I own a house in Mumbai where I stay with my family. I happen to have certain business interests in Pune where I have to travel frequently. As property prices are rising there, I was thinking of buying a place there. However, this would also be for my personal use and I don’t intend to rent it out. However, one of my CA friends informed me that this second house will be taxed in my hands on a notional rent basis. Is this true? How can I be taxed for rent if I don’t rent out the house property?

?Vinod

Your CA friend is right. The first property that you buy is exempt from income tax. However, the second property onwards, even if you keep it locked, a notional rent value based on the market rental value will be taken as your notional income from the second property. To put it differently, even if you earn no income whatsoever from the second property, it will be taxable as if you have put it out on rent. Also, if you are planning on buying the property using a housing finance, for the first property, interest payable is tax deductible up to Rs ,150,000. However, from the second property onwards, the entire interest without any limit is tax deductible

Can a person getting HRA and occupying two rented self-occupied houses get the exemption on the rent paid on both the houses together?

?Maheshwari

The Act states, “…on payment of rent in respect of residential accommodation, occupied by the assessee…”. The words ‘rent’ and ‘accommodation’ used are singular and therefore, the employee may be required to take any one accommodation of his choice. We do not agree with this view. The assessee surely does not occupy two houses just for fun. He needs two houses and has to pay rent on both the houses. Both these words, ‘rent’ and accommodation’ are many times used in the plural sense.

I have received a lump sum amount due to my retirement. If I ask my wife to deposit say Rs 10 lakh as FD, she will get Rs 95,000 as interest, which will be below the tax bracket as she is not earning anything else presently. Does she have to fill an IT return or does the bank directly deduct the tax?

?Ritesh

It seems from your question that you intend to invest the lump sum received on your retirement in the name of your wife by way of a fixed deposit. In this regard, note that clubbing provisions will apply on the interest that your wife earns and the same will be taxed in your hands. In other words, though the interest will be credited in her bank account and her books, for tax purposes it will be included in your total income.

In the case of Gold ETFs (Exchange Traded Funds) is wealth tax applicable? Also, it is possible to sell the units back to the fund and convert the investment to gold. Would wealth tax be applicable at that time? And lastly, say I have a total net wealth in the form of gold of Rs 20 lakh, will the tax be 1% of the amount above Rs 15 lakh or 1% of the actual wealth of Rs 20 lakh since it is above Rs 15 lakh.

?Laxmi Nayar

Wealth tax is not applicable on Gold ETF units. However, if such units are converted back into physical gold, wealth tax will be applicable. The rate of wealth tax is 1% of net wealth above Rs 15 lakh. In the above case, wealth tax would be applicable at the rate of 1% on the amount above Rs 15 lakh and not on the aggregate amount.

I am employed in the UK since the last 2 months. When I was in India I used to do share trading. I have a demat account there and I have some holdings (shares bought when I was in India). My questions are:- 1) Do I have to inform any authority in connection with my holdings there that I am employed in the UK. 2) Can I deposit the dividends in my bank account in India? (In the demat account my bank account details are captured) 3) Can I deposit the sales proceeds in my account in India if I were to sell shares by giving instructions from here over the phone. 4) How can I participate in the right issue, if any, from my holdings?

?Ali

A: It is assumed that you are in the UK for employment. In which case, as per FEMA you would be an NRI and it is not legal for you to continue share trading as per your ‘resident’ status. You will have to open what is known as a PINS account. Get in touch with your bank and they will help you redesignate your accounts to NRO or NRE as the case may be. Your DP account will also have to change. The answers to the rest of your questions are in the positive. It’s only that it is illegal to continue the erstwhile ‘resident’ account in your status of NRI.

?The authors may be contacted at wonderlandconsultants@yahoo.com