Refundable deposit will not entail income- tax liability

QI have leased out a flat in Mumbai on a long term basis to a Hyderabad- based company. I have recently requested them to give us the rental income for three more years. They say that if they pay us the rent in advance, they will be charged 33 per cent income- tax. Is it correct? Alternatively, can the rental payment by them be shown as loan to us with minimum tax implications? JAGADISH REDDY

Via email

As per the provisions of Section 194( I), any person liable to deduct tax on any income by way of rent exceeding ` 1.8 lakh during the financial year will, at the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier deduct income tax at rate of 10 per cent for building, furniture etc. The rate of TDS applicable shall be 10 per cent and not 33 per cent as mentioned by you in your query. It is suggested to accept refundable deposit instead of advance rent to avoid the TDS provisions.

QI have purchased a house in Chennai in my Mothers' name by taking a loan of ` 12 lakh from my relatives, making ` 10,000 payable as interest per month. When I have informed my company, they said unless house is purchased in my name, I could not use interest paid as a deduction under section 80C. Is this correct?

Is there any provision whereby I can deduction for interest paid for the loan though the house is in my mother’s name? Also kindly brief me about the set- off and carry forward provision for the loss under income from house property heads.

ROHAN KRISHNA

Via email

A) You have purchased the property out of your own funds in your mother’s name. Therefore, any income arising out of such property will be taxed in your hands. Similarly, the eligible deductions towards interest and re- payment of loan can be claimed by you.

If the property is selfoccupied, interest on housing loan can be claimed subject to a ceiling of ` 2 lakh. This is allowable under section 24( b) and not section 80C. Any amount paid towards the re- payment of principal shall be eligible for deduction under section 80C, subject however to the overall limit of ` 1.5 lakh. You must note that deduction under 80C is allowable only if the loan is taken from specified financial institutions.

The loss of house property can be set off as per provision of section 71A which states that the loss that has not been set off can be carried forward for eight assessment years from the immediately succeeding the assessment year for which the loss was first computed.