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Deduction u/s 24(ii) of I.T.Act as to Interest on Borrowings

CA Sanjay Baheti (PROPRIETOR) (1155 Points)

18 June 2010

My Client being an Individual has acquired a house Property meant for exclusively self occupied purposes.

For this Purposes He has taken interest bearing unsecured loans from near & dear relatives. Now query is whether he can claim interest on such borrowings/Loans from relatives under section 24(ii) of I.T.Act or not to the extent of Maximum ceiling of Rs.150000/- on presuming that he has acquired such property after 01.04.1999.

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20 Replies

Arpit Sharma (CA Final & CWA Final Student) (231 Points)
Replied 18 June 2010

Dear Friend

Here is the reply to your query

24.Deductions from income from house property.

Income chargeable under the head "Income from house property" shall be computed after making the following deductions, namely:-

(a) a sum equal to thirty per cent. of the annual value;

(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23; the amount of deduction shall not exceed thirty thousand rupees:

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees

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.

The following third proviso and Explanation shall be inserted after the second proviso to section 24 by the Finance Act, 2002, w.e.f. 1-4-2003:

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed , specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation.-For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to capital borrowed, for the purpose of repayment of such capital.

I think you can claim deduction U/s 24 Provided you take a certificate of interest from the person to whom you had paid intrest

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mehul kishnani (student) (264 Points)
Replied 18 June 2010

totally agree with arpit. Even interest paid for loan taken from wife is also allowed as deduction provided it is genuin. u can see the decision of

prem chadha vs ITO 92 TTJ 69 (Del 'I')

Ankit (C.A.-Student) (680 Points)
Replied 18 June 2010

hello Everyone

my query is if property is purchased in name of X & loan raised & repayment from bank is made by A & B(relative of X) jointly.

Can A & B will be eligible for claiming deduction u/s 24

Thanks

Arpit Sharma (CA Final & CWA Final Student) (231 Points)
Replied 18 June 2010

Dear Ankit

Here is the answer of your query

In my views, since the interest is deducted for the annual value taxable in the hand of owner of the house property , A & B are not eligible to claim deduction U/s 24.

Interest of any loan taken on the name of X will be eligible for deduction under the aforesaid section of the income tax Act 1961

Thanks & Regards

Arpit Sharma

DT Fundas - Tarun rustagi ( Author) (1150 Points)
Replied 19 June 2010

dear arpit i have a small query whether the interest on borrowed capital for self occupide property is deductible in 5 years as shown by your above explanation or we can claim it in 1 time.

thanks & regards

tarun rustagi

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Arpit Sharma (CA Final & CWA Final Student) (231 Points)
Replied 19 June 2010

Dear Friend Tarun

In my Views

The interest on borrowed capital can not be allowed as deduction in single shot, it is ONLY deductible in 5 equal installments.

Thanks & Regards

Arpit Sharma

1 Like

RAJU (LEARNER) (1089 Points)
Replied 19 June 2010

The requirement relating to claiming the interest in 5 instalments is applicable only in respect of interest paid previous to the year in which the property was occupied.

Arpit Sharma (CA Final & CWA Final Student) (231 Points)
Replied 19 June 2010

Yes, Totally agree with Dharmaraju

Arpit Sharma

Rishab (A.C.A.) (155 Points)
Replied 19 June 2010

Dear Arpit, Is Stamp Duty paid on under construction Flat eligible under 80C?

Arpit Sharma (CA Final & CWA Final Student) (231 Points)
Replied 19 June 2010

Dear Friend Rishab

Here is the answer to your Query

As per Section 80 C:

Any payment by an individual or HUF for purchase or construction of a residential house property, the income from which is chargeable to tax under the head "Income from House Property" shall be allowed as deduction. such payment may be toward :

* Stamp duty, registration fees and other expenses for the purpose of transfer of such house property to the assessee

So in my views Stamp Duty paid on under construction Flat is eligible deduction under section 80C

Thanks & Regards

Arpit Sharma

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Rishab (A.C.A.) (155 Points)
Replied 21 June 2010

But Arpit i have not got possission of the flat in that FY (when the S.D and Reg. Charges are paid) will it still be eligible for deduction under section 80C.

Rishab (A.C.A.) (155 Points)
Replied 23 June 2010

Hello Can anyone answer Please?

Amir (Learner) (4016 Points)
Replied 23 June 2010

Hi Risab,

Stamp duty though eligible for deduction u/s 80C but cannot be claimed if paid in the year in which construction has not completed.

Rishab (A.C.A.) (155 Points)
Replied 25 June 2010

Thanks Amirbhai for your prompt reply, I have been through your other posts as well, your answers are quiet precise, I really appreciate that!!!

But I am confused because: Section 80C doesn’t explicitly bar the rebate on account of “Principal repayment and Stamp Duty & Reg. Charges” when the property is under construction. However, a look at the law suggests that tax rebate on principal repayment and Stamp Duty & Reg. Charges may not be allowed when the property is under construction.

Firstly Section 80C states that:

any payment made by an individual or HUF for the purposes of purchase or construction of a residential house property

Secondly it says that:

the income from which is chargeable to tax under the head “Income from house property” (or which would, if it had not been used for the assessee’s own residence, have been chargeable to tax under that head), where such payments are made towards or by way of—. . . . . . . .

(1) So it is clear that Section 80C allows deductions on payments towards (supra) under construction properties

(2) Secondly a close look at clause (xviii) (supra) suggests that for the payment (supra) 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 an contrary interpretation concludes that the (supra) payments will not be eligible for any deductions.

I had arguments on this subject with my other friends, who are practicing in Taxation, some says that:

Look at the former part and claim deduction and leave the interpretation of the later part upon the A.O(on query) solely. Firstly the said section doesn’t explicitly bar the rebate on account of (supra) when the property is under construction. Secondly nowhere in the said section it has been stated that provided you should get possession of the said property on or before 31^st March or the construction should be completed on or before 31^st March. Further tax experts know that the intention of the legislators was to provide deductions for (supra) without any proviso, but due to drafting error, this became a loop hole favoring the taxman. (I know that once an act in enacted the intentions have no meaning and the words are to be construed in strict sense) Thus the said deduction can be claimed and to be left alone on the A.O for contrary interpretations. Also they say that most of the practitioners, company filing returns of their employees and other return filers don’t pay attention to the later part and file their returns accordingly claiming the deductions.

while others says that it would not be appropriate to claim the said deduction in view of the interpretation of the later part of the said section.

I want to know through suggestions as to what would be appropriate?

To claim or not to claim?

“Can anyone suggest any case laws (High court of tribunal) which have interpreted the said section?”

Thanks! I expect some answer please.