Income tax rebate on property under construction
Querist :
Anonymous
(Querist) 09 May 2011
This query is : Resolved
Dear sir/ madam
I have purchased a property in 2010 and is under construction the property is alloted to me but the possession is still to be done. I have borrowed loan from a bank to purchase the property now i am repaying it from my salary.
Please advise if i can claim the deduction under 80C for the said repayment of loan and what all components can be taken into computation
Your early revert on this will be highly appreciated.
Raj Kumar Makkad
(Expert) 10 May 2011
This query has already been replied in details.
R.Ramachandran
(Expert) 10 May 2011
Dear Anonymous,
You already posted this query in http://www.lawyersclubindia.com/experts/Income-tax-rebate-on-home-loan-187921.asp
The said query was repeatedly answered. BUT AGAIN WHY DO YOU POST THE SAME QUERY, THAT TOO IN A DIFFERENT THREAD? WHAT IS THE PURPOSE?
Querist :
Anonymous
(Querist) 10 May 2011
Sir i am not a lawyer but i came to know about this forum and found it very helpful i am new to this and i was not aware of where to post my query hence posted in two different threads
@ Mr. Ramchandran thanks for the help indeed regret inconvenience.
MUKESH SHARMA
(Expert) 15 May 2011
House Loan Interest & deduction under Section 24(b)
Money may be borrowed prior to the acquisition or construction of the property. In such a case, interest paid/
payable before the final completion of construction or acquisition of the property will be aggregated and allowed for five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilized for repairs, renewal or reconstruction.
Example:- The assessee took a loan of Rs. 3,00,000/- in April, 1999 from a Bank for construction of a house on a piece of land which he owns at Meerut. The loan carried interest @ 15% p.a. The construction is completed in April 2001 and the house is given on rent from May 2001. Meanwhile he has already incurred liability of interest of Rs. 90,000/- for F.Y. 1999-2000 and 2000-01. Because of the above provision, the assessee can claim a deduction in respect of this interest of Rs. 90,000/- (Over and above the yearly interest) in five equal instalments of Rs. 18,000/- each starting from the assessment year 2002-03.
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Pre EMI-Interest And Pre-Construction Period interest
Normally we read a term in our Bank loan statement " pre EMI interest" but remember the pre EMI interest term given in Loan Statement is not necessarily same meaning as pre construction period as per income tax act.
As per Income tax pre construction period means
Interest up to the end of Financial year ,immediate proceeding to the year in which house is completed.
suppose loan is taken on Jan ,2008 and House is completed on 31.01.2010, in that case pre -construction Interest is taken from Jan 2008 to March 2009.
In above example ,even if House is completed on 31.03.2010 then also the pre construction Interest is considered From Jan 2008 to march 2009.
As per Bank Pre -EMI interest means ,Interest Due up to the start of payment of First Instalment..So term used in Bank statement or loan certificate is not similar as defined in Income Tax Act.
In above example suppose bank has granted and disbursed the Loan in Jan 2008 but EMI started from Jan 2009.Then Interest from JAN,2008 to Jan 2009 is treated as PRE-EMI interest By the bank.
Instalments Of pre-Construction Interest as per Income Tax Act.
Suppose : Person has taken a Loan of 10,00,000 in July 2007 @ 10% and house is completed in Jan ,2010.
Year wise Interest is
FY 2007-08=60000(July to March)
FY 2008-09=80000
FY 2009-10 =70000
then define Pre construction period and how much amount will be allowed u/s 24(b) year wise
In above example ,pre construction period is July 2007 to March 2009 and pre construction period Interest is 140000(60000+80000) ,and deduction of the pre construction period is divided in 5 instalments of 28000 (140000/5).and deduction will be allowed from FY 2009-10.
so in FY 2009-10 interest allowed will be 70000+28000(ist instalment of pre construction period)=98000
and 28000 will also be allowed in 2010-11,2011-12,2012-13 and 2013-14 as pre construction period interest in addition to normal interest due in given years.
Interest On house Loan and Income tax
Interest on Pre-Construction period on house loan -calculation and deduction available in income tax.
Interest In case of Self occupied House-Limit 150000/30000
House Loan Repayment and Savings under section 80C
House Loan and HRA both benefit available.
House property income and House Loan
Relevant section reproduced hereunder
Explanation 01 to Section 24(b)of the Income Tax Act
Explanation.Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:]
80 C
A close look at clause (xviii) stated above suggests that for the principal repayment to be considered for tax rebate under Section 80C, there should be an income (or notional income) from the house property. When a property is under construction, there is no likelihood of income, and hence under Section 80C there is no provision for tax rebate on account of principal repayment. Only in the year in which the construction is completed can the principal repayment be considered for tax rebate. The same rule is applicable not only for principal repayment but also for stamp duty and registration charges.
