housing loan deduction
This query is : Resolved
12 November 2009
Friends please advise me in this query. X borrows money from his employer towards construction of house in FY 2000-01. As that amount was not sufficient, more funds were borrowed for further construction (extension) from another fin.co. in two phases i.e., in FY 2001-02 and 2003-04. The employer's a/cs deptt say that only the first amount borrowed is only allowed for deduction. Further amounts borrowed are not deductible. X feels that the I-T provisions allow upto Rs. 150,000 towards deduction p.a. irrspective of no. of loans obtained on the same house property for construction / extension. Kindly clarify. Regards. J V Krishna, Central Govt Serice, (CS-Finals Old Syll. Dec'09)
12 November 2009
Hi Venkata, u/s 24(b) if Income Tax Act,if the capital is borrowed on or after 1.4.1999 then the assessee is eligible for deduction of Rs. 1,50,000 in respect of interest on borrowed capital (of current year and pre-construction period) if the following three conditions are satisfied :
1. capital is borrowed on or after 1.4.1999
2. the acquisition or construction is completed within 3 years from the end of the financial year in which the capital is borrowed.
3. the person extending the loan clarifies that such interest is payable in respect of the amount advanced for acquisition or construction of house or as re-finance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.
in your query, the 1st loan was taken during financial year 2000-01. for that loan the construction (original) must complete upto 31.3.2004. the date of commencement of construction is not stipulated. since you wrote the word EXTENTION, i assume that the original construction was completed and further onstruction was financed by further loans. hence assessee will be eligible for higher deduction of Rs. 1,50,000. If he does not fulfill any of the above three conditions then the amount of deduction will become Rs. 30,000, further there is no limit on no. of loans to be obtained.Further you can claim deduction on principal repaid u/s 80C Thanks and regards,
CA Shakuntala Chhangani
1. capital is borrowed on or after 1.4.1999
2. the acquisition or construction is completed within 3 years from the end of the financial year in which the capital is borrowed.
3. the person extending the loan clarifies that such interest is payable in respect of the amount advanced for acquisition or construction of house or as re-finance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.
in your query, the 1st loan was taken during financial year 2000-01. for that loan the construction (original) must complete upto 31.3.2004. the date of commencement of construction is not stipulated. since you wrote the word EXTENTION, i assume that the original construction was completed and further onstruction was financed by further loans. hence assessee will be eligible for higher deduction of Rs. 1,50,000. If he does not fulfill any of the above three conditions then the amount of deduction will become Rs. 30,000, further there is no limit on no. of loans to be obtained.Further you can claim deduction on principal repaid u/s 80C Thanks and regards,
CA Shakuntala Chhangani
13 November 2009
Madam, thanks. The first loan was issued in 2000-01 and the house was completed upto ground flr only. As X wanted to construct Ist floor and 2nd flr by extension, two separate loans were obtained from another lender (first loan was granted by the employer). The 2nd loan was 2002-03 and 3rd was 2003-04 fy. Now, the employer says he allows ded. only for ground floor only further repayments being made on extension will not be allowed. However, all the three loans repayment amount falls Rs. 60k, 84k and 48k respectively p.a.including principal+int. As the employer allows only 60k as ded., what is the recourse for X to avail the remaining benefit of Rs 90k p.a. Thanks and await for kind guidance.
19 November 2009
Employer is not the income tax department. Mr. X can file his return with d dept. claiming all the deduction. the only thing the employer can do is that he will deduct more TDS.
19 November 2009
Your clarification is the same as that of my view for the solution. Thanking you and regards.
22 November 2009
best regards
11 January 2010
Resp.Madam,the followg. two qns. were asked as a part of Dir.Tax paper in CS final-Dec'09: 1) TDS was not effected which has to be but the payee says he paid the tax on behalf of the assessee. Is it acceptable to the Deptt. 2) The Deptt found that one of the share allotment appln.forms was by a fictitious person and the persons whereabouts untraced. How the income of share appln.money is to be treated? My answers respectively were:
a) TDS not effected by the assessee, which should have been. Even if the payee says he paid the tax, it is not acceptable. The assessee has to pay the TDS amount due alongwith interest as applies. The payee may claim refund on this later.
b) The share appln amount recd from unknown person will be treated as income of the co. u/s 60-64 of clubbing provisions. Kindly clarify if I have correctly replied to the above 2 queries. Thanking you, With regards..
a) TDS not effected by the assessee, which should have been. Even if the payee says he paid the tax, it is not acceptable. The assessee has to pay the TDS amount due alongwith interest as applies. The payee may claim refund on this later.
b) The share appln amount recd from unknown person will be treated as income of the co. u/s 60-64 of clubbing provisions. Kindly clarify if I have correctly replied to the above 2 queries. Thanking you, With regards..
28 July 2024
Your responses to the two queries are generally accurate, but let’s clarify them further:
### **1. TDS Not Deducted by Assessee**
**Your Response**: TDS not effected by the assessee, which should have been. Even if the payee says he paid the tax, it is not acceptable. The assessee has to pay the TDS amount due along with interest as applies. The payee may claim a refund on this later.
