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In some cases, minors too may be required to obtain a Permanent Account Number

There is no bar against minors getting a PAN. Tax can be deducted in some cases where minors earn an income, and a PAN would be needed to manage those taxes

My son had won a monetary prize in August 2017 but the money will come in only next year, in August 2018. By that time he would be 18 years old, and not a minor anymore. He does not have a PAN. Will this amount be taxed in his hands or will it be taxed in mine? 

—Ved Sharma

Typically, the income earned by a minor child is required to be added to the income of the parent (whose income is higher) and taxed, unless the income arises or accrues to the minor child on account of activity involving application of skill, talent or specialized knowledge and experience. Therefore, the prize money earned by your son may need to be offered to tax by him if he has earned it by applying his skill or talent or by using specialized knowledge and experience. 

This amount will be fully taxable either in the financial year (FY) in which the prize money accrued (that is, FY 2017-18) or the FY in which the prize money is received (FY 2018-19), depending on the method of accounting regularly followed or adopted by him or you, as the case may be. If cash system of accounting is adopted then the income is required to be offered to tax in the FY of receipt—FY 2018-19 in this case. If the prize is earned from a game, lottery, crossword puzzle, or any such format; the person issuing the prize money is responsible to deduct taxes at source under section 115BB at the rate of 30% (plus applicable cess and surcharge). Your son may be required to obtain a PAN if any taxes deducted at source are to be reflected correctly in his tax records.

What are the tax deductions available on a home loan? I had bought a house for Rs45 lakh some 4 years back, and have been paying the EMI since then. But I got the possession only in February 2017. Can I use any tax benefits?

—Tushar Verma

The interest paid on a home loan taken to purchase or construct the property can be claimed as a deduction under section 24 of the Income-tax Act, 1961, from the annual value of that property. Such annual value is determined based on the number of properties owned by the individual and whether the properties are rented or vacant. The deduction for interest from the annual value can be claimed beginning from the financial year (FY) in which you obtained possession of the property after construction. 

Since you obtained possession in February 2017, you are eligible to claim the deduction for interest paid on the home loan in FY 2016-17. In addition, you can claim any pre-construction interest paid up to FY 2015-16 in five equal instalments, starting FY 2016-17. In case the property in question is self-occupied, the claim for the interest deduction is capped at Rs2 lakh per tax year. 

In case the net result of the computation under the head ‘income from house property’ (after considering all the properties owned by you) is a loss, the same can be set off against any of your other incomes up to a maximum of Rs2 lakh. Any such loss, which cannot be set off, can be carried forward to be set off against house property income of up to 8 subsequent years.

Also, beginning FY 2016-17, you can claim a deduction under section 80C of the Act in respect of the principal repaid by you on the home loan. The aggregate tax deduction allowed under section 80C in respect of all qualifying investments or expenses (including principal repayment of home loan) is capped to Rs1.5 lakh. The deduction for principal repayment is allowed only beginning from the FY in which the construction of the property has been completed and completion certificate awarded. In case any principal repayments were made in prior years, when the property was under construction, this deduction cannot be claimed.

Further, if you sell this house before the expiry of 5 years from FY 2016-17, any tax deduction already claimed under section 80C for prior years would be deemed to be your taxable income in the year in which the house is sold and you would be liable to pay tax on such income.

Parizad Sirwalla is partner (tax), KPMG.

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