Celebrate Freedom and save 20% OFF on CAclubindia Pro Subscription! Use code: FREEDOM20

Construction company property

A Rengarajan (Company Secretary) (36 Points)

18 February 2010

A company wants to develop its property and avail bank borrowing for construction. My question is that interest during construciton period will be captalised. Interest after construciton period will be set off against rental income alongwith municipal taxes as mentiond section 22, and 23 of Income tax act 1956. What will be sceanrio if the company constructs the property after April 2011 where the new direct tax code comes into effect. There instead of 30% deduction 20% deduction will be allowed. To sum up

1) Wheteher interest during construction period will be set off or captialised?

2) What will be effect of the property under New Direct tax code

Thanks in advance

CS A Rengarajan

Reply
Follow
Share

4 Replies

Amir (Learner) (4016 Points)
Replied 18 February 2010

Dear rengarajan Sir,

I think u have mixed two thinks -

If Buliding will be given on Rent, I mean it will be assed as House Property then Interest of Preconstruction period will be allowed in 5 equal annual installments begining with the year in which construction gets completed....

However If Building is constructed for using it in Business like office, etc then Interest of preconstruction period will be capitalized & claimed in the form of Depreciation............

As far as New Direct Tax code is concerned it is not certain that it will come in to effect from 01.04.2010,

Anyways if it is made mandatory (or in the present act amendment is made to reduce the deduction to 20% from 30%) then deducton will be allowed @ 20% simple, nothing is requied to be done in this case, I mean no separate/additional treatment is required becos of change in the rate of deduction........

Upgrade to CAclubindia Pro. Subscribe Now!

C.Balaji (Learner) (1867 Points)
Replied 19 February 2010

Dear rengarajan Sir....

Mr.Amir is once again rite.....

If Buliding is treated as House Property then Interest of Preconstruction period will be allowed in 5 equal annual installments begining with the year in which construction gets completed......

If Building is used for business purpose then Interest of preconstruction period will be capitalized & depreciation will be claimed...

I don't know about the DTC that much.....

As Mr.Amir said.... if it is 20% and not 30% claim 20% ....

A Rengarajan (Company Secretary) (36 Points)
Replied 19 February 2010

Thanks both of you. Now it is clear if the company for its own use only it can capitalise otherwise it will be set off in 5 equal instalments.

Coming to DTC, the construction will take place in another 2 years, then that time we will be able to adjust 20% while calucalating income from house property.

once again thanks for both of you

Best Regards