Money matters

Money matters
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First Published: Sun, May 31 2009. 11 10 PM IST

Updated: Sun, May 31 2009. 11 10 PM IST
I am working in the merchant navy. In the financial year ending 31 March (assessment year 2009-10), my duration of stay outside India was 183 days and in India, 182. I went abroad thrice in this financial year. All remittances are saved in my NRE (non-resident external) account. I understand that NRE accounts are subject to Fema (Foreign Exchange Management Act) guidelines and as per Fema rules, a person has to stay in India for at least 182 days to be considered a resident Indian. Will I have to pay income tax as my savings are in an NRE account?
For computing the number of days one has stayed in India, the days the person enters and leaves India are also taken into consideration. However, in borderline cases, an accurate estimation of days may be calculated on an hourly basis. For example, if a person is in India for 82 days and 6 hours and then returns for 20 days and 20 hours, his stay will be 103 days.
For income-tax purposes, residential status is calculated purely on the basis of the number of days in India. So, if your total stay outside India is for 183 days, you shall be treated as a non-resident Indian and your income earned outside India will not be taxed here. The purpose of a non-resident external account is to credit income earned in foreign currency as per Fema rules, irrespective of the number of days the person stayed in India. The income is taxed in India based on his residential status, determined according to income-tax rules.
I have taken a loan from my father and a housing loan from a bank. How can I avail tax benefit by paying instalments to my father as well as to the bank? What documents would I require to get the tax benefit? Will the instalment I pay my father be added to his income?
Repayment of the principal component of a home loan is allowed as a deduction under section 80C (up to Rs1 lakh a year) of the Income-Tax (I-T) Act only when it is borrowed from a recognized financial institution such as a bank, a cooperative bank, a national housing bank, LIC or a financial company. Therefore, you cannot claim deduction for the principal repayment of the loan taken from your father under section 80C.
Deduction can be claimed on interest paid (under section 24), but for this it is necessary to obtain a certificate from the lender specifying the amount of interest payable for the capital sum borrowed. You can claim deduction on the interest and the principal component repaid to the bank in your I-T return form. For this, you will have to obtain a certificate from the bank stating the amount of interest and principal that you have repaid during the year.
To claim deduction on the amount of interest that you will pay your father, you will have to document the entire loan transaction on a stamp paper and specify the interest rates. Also, the interest that you paid your father will be added to his income in his tax returns.
I bought a new apartment in 2007 in Bangalore. The property as well as the home loan is in my wife’s name and mine. However, the account from where the EMI is being deducted is not held jointly. The interest component of the loan is around Rs3 lakh a year. Can my wife, who is also working, and I both claim tax benefit up to Rs1.5 lakh each? Does each of us need to show proof of our contributions to the loan if the I-T department asks for it?
As you have taken a joint home loan and the property is also held jointly, both of you are eligible for tax concessions. You have not mentioned whether your wife is transferring any amount to the account from where the home loan EMIs are being paid as her contribution for repayment. Even if you are paying the full EMI from your income and your wife is not contributing towards this, she will be eligible for deduction of interest under section 24 since she is a joint owner of the property and also a joint applicant for the loan. This is because the deduction on interest is on due basis and not payment basis. However, if this is the case, deduction on principal under section 80C will not be entertained, since this is on “payment basis”. To avoid confusion, we suggest that both of you transfer money to the joint bank account from where the home loan EMI is being paid.
In case the house property is given on rent, the joint owners can claim the entire amount that is paid as interest on the loan for deduction based on the ratio of ownership. For a self-occupied property, the maximum amount every co-owner can claim is Rs1.5 lakh.
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First Published: Sun, May 31 2009. 11 10 PM IST