The hardest thing to understand in the world is income tax. -- Albert Einstein

Such a gloomy view on the subject of taxation obviously didn't develop overnight for the story of taxes and the civilised man go back a long way. Taxes were levied when Pharaohs ruled Egypt 5,000 years ago. In India, a treatise on taxation existed 2,300 years ago in the form of Chanakya's Arthashastra. It emphasised on fairness and equity, recommending that the affluent pay higher taxes as compared to the not so fortunate.

So if you are confused about taxation, here's help from Outlook Money.

What tax benefits can I claim on interest and principal payments for two loans I have taken to buy two houses?
-- kol2006

On one house, you would be entitled to a deduction on account of the interest payable for the year up to Rs 1.5 lakh and the principal repayment qualifies for deduction under Section 80C up to Rs 1 lakh. The other house will be "deemed to have been let out."

Consequently, it would be chargeable to the notional rental income that the property would fetch if it is let out. This would be taxable in your hands even if the property has not been actually let out. There is no cap on the interest on the home loan that you claim as deduction on the second house. However, no tax benefit is available on the principal repayment on the second house.

I am not living in my house in Ghaziabad as I was transferred to Chennai recently. I don't plan to rent out my house. What tax exemption can I avail? I got possession of the house in September 2006. Will I get tax benefits on pro-rata basis?
-- K.G. Piush, email

Even if you are not staying in your own house in Ghaziabad because you are working in another city and are not deriving any other benefit from the house, the house will be treated as self-occupied and you would be entitled to all the tax benefits applicable on the same.

If you got possession of the house in a particular year, then all the interest and principal payment for that year will be allowed as deduction from your total income for the year. Pro-rata basis of allowance of tax benefit does not apply here.

I am a physically handicapped. Am I entitled to tax concessions?
-- Kuldeep, email

You can claim deduction under section 80U of the Income Tax Act to the extent of Rs 50,000 (Rs 75,000 if the disability is severe) from your annual income, depending on the nature of the disability.

I want to construct a home on land registered in my father's name. Will I be able to get a home loan for it and avail income tax rebate on it? If not, can I make my father a co-owner to get the benefits?
-- N. Raja, email

You can get a home loan if you are a co-applicant for it. However, whether you can claim income tax benefits will depend on who the owner of the house is. If you are the owner/co-owner of the house, then you will be able to avail tax benefit on the home loan. Not otherwise.

Will I get tax benefit on principal and interest payments if I take a bank loan to buy land?
-- Savitha Janani, email

You won't get any benefit on the loan if the land is a stand-alone property. You will, however, be entitled to tax benefits if you construct a house on the land.

How will the returns from the HDFC Cash Management fund units I have be taxed?
-- pantald, email

HDFC Cash Management fund is a debt fund. As such, short-term capital gains from the sale of units will be added to your total income and you will have to pay tax at the marginal rate of taxation applicable to you.

Long-term capital gains will be taxed at 10 per cent without indexation and 20 per cent with indexation benefits. You will have to pay the applicable surcharge and education cess in both the cases.

I am a government employee and am interested in share trading. Can I open a demat account? Is there TDS on share profit? Would I have to show the profit earned by share trading in my IT return?
-- Vivek Shrivastava, email

Your office will tell you whether you can open a demat account and/or trade in shares. TDS provisions are not applicable to share trading profits. However, you'll have to pay securities transaction tax on the transactions.

The amount will be taxable in your hands if it is a short-term capital gain, that is, the gain is from shares/MF units held for less than 12 months. You will have to show the income in your return of income, even if the amount is not taxable in your hands.

I quit HLL two years back after working for it for three years. The company maintains its own PF body. Will withdrawals from PF be taxed? I also invested in VPF in the company PF. Will it also be taxed?
-- Neeti Korpal, email

The withdrawal will be taxed as your salary income at the maximum marginal rate of tax (30 per cent) because the withdrawal is before the completion of five years from the date of commencement of the PF. Even the voluntary contribution will be taxed in the same manner.

My recurring deposit in Bank of Baroda matures next year. The principal amount is Rs 60,000. Will the interest from this be taxed? Is there any tax payable on the principal?
-- Deepa, email

Yes, the interest would be taxable. However, since you did not claim any tax benefit on the principal while commencing the deposit, the principal amount would not be taxed in your hands on withdrawal.

As a resident Indian, I have invested in MF units, shares and Government of India bonds for the past three years. I plan to work abroad for three years. This will make me an NRI. How will the investments I have made in India be taxed? Will I need to open a separate trading/demat account as an NRI?
-- subrapt, email

Your income accruing and arising in India will be taxable in India, irrespective of your residential status. You will have to specify your residential status for the purpose of your demat account.

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