"Is the amount received on maturity of UTI ULIP scheme taxable?"

Interest earned upto Rs 15,000 in a financial year will not be taxed, out of which Rs 3,000 is specifically allocated to interest on government securities, income from Unit Trust of India and mutual funds.

Schemes falling under this section are: National Savings Certificate VIII, post office time deposits, post office recurring deposits, post office monthly income scheme, National Savings Scheme 1992, Notified debentures of co-operative societies, institutions or public sector companies, government securities, deposits with a banking company, co-operative bank, co-operative society by members, approved financial institutions and housing boards.

I have found that income (ie dividend) from mutual funds is fully exempt from income tax in the hands of the investor under section 10. Is this anyway related to section 80L? Is there any limit on such exemption under section 10?

Also what do you mean by "income from UTI and mutual funds" for which Rs 3000 is specially allocated? Is it same as the dividend income.

— B Kumara Swamy

The additional deduction under section 80L of Rs 3000 is only for interest on any security of the central government or a state government and not for any other security. For this purpose security of central and state government are:

a) Security created and issued by the government for the purpose of raising a public loan and having one of the following forms: stock transferable by registration in the books of the bank; or promissory note payable to order; or bearer bond payable to bearer; or form prescribed in this behalf.

b) Any other security created and issued by the government in such form and for such of the purposes as may be prescribed.

Coming to the taxability of dividend income and interest from UTI and/or mutual funds, it has to be noted that with effect from financial year 1999-2000, the following income received in respect of units from UTI and income received in respect of units of a mutual fund specified under section 10 (23D) is exempt from tax under section 10(33).

So any income received in respect of units of UTI or any specified mutual funds is exempt from tax under section 10(33) and consequently such income is not included in the total income and no deduction under section 80L is available.

I would like to know whether the amount received on maturity of UTI ULIP scheme is taxable. If it is taxable, then what portion is taxable and under which head.

— Shekhar Kashinath Joshi

The amount received on maturity of UTI ULIP scheme is not taxable.

I am planning to take a house loan. I would like to know what deductions I can avail of.

1. Can I deduct the full amount paid (principal + interest) towards the home loan repayment from my income?

2. Can I avoid income tax by paying more to my house loan? Please let me know in detail about the deductions with an example of a Rs 500,000 per annum salary category.

— Ranganath R

You are eligible for certain relaxation with regard to repayment of loan and interest thereon. The relaxation on tax is based on the certificate issued by the bank or financial institution to whom the repayment is made and such certificate specifies the principal and interest portion of the total amount repaid during the year. Hence you may repay more if it is agreeable to the bank or financial institution and get higher benefits subject to the limits specified in the Income Tax Act.

Under Section 24(1)(vi) interest on borrowed capital for acquiring house property is deductible and in your case as the house property would be self-occupied property, the amount of deduction for the financial year 2000-01 onwards would be limited to Rs 100,000 every year. The basic condition for getting this benefit is that such a loan should be borrowed after April 1, 1999 and such residential house property is acquired or constructed before April 1, 2003.

The principal component of the loan repaid during the year is eligible for rebate under section 88 up to Rs 20,000 from April 1, 2000 every year. Thus the maximum amount of rebate on account of repayment of loan and other eligible amounts with regard to housing loan would be Rs 4,000 (ie Rs 20,000*20%).

1. A person employed in city A has own residence in that city. He resides in a rented house. The own house is let out and income derived from the let out property is declared as rental income received from house property. The person receives house rent allowance from his employer. Can the person claim exemption under section 10(13) for HRA received?

2. A person is employed by a company on contract basis. The company deducts tax at source at 2.2 per cent and issues a 16A form for TDS. Can the income be shown as salary income or should it be shown as income from profession for the services rendered by him?

— Lakshmi S Murthy

1. Exemption under section 10(13A) is denied when an employee lives in his own house or in a house for which he does not pay any rent. Whereas in this case, the person is actually residing in a rented house and therefore he can claim HRA exemption.

2. Form 16A is issued when payment is made to contractors/sub-contractors. Accordingly, the issue of this form indicates that there is no employer-employee relationship. The payment received by an individual from a person other than his employer cannot be termed as salary and consequently such a payment is not chargeable to tax under the head "Salaries" and is covered under the head "Profit & gains of business or profession" or under the head "Income from other sources".

I have a small doubt regarding income tax on housing loan interest. I have taken a housing loan from Bank of Baroda starting from May 2000. But, the house is still under construction. Also, I am currently staying in a rented accommodation for which I am enjoying tax exemption on HRA. My doubt is whether I am eligible for income tax exemption on housing loan interest this year, even though the house is still under construction.

— Unnikrishnan P G

Exemption under section 10(13A) is denied when an employee lives in his own house or in a house for which he does not pay any rent. In your case as you are actually staying in a rented accommodation, you would be eligible for HRA exemption subject to the provisions of section 10(13A).

According to section 24(1)(vi) interest payable by an assessee in respect of funds borrowed for construction of a house property and pertaining to the period of construction, can be deducted in five equal installments commencing in the year in which the house is constructed.

Thus for the current year you are not eligible for deduction of interest since your house is still under construction.

Let us take an example to illustrate the above:
Completion of construction — July 15, 2002 (Financial Year 2002-3)
Year in which the repayment of loan is complete — May 2010
Interest paid during the period of May 2000 to March 2002 — Rs 50,000
Deduction for interest paid during the pre-construction period — Rs 10,000 (Rs 50,000/5)
Period up to which this benefit is allowed — Financial year 2002-03 to 2006-07
Whether interest paid/payable during years 2002 to 2007 allowed as deduction — Yes but subject to the limits specified in the Income Tax Act (currently Rs 100,000 every year)

Money

Indian Tax Center

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