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"How do I calculate the tax rebate on my house loan?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

I am a software professional in India falling in the 33 per cent tax bracket. My investments under section 88 are Rs 46,000. I still pay a monthly tax of Rs 4000. Please address the following queries:
1) I am planning to buy a new car. I have the option of taking a loan from the company or elsewhere. Please let me know whether I have any tax benefits either way. I was told that for repayment of a housing loan monthly, my net salary is reduced and so is my monthly tax (using form 12). My question is whether the same rule is applicable to car loans.
2) Till now, I used to submit house rent receipts and get tax concessions. Now I have the option of using a company leased house. Which is tax-beneficial?
3) I am supposed to invest Rs 30,000 for three years in a non-banking finance company which earns 14 per cent interest compounded quarterly. The amount on maturity grows to Rs 45,300. The other option is to invest in Public Provident Fund (in whole or Rs 10,000 a year) and get 12 per cent compound interest plus tax benefits. I have a two year old PPF account from which I can withdraw after three years. Since the maturity period is the same for both, which is better?

— Raghavendra B K

1) There is no provision granting any deduction or rebate for a car loan under the Income Tax Act like in a housing loan.

2) Section 10 (13A) of the I T Act, 1961 grants exemption from the House Rent Allowance received by an employee in case where the employee pays such rent. The exemption is not allowed in the following cases.
a) Where the residential accomodation is owned by the assessee
b) Where the assessee has not actually incurred such expenditure on rent

The exemption is limited to the least of the following: a) Allowance actually received b) Rent paid in excess of 10 per cent of the salary c) 50 per cent of the salary in case Mumbai, Delhi, Calcutta and Chennai and 40 per cent of the salary for other cities

An accomodation given to an employee by a company is treated as a perquisite. The valuation of such a perquisite is prescribed by Rule 3 of the Income Tax Rules, 1962.

3) The third question does not relate to personal taxation and cannot be answered by us.

Can I claim a deduction of Rs 40,000 under section 80DD irrespective of the amount spent? Or can I claim only the amount spent?

— G Natesh

Provisions of section 80 DD of The Income Tax Act, 1961 have been amended with effect from Assessment Year 2000-01 so as to allow the deduction of Rs 40,000 where any expenditure has been incurred for the medical treatment (including nursing), training and rehabilitation of a handicapped dependant or any amount paid or deposited under any scheme framed in this behalf by the LIC or UTI.

Under the existing provisions of section 80 DD, an amount of expenditure incurred for the medical treatment of handicapped dependent or for payment or deposit made for the maintenance of such dependence is qualified for deduction, subject to the maximum of Rs 40,000.

Thus according to the amendment from Assessment Year 2000-01, the assessee shall in accordance with and subject to the provision of this section be allowed a deduction of a sum of Rs 40,000 in respect of the previous year, irrespective of the amount actually spent or deposited, provided the same is done in accordance with the provisions of Section 80 DD of The Income Tax Act, 1961.

How do I calculate the tax rebate on my house loan? The loan is for Rs 5 lakh. The interest is 4 per cent on the first Rs 2.5 lakh and 8 per cent on the remaining Rs 2.5 lakh on a reducing balance basis.

— Thakur

The Finance Act, 1999 has amended Section 24 (2) of the Income Tax Act, 1961 thereby raising the amount of deduction in respect of interest paid on capital borrowed for acquisition/construction of house property. As a result of the amendment, where the property is acquired or constructed with capital borrowed on or after April 1, 1999 and such acquisition or construction is completed before April 1, 2001, the deduction on account of interest will be Rs 75,000 instead of Rs 30,000.

The amount of annual outflow on account of interest is a function of factors such as the amount of loan availed, the rate of interest, the tenure of the loan and the schedule of repayment. Further, you are also eligible for a rebate of 20 per cent under section 88 of the IT Act. This rebate is available on the principal amount repaid to an approved Housing Finance Institution, from whom the money has been borrowed for purchase or construction of house property, subject to a maximum amount of Rs 10,000.

When is the assessee entitled to trasfer the investment allowance reserve to general reserve? What is the tax treatment in this regard?

— B Chandra Mohan

Under section 32 of the Income Tax Act, 1961, an investment allowance reserve is to be created by an assesee in order to qualify for claiming a deduction under the section. The said reserve is to be used for acquisition of new plant and machinery or is to be put to use in the manner as prescribed in the section for business purpose. The reserve cannot be used for declaration of dividend or transferred to the General Reserve before a period of ten years.

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