I have a question related to investing in Fixed Maturity Plans (FMPs) that have gained popularity of late. Suppose an investor whose annual income is about Rs 6 lakh, has some capital gains of Rs 4 lakh from the sale of house property.

He will have to pay capital gains tax thereon, and any additional funds which he has, if invested in FDs, will lead to his income crossing the Rs 10-lakh limit and he will have to pay a surcharge on income tax @10%. However, if this money is invested in FMP with maturity over one year, the capital appreciation will be only for the next year, where his tax liability will be lesser (as in that year there is no major capital gains from sale of property). Kindly confirm whether my interpretation is correct.

?Ramdas

Yes, your interpretation is correct. In the example stated by you, the FMP enables the investor to defer the tax on the appreciation to the next year, thereby escaping the surcharge that otherwise would have been payable.

I would like to know can long-term capital gains (LTCG) from non-equity MFs be set off against long-term capital loss (LTCL) from shares on which STT has been paid?

?Suresh Raheja

If the profit from a particular source is exempted, loss from the same source cannot be used for tax deduction or set-off.

This is an off shoot of Sec 14A of the Income Tax Act, which specifies that if an income is tax-free, then any expense incurred to earn such tax-free income cannot be tax deductible. Therefore, LTCL from shares on which STT has been paid may not be used for set off.

I am at present employed in a bank. I have availed of a housing loan and I am claiming a rebate on the housing loan installment paid by me and also on the interest. This loan has been taken on the Staff Housing Loan Scheme (Soft Loan) on simple interest rate. The total loan is to be repaid in 300 installments (First 200 towards principal and the next 100 towards interest). The interest charged on the loan is not debited to the loan account, but is kept in a separate account without compounding. In view of this I have few queries as under.

1 Whether interest accrued but not paid is eligible for tax rebates?

2 After giving rebate for interest on housing loan I am charged for the differential amount as perquisite tax (notional income). Whether I can claim a refund by showing the tax paid on this notional – perquisite income as notional interest paid? If yes or no, can you please explain the logic or principle behind the same?

?Milind M Bijoor

1. The phrase used for availability of deduction is interest payable and not interest paid.

Therefore, if the finance company collects the loan first and interest later, the borrower will be able to claim the rebate u/s 80C (on principal repayment) on a larger amount and also claim deduction of interest u/s 24 on accrual basis. The interest payment can wait until the principal amount is collected. Some employers, especially PSUs and banks, follow this practice.

Needless to observe that the deduction obtained on the basis of accrual cannot be again claimed when the interest is paid actually.

2. Since you must have obtained the loan on a subsidised interest basis, the differential amount of interest is being subjected to tax as a perquisite.

To rephrase your question, since you are anyway paying tax on the deemed interest (additional interest which is added to income as perk) you should be allowed a deduction u/s 24 for the same.

The matter is not free from doubt. Deduction u/s 24 is available on the actual interest paid or payable on a housing loan. Though you are not actually paying the higher interest, the law requires you to pay tax on the benefit you derive. Our opinion is that the ITO will not find your contention tenable.

The Senior Citizens Savings Scheme (SCSS) was introduced in 2004 and further amended in 2006.

Please inform if interest up to 1,80,000 is exempt from income tax and also under which section.

I wish to claim a refund of tax paid on this amount. I joined the scheme as a VRS employee eligible even from 55 years onwards.

?Vasudevan

Interest under SCSS is not exempted from tax. In other words, it is fully taxable and also subject to TDS for interest over Rs 10,000.

However, if your total income, including interest from SCSS is below the maximum amount not chargeable to tax, then effectively the investment becomes tax-free.

The maximum amount not chargeable to tax is Rs 1.50 lakh for non-senior male taxpayers and Rs. 2.25 lakh for senior citizens. If you find that you are below the tax threshold, then you should file form 15G or 15H as the case may be and request for non-deduction of tax at source.

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