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Deduction u/s 80L is different from rebate u/s 88

QUESTION: Under Sec. 80L interest on deposits with a financial corporation which is engaged in providing long term finance for industrial development in India is exempt up to Rs. 12,000. IDBI/ICICI have been issuing tax saving infrastructure bonds investment in these is eligible for rebate under Sec. 88. My tax adviser is of the view that the above mentioned bonds are not covered under deposits and therefore not eligible for exemption under Sec. 80L. However I feel that investments in such bonds of IDBI/ICICI, which are long term lending financial corporation, should be covered under 'deposit' and therefore eligible for exemption under Sec. 80L.

Could Tax Forum clarify the correct position in this regard.

ANSWER: Sec. 80L lists items of investments, the interest from which is deductible up to Rs. 12,000 with an extra berth of Rs. 3,000 for interest from Government securities for the income of current financial year 2002-03. Sec. 88 does not deal with income but with investment in items specified for tax rebate at 30 per cent, 20 per cent, 15 per cent and nil rebate depending on the extent of income of the different classes of investors from assessment year 2003-04, that is, the investment which is now being made in the financial year 2002-03. Merely because an investment under Sec. 88 qualifies as tax-rebated investment, the income from such investment need not qualify for deduction under Sec. 80L.

Incomes, which are deductible subject to ceiling under Sec. 80L, are those from Government securities, notified saving certificates, dividend and income (not capital gains) from UTI and recognised mutual funds, income from notified debentures or certificates. Investment in these do not merit rebate under Sec. 88.

Investment in NSC VIII, qualifies for tax rebate under Sec. 88 and the income therefrom is also eligible deduction as from notified certificate under Sec. 80L.

Provident Fund contribution itself is eligible for rebate under Sec. 88, while income therefrom is totally exempt under Sec. 10(11) without limit.

Income from deposits in a financial corporation providing for long-term finance for industrial development in India and an Indian public company providing long-term finance for residential housing qualify for deduction under Sec. 80L, if they also qualify for conditions under Sec. 36(1)(viii). Interest on deposit with any authority for housing or town planning will be deductible under Sec. 80L without requirement of satisfaction under Sec. 36(1)(viii) of the Act.

But only deposits with public companies providing long-term finance for residential housing and authority for meeting the need for housing accommodation and town planning and deposits in the notified schemes of National Housing Board qualify for tax rebate. It may, therefore be seen, some deposits qualify for rebate, while the interest therefor is also deductible. In most cases, there is benefit in the one and not the other.

Care may be taken to correctly understand the investments as to whether they qualify for tax rebate and the extent of tax rebate to which the taxpayer will be entitled under the revised laws from assessment year 2003-04, which differentiates between different classes of taxpayers.

Since all the investments which qualify for tax rebate do not qualify for deduction under Sec. 80L and vice versa, even as advised by the reader's auditor, any tax advantage has to be measured with reference to both.

Normally the issue documents or brochures issued by responsible institutions spell out the tax concessions available and these can be relied upon, but more may not be read into them than what the plain language warrants.

S. Rajaratnam

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