 20,000. You cannot save tax under Sec 80C on any capital gain income either short-term or taxable long-term capital gains. Your last query is not too clear. If you are in the 20% tax bracket and make Sec 80C investments such that your total income falls to the 10% tax bracket, then obviously you will have to pay 10% tax and not 20%.