**Clarification**:
- **TDS Obligation**: As per the Income Tax Act, the responsibility to deduct and deposit TDS lies with the payer. However, if TDS is not deducted and deposited as required, the payer is liable for the default.
- **Responsibility of the Assessee**: If TDS was not deducted by the assessee, the income tax department holds the assessee responsible for paying the tax on that income along with interest and penalties as applicable. The assessees cannot pass on the TDS liability to the payee or claim a deduction based on the payee's assertion that they have paid the tax.
- **Payee's Claim**: The payee, in this case, can claim a refund of the TDS amount if they have paid the tax, but this is separate from the liability of the assessee.
### **2. Income from Share Application Money from Fictitious Person**
**Your Response**: The share application amount received from an unknown person will be treated as income of the company under sections 60-64 of clubbing provisions.
**Clarification**:
- **Section 60-64**: These sections deal with the clubbing of income where income is transferred to another person to avoid tax or for other specific reasons. Section 60 and Section 61 relate to the transfer of income without transfer of assets, while Section 64 deals with the inclusion of income in certain cases such as income from assets transferred to a spouse or minor child.
- **Share Application Money from Fictitious Persons**:
- **Income Treatment**: If the company receives share application money from fictitious persons, it is considered suspicious. The income from such sources may be treated as unexplained credits under Section 68 of the Income Tax Act.
- **Section 68**: This section deals with unexplained credits and requires the assessee (company) to provide satisfactory explanation regarding the source of such money. If the explanation is not satisfactory, the amount is added to the income of the company as unexplained income.
- **Section 60-64**: These provisions are more relevant for income shifting and clubbing rather than treating unexplained credits.
**Correct Approach**:
- **Treating Unexplained Credits**: The share application money from fictitious persons should be treated as unexplained credits under Section 68. The company should disclose this as unexplained income unless it can provide satisfactory evidence of the genuineness of the application money.
### **Summary**
1. **TDS Not Deducted**: The liability to deduct and deposit TDS lies with the payer. If not done, the assessee must pay the tax along with interest and penalties. The payee’s claim of having paid the tax does not absolve the assessee of their liability.
2. **Share Application Money from Fictitious Persons**: This should be treated as unexplained credits under Section 68 rather than income under Section 60-64. The company needs to explain the source of the money, and if not satisfactorily explained, it will be added to the company’s income.
Your understanding is largely correct, but the specific treatment of unexplained share application money falls more accurately under Section 68 than Section 60-64.
### **1. TDS Not Deducted by Assessee**
**Your Response**: TDS not effected by the assessee, which should have been. Even if the payee says he paid the tax, it is not acceptable. The assessee has to pay the TDS amount due along with interest as applies. The payee may claim a refund on this later.
**Clarification**:
- **TDS Obligation**: As per the Income Tax Act, the responsibility to deduct and deposit TDS lies with the payer. However, if TDS is not deducted and deposited as required, the payer is liable for the default.
- **Responsibility of the Assessee**: If TDS was not deducted by the assessee, the income tax department holds the assessee responsible for paying the tax on that income along with interest and penalties as applicable. The assessees cannot pass on the TDS liability to the payee or claim a deduction based on the payee's assertion that they have paid the tax.
- **Payee's Claim**: The payee, in this case, can claim a refund of the TDS amount if they have paid the tax, but this is separate from the liability of the assessee.
### **2. Income from Share Application Money from Fictitious Person**
**Your Response**: The share application amount received from an unknown person will be treated as income of the company under sections 60-64 of clubbing provisions.
**Clarification**:
- **Section 60-64**: These sections deal with the clubbing of income where income is transferred to another person to avoid tax or for other specific reasons. Section 60 and Section 61 relate to the transfer of income without transfer of assets, while Section 64 deals with the inclusion of income in certain cases such as income from assets transferred to a spouse or minor child.
- **Share Application Money from Fictitious Persons**:
- **Income Treatment**: If the company receives share application money from fictitious persons, it is considered suspicious. The income from such sources may be treated as unexplained credits under Section 68 of the Income Tax Act.
- **Section 68**: This section deals with unexplained credits and requires the assessee (company) to provide satisfactory explanation regarding the source of such money. If the explanation is not satisfactory, the amount is added to the income of the company as unexplained income.
- **Section 60-64**: These provisions are more relevant for income shifting and clubbing rather than treating unexplained credits.
**Correct Approach**:
- **Treating Unexplained Credits**: The share application money from fictitious persons should be treated as unexplained credits under Section 68. The company should disclose this as unexplained income unless it can provide satisfactory evidence of the genuineness of the application money.
### **Summary**
1. **TDS Not Deducted**: The liability to deduct and deposit TDS lies with the payer. If not done, the assessee must pay the tax along with interest and penalties. The payee’s claim of having paid the tax does not absolve the assessee of their liability.
2. **Share Application Money from Fictitious Persons**: This should be treated as unexplained credits under Section 68 rather than income under Section 60-64. The company needs to explain the source of the money, and if not satisfactorily explained, it will be added to the company’s income.
Your understanding is largely correct, but the specific treatment of unexplained share application money falls more accurately under Section 68 than Section 60-64.
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