An employee living in his own house is not eligible for exemption

My wife is physically challenged with a 45% disability. She is employed in a PSU Bank. However, her annual income is approximately Rs 90,000, which means she does not fall into the tax bracket. I am employed in a PSU organisation and fall into the 30% tax bracket. I am also physically challenged with a severe disability. I am claiming deduction under Section 80U. Now I also want to claim deduction u/s 80DD, as my wife is not in the tax bracket and she will be not claiming any benefit u/s 80U. Am I correct in doing so?

? Raja Mahendra

Yes, you can claim the deduction u/s 80DD for your wife’s disability. A resident individual or an HUF having a dependent relative/member suffering from a permanent physical disability (including blindness) or mental retardation is entitled to a deduction for medical treatment, training or rehabilitation of the dependent.

The disability is classified into two parts as defined under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1996. Disability over 40% is non-severe and that over 80% is severe. The deduction allowed will be Rs 50,000 for non-severe and Rs. 75,000 for severe disability. FA04 has extended this benefit to persons with Autism, cerebral palsy, mental retardation and multiple disabilities as provided in National Trust for welfare of persons. ‘Dependent’ includes the spouse, children, parents, brothers and sisters and in the case of a HUF, a member thereof, who is wholly or mainly dependent on the assessee and has not claimed any deduction u/s 80U in the computation of his or her income.

I take this opportunity to seek your guidance on the following:- I am a retired defense officer receiving a pension along with a disability pension. My wife is a teacher and a tax payee. She gets HRA (Rs 4,346 per month). We are staying in our own house registered on my name. Our house is a three bedroom one with a servant quarter (Total covered area 4,000 square feet) Since I am a disabled soldier, my pension (the disability element and service element) is exempted from IT. My query is —Can I issue a receipt of rent to my wife for her to get a tax rebate on HRA? If yes then to what limit? Of course I will show the amount as income from house property in my IT return.

?Lt Col S.S.Bhatia, (Retd)

Theoretically, the answer is in the affirmative —. There are only two conditions as stipulated by Sec 10(13A), which makes the assessee ineligible for the exemptions. Accordingly, an employee living in his or her own house or where he/she does not pay any rent is not eligible for this exemption. Since the house is registered in your name and you will issue rent receipts for the rent paid, your wife will pass both these tests.

However, in practice, husband and wife cannot have a commercial relationship and there is very high possibility of the department denying the exemption and ruling this as a tax evasion transaction. Our advice would be to desist from charging rent to your wife just for claiming HRA exemption.

I have one query regarding income from gifts by my husband. I have received a gift (FD of Rs 11 lakh in a company in my name) from my husband on my birthday in February ’09. Can you please advise as to whether the interest on such FD will be treated as my income or the income of my husband? Whose tax return will need to include such income? What documentary proof do I have to keep, in case IT authorities ask for it?

?Usha Jain

Any income earned from assets transferred by the spouse is taxable in the donor spouse’s hands. This clubbing provision is as per Sec 64 of the Income Tax Act. Therefore, any interest that you will earn on the FD will be treated as your husband’s income and will be taxable in his hands. As such, the income will be included in his tax return. By way of documentary proof, each should keep on file the record of the bank statement that depicts the debit and the credit of the funds from your respective accounts.

I would like to know what is the penalty amount if one files the return after the assessment year?

?Kishore Matta

U/s 234A, an assessee who defaults in not furnishing or late filing of the returns, is liable to pay 1% simple interest per month or part of the month on the tax as returned by the assessee as reduced by the advance tax and TDS, from the due date to i) the date of filing the return or ii) the date of completion of assessment where no return has been furnished. There is no provision for reduction or waiver of interest and the question of granting opportunity of being heard does not arise – CIT v R Ramalingair [2000] 108Taxman1 (Ker). Interest is leviable on the tax on the total income declared in the return and not on the income as assessed and determined by the assessing authority [Tej Kumari v CIT 22TCR250 (Pat), 2001].

It is okay even if the returns are not filed by July 31 if correct taxes are paid. However, late filing of return suffers from the embargo on carry forward of loss from business (speculative or otherwise), capital loss and loss from the activity of owning and maintaining race horses earned during that year. The ITO has no powers to condone such a lapse. Note that only such losses suffered during the current year cannot be carried forward. The losses already carried forward from the earlier years suffer no damage.

The authors may be contacted at wonderlandconsultants@yahoo.com