PERSONAL FINANCE

TAXATION
A Minor Problem

Cashing in on the benefits of Section 80-L is easy.

By Anil J. Sathe

As the financial year ends, you start worrying about savings and investments. Especially about those that will save you income-tax.

Since there are several kinds of such investments, and several provisions of the Income Tax Act, 1961, that stipulate the quantity of the savings that will come to you from them, I thought I would focus on Section 80-L of the Act, which "grants in respect of income from specified investments a deduction from the gross total income subject to certain limits."

Available to any assessee, individual or Hindu Undivided Family, such a tax-rebate is applicable on your Gross Total Income [Section 80-A(2)] "to the extent of the specified income included in its computation [Section 80-AB]."

To wit, if...

• Salary (After Standard Deduction) = Rs 6,000
• Net Income From Other Sources = Rs 2,000
• 1. Mutual Fund Units Income (Rs 5,000) + Bank Interest Income (Rs 7,000) Ä Interest Paid (Rs 2,000)] = Rs 10,000
• 2. Income From Renting Out Machinery (Rs 17,000) Ä Depreciation (Rs 25,000) = Ä Rs 8,000
• Gross Total Income (Rs 6,000 + Rs 2,000) = Rs 8,000

Then, the deduction is limited to the lower of your Gross Total Income (Rs 8,000) or your Specified Net Income (Rs 10,000). That your Net Income From Other Sources is Rs 2,000 will then not matter.

Although the annual limit on the tax-deduction that you can claim is Rs 12,000--plus an additional Rs 3,000 in two cases--if the income accrues from an asset that is held on behalf of a firm, the deduction cannot be claimed by an individual.

What are the types of income that qualify for this rebate in assessment year 1998-99?

• Your interest income from the securities of the central and state governments.
• Your income from the units of the Unit Trust of India and other specified mutual funds.
• Your interest income from schemes notified by the central government.
• Your interest income from the banks, including the co-operative banks.
• Your interest income on deposits with a financial corporation, industrial development authority, or housing finance authority.
• Your interest and dividend income from a co-operative society of which you are a member.
• Your interest income on deposits made under the Post Office (Monthly Income Account) Rules, 1987.

In this context, one minor controversy that, often, arises is with regard to the income of a minor that is clubbed with that of the parents.

From 1993-94, all the income of a minor--subject to certain exceptions--must be included in the hands of the parent whose income is greater. So, the only debatable issue is whether this should be done after, or before, availing of the deductions under Section 80-L.

According to my understanding of the law:

• The term "income" must be interpreted by us as the income of the assessee under each head of income. This is what the Supreme Court ruled in the case of J.H. Gotla (Volume 156, Income Tax Reports, page 323). So, the clubbing of income has to be under a particular head--not after the computation of the minor's total income.
• Similarly, the Section 80-L deductions are available to an "assessee." Technically, since a minor has no tax-liability, and is not an assessee, she is not eligible to claim the deduction at the threshold.

Let me illustrate my point with a small example. Assume that, for the assessment year 1998-99, you have generated an income from your investments in mutual funds and bank deposits to the tune of Rs 17,000.

Axiomatically, the deductions available to you under Section 80-L of the Act have, therefore, been exhausted.

Let us then assume that your minor son has generated an income of Rs 8,000 by way of bank interest income.

Should this amount be clubbed with yours? Yes, under the head of bank interest income.

However, the tax-rebate available to you will remain the same Rs 12,000, with no additional deduction possible because of this clubbing.

That's Section 80-L for you.

In arrangement with the Bombay Chartered Accountants' Society

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