Originally posted by : tarun rustagi
	dear sudhanshu sec.80 C deduction is allowed in case of principal amount repayment for residential house property.and residential means it is in the condition where one can leave.it is not written clearly in the section but the word used is residential.

 Dear Tarun,

I am mentioning few points which are related to the deduction u/s 80C for payment of principal amount which should be considered before taking any decision. If you find any other point or irrelevant point then let me know about it. These points are following:

1- Deduction u/s 80C is allowed on payment basis so when you pay the principal amount you should get deduction.

2- There is no concept of Prior period principal u/s 80C like it is there u/s 24(b). So if suppose i agree with you then no body will make any payment before the completion of construction because he will not be able to take the deduction for the principal amount. If it happens then it will create problems for Financial Institutions.

3- The language used in clause xviii is also general and clear in relation to our query.                          

So the crux is that if you pay any amount for principal amount then it shall be allowed as deduction u/s 80C irrespective of the fact whether construction is completed or not. 

dear shudhanshu

yes u are right but i am still waiting for some expert advice on this.yes it is clearly written in 80C as i earlier submitted but i am confused in regard the word used residential for this.

sec 80 C states that deduction is allowed for any principal payment towrds the cost of purchase or construction of residential property but what if the person is not using that property for residential purpose after it get constructed.

(xviii)  for the purposes of purchase or construction of a residential house property 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—

      (a)  any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or

      (b)  any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or

      (c)  repayment of the amount borrowed by the assessee from—

      (1)  the Central Government or any State Government, or

      (2)  any bank, including a co-operative bank, or

      (3)  the Life Insurance Corporation, or

      (4)  the National Housing Bank, or

      (5)  any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under clause (viii) of sub-section (1) of section 36, or

      (6)  any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or

      (7)  the assessee’s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or

      (8)  the assessee’s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society; or

      (d)  stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee,

                but shall not include any payment towards or by way of—

     (A)  the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member; or

     (B)  the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or

     (C)  any expenditure in respect of which deduction is allowable under the provisions of section 24;

This is extract of Section 80C which is related to principal amount for house property. If you read highlitated part carefully then there should be no confusion in this regard.

Deduction will be allowed only on payment basis subject to a maximum of Rs.100000, moreover both the loan and house property should be in the name of assessee, it the house property is name of his family members then the loan is name of assessee, deduction cannot be claimed.

Dear Tarun,

You Get deduction u/s 80C on payment basis (not accrual basis)

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 the said section doesn’t explicitly bar the rebate on account of principle payment when the property is under construction. Nowhere in the said section there is a provisio or 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.

Of course after the completion of construction, the property i.e. residential in nature, will be used for residential purpose alone. (either it will be Self Occupied or let-out)

In you doubt that the property in question suppose is not a residential property then How did the person get a Housing loan - I think it is almost impossible to get loan for commercial properties - under Housing  category.

Now your doubt if the user after completion of the construction use it for business, then what in future he will not get the said deduction u/s 80C (but this will not affect what has transpired in past) as in later years the property will be his Stock-in-Trade & after applying the conversion provisions of IT, he can claim depreciation on the property (instead of 80C)  (here there is no limitation like upto 1,00,000), it will then be a very fruitful and tax saving proposition.

And suppose if he lets it out for commercial purpose then as per I.T provisions the rent will be accounted under source: House property - so again claim - 80C.

So What’s the problem to claim the actually paid principle amounts under Section 80C, when the residential property is under construction?