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Ask us: on investments

September 18, 2022 11:17 pm | Updated 11:17 pm IST

Investing in any bond is a matter of getting the timing right in the interest-rate cycle. The interest rate, or coupon rate, is not the right indicator when you buy bonds in the secondary market.

Investing in any bond is a matter of getting the timing right in the interest-rate cycle. The interest rate, or coupon rate, is not the right indicator when you buy bonds in the secondary market. | Photo Credit: Getty Images/iStockphoto

Q. How can I invest in tax-free infrastructure bonds, especially municipal bonds? What are the benefits? Is it a good investment option? What all should one consider before investing in them?

Jayashree (name changed on request)

Vidya Bala: These bonds are typically bought in the secondary market or through dealers. You need to remember that investing in any bond is a matter of getting the timing right in the interest-rate cycle. The interest rate, or coupon rate, is not the right indicator when you buy bonds in the secondary market.

You need to know the yield (the returns from the bond on the price at which you buy). For this, you need to know whether you are buying at an attractive yield. When market rates go up, yields also go up, causing a price correction in the bond and thus providing entry points for buy-and-hold investors.

For those trading in it, one needs to time it at peak yields so that a rate fall will cause the price of the bond to rally. If you are looking for income options, it is easier for you to look at government securities and State development loans through auctions held in the RBI Retail Direct portal.

Q. While calculating 80G deduction, can I ignore PPF interest?

T.K. Kannan

N. Sree Kanth: It is provided in Section 80G of the Income Tax Act, 1961, that the gross total income is to be reduced by any portion thereof on which income tax is not payable under any provisions of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of Chapter VI A.

Hence, for the purposes of computation of gross total income under Section 80G of the Income Tax Act, 1961, PPF interest which is exempt in nature, is to be excluded.

Q. Please give the details of treating income from house property while filing I-T returns. Please also include the details of some latest changes on having two houses in terms of tax.

Ravichandran

A. Income from House Property is broadly divided into Self-Occupied house property, Let Out house property and Deemed to be Let Out house property.

Self-Occupied house property is residential property occupied by the assessee as their residence. Let Out house property is a residential or commercial property let out for tenancy by the assessee and deriving rent from the letting out of such property. A house property will be treated as a deemed to be let out house property if an assessee has more than two residential properties whereby neither is rented out. Previously an assessee can claim only one property as self-occupied.

Gross Annual Value (GAV) is to be determined for house property while determining your taxable income. In case of Self-Occupied property it is considered to be NIL. For Let Out property, the GAV will be the higher of rent actually received from such property or a sum which the property might reasonably be expected to receive as rent.

However owing to vacancy (full year or part year), if rent so received is lower than the rent expected to be received, then actual rent received will be considered, which can also be NIL if it is vacant for the full year. In case of Deemed to be Let Out house property, the amount expected to be received will be the GAV.

GAV can be reduced by the property and municipal taxes paid in that assessment year. GAV minus property and municipal taxes paid is Net Annual Value (NAV). A standard deduction of 30% of the NAV is allowed irrespective of the amount incurred for repairs and maintenance.

However these deductions can be claimed only for Let Out and Deemed to be Let Out house properties only.

Interest paid on housing loan can be deducted for both Self-Occupied, Let Out and Deemed to be Let Out house properties. It is to be noted that interest on housing loan can be claimed only for completed house properties only. Pre-construction interest can be claimed once the house property is completed and be claimed in 5 equal instalments each assessment year.

In case of Self-Occupied house properties, deduction in respect of interest paid on housing loan will lead to a negative income which can be adjusted against other heads of income.

Whereas the same may or may not occur in Let Out house properties depending on the rent received. In either cases, the loss shall be restricted to ₹2,00,000 under this head of income.

(Vidya Bala is Co-founder, Primeinvestor.in and N. Sree Kanth is Partner, GSS and Associates, Chartered Accountants,Chennai)

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