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Photo: iStock
Photo: iStock

Capital losses can be set off against capital gains

While there is no express clarity, both financial ownership and legal ownership of the property may be considered by tax authorities for determining the ownership of the property

I have taken a loan for construction of house in joint capacity with my father. But I am not a co-owner. Can I now get myself added as co-owner—as I have already taken the loan—to be eligible for tax deduction? Also, if a salaried person from the UAE wants to avoid TDS on the benefits payable by the insurance company (annuity payout), which document shall I submit to the insurer? Another query is, suppose a person purchases a stock, but at the time of liquidating the stock, the investor makes a loss. Is the loss amount tax deductible?

—Avtar

On your first query, a deduction for interest and principal repayment towards a housing loan is available under Section 24 and Section 80C, respectively. For the purpose of these deductions, you are required to be the owner of the property and income from such property should be chargeable to tax in your hands under the head “income from house property".

While there is no express clarity, both financial ownership and the legal ownership of the property may be considered by the tax authorities for determining the ownership of the property. Accordingly, in case where you are not the legal co-owner of the property, the claim of the said tax deductions may be contentious.

Once you acquire the legal co-ownership of the property, the deductions should be apportioned in the ratio of the respective funding done by your father and you towards the property or loan, within the specified limits. It may also be noted that both the deductions, can be claimed only post the construction is completed and possession of the property is received.

In case you are opting for the new taxation, the deductions under Sections 80C and Section 24 for interest on loan taken for self-occupied property will not be available.

Further, for getting yourself added as a co-owner to the property now, you should seek a legal opinion on the appropriate documentation, stamp duty implications and any other implications.

On your second query, considering that the individual is based in the UAE, we have assumed that he or she shall qualify as a non-resident Indian (NRI), under the Indian tax laws. Further, it is also assumed that the annuity received is under a private insurance policy.

An NRI can make an application with the jurisdictional assessing officer in Form 13 for obtaining a lower or nil deduction certificate (LDC). Post the same, the jurisdictional assessing officer may request for additional documents or information as per his or her discretion to determine his estimated Indian tax liability for the relevant tax year. Based on the submissions, if found appropriate, the jurisdictional assessing officer may issue (at their discretion) a LDC, specifying the rate at which the deductor should withhold taxes. The individual would then be required to share the LDC with the respective insurer and based on the said document, the insurer would withhold the taxes at the rate mentioned in the LDC.

On your third query, the set-off of losses on sale of shares (stock) will depend on the nature of the capital asset (Indian stock or foreign stock) and also the nature of capital losses (short term or long term) incurred from sale of the stock.

Capital losses are deductible only against capital gains during the year, as per the rules prescribed in this regard. Also, any unadjusted capital losses can be carried forward up to eight succeeding financial years for set off only against future capital gains, as per the rules prescribed.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

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