What includes the term Borrowed Capital for the section 24..? If overdraft is taken for construction of house, will the interest on such overdraft will be allowed u/s 24?
Gauav Aggarwal (ACA) (374 Points)
23 December 2009What includes the term Borrowed Capital for the section 24..? If overdraft is taken for construction of house, will the interest on such overdraft will be allowed u/s 24?
Vaishali Bopardikar
(CA final passed)
(109 Points)
Replied 23 December 2009
i think it only includes housing loan not overdraft...
CA Dhiraj Ramchandani
(CA, M. com)
(10823 Points)
Replied 23 December 2009
Hi, the language of section 24 (b) says borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property.....
As such, it does not specify any capital... But only HOUSING LOAN is allowed.. Coz, overdraft, i consider needs some mortgage.. So won't b allowed
Vaishali Bopardikar
(CA final passed)
(109 Points)
Replied 23 December 2009
but that overdraft limit should not be used for any other pupose otherwise it will be disallowed
C.Balaji
(Learner)
(1867 Points)
Replied 01 January 2010
friends....any amount borrowed for the purpose of Purchase,Construction, repair, renovation or reconstruction of HP - interest is allowed.... so i think if O/D is taken for above mentioned purposes Interest on O/D is allowable...
Amir
(Learner)
(4016 Points)
Replied 01 January 2010
Hi Dhiraj,
I would like to mention that FOR CLAIMING DEDUCTION U/S 24 "ANY KIND OF LOAN (AND NOT ONLY HOUSING LOAN) IS ELIGIBLE INCLUDING A LOAN TAKEN FROM FREINDS, RELATIVES, ETC AND NOT NECESSARY FROM A BANK/ FINANCIAL INSTITUTION"
BUT IT IS ADVISABLE TO TAKE A LOAN FROM A BANK / FINANCIAL INSTITUTION SO THAT THE REPAYMENT OF PRINCIPAL CAN ALSO BE CLAIMED AS DEDUCTION U/S 80 C SINCE THERE IS A SPECIFIC REQUIREMENT OF REPAYMENT TO BANK / FINANCIAL INSTITUTIONS ONLY..
As far as query of Mr. Gaurav is concerned,
NO BANK WILL GIVE AN OVERDRAFT FOR CONSTRUCTION OF A HOUSE..
HOWEVER AN ASSESSEE CAN UTILIZE THE OD FOR CONSTRUCTION OF A HOUSE, AS PER MY UNDERSTANDING :-
IT WOULD BE DIFFICULT TO QUANTIFY HOW MUCH PRINCIPAL U HAVE BORROWED & REPAID & THE QUANTUM OF INTEREST PAID BECAUSE OF PRACTICAL DIFFICULITIES:-
1) SINCE OVERDRAFT UNLIKE A HOUSING LOAN KEEPS FLUCTUATING EVERY MONTH
2) AMOUNT OF INTEREST IS CREDITED TO THE OD ACCOUNT AND NEXT MONTH INTEREST IS CHARGED ON THE MAXIMUM AMOUNT OUTSTANDING (INCLUDING INTEREST) THIS MEANS THAT IN CASE OF AN OD THERE IS INTERST ON INTEREST AND INTEREST ON INTEREST IS DISSALLOWED U/S 24...
SO BROTHER, IN SUCH A CASE IT WOULD BE DIFFICULT TO CONVINCE THE DEPARTMENT...
Gauav Aggarwal
(ACA)
(374 Points)
Replied 01 January 2010
Amir, i fully agree with you over this o/d point.. its difficult to calculate. In the act there is written bowwowing cost only.. so any loan can be considered..... i guess
Amir
(Learner)
(4016 Points)
Replied 01 January 2010
YA BROTHER, U/S 24 ANY KIND OF BORROWING WILL QUALIFY FOR DEDUCTON BUT ULTIMATELY U HAVE TO BE SPECIFIC IN RESPECT OF THE AMOUNT OF DEDUCTION WHICH I M AFRAID NOT POSSIBLE IN CASE OF AN OD...(BECAUSE U CANNOT CLAIM DEDUCTION ON ESTIMATION BASIS)
komal
(ca student)
(39 Points)
Replied 01 January 2010
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.
Amir
(Learner)
(4016 Points)
Replied 01 January 2010
Dear Komal,
With the introduction of new ITR Forms, the department is NOT ACCEPTING ANY KIND OF ENCLOSURES WITH THE RETURN, NOT EVEN COMPUTATION OF TOTAL INCOME..IN LIGHT OF THIS FACT THE ABOVE PROVISO DO NOT HAVE MUCH RELEVANCE..
NEVERTHELESS AO CAN ASK FOR THE CERTIFICATE DURING ASSESSMENTS OR U/S 142(1)(ii)
shailendra
(C.A. FINAL)
(189 Points)
Replied 01 January 2010
Dear gaurav,
Actually overdraft loan is given by the bank for any purpose. Basically if we use the overdraft for construction of house property it will be difficult to prove to the A.O. that the overdraft has been used for the said purpose. If it is possible to prove it then, overdraft loan can also be considered as borrowed capital.
Act has not specified any specific type of loan for the construction of house property.
So, in short, If it is possible to prove it then overdraft can also be considered.
Vaishali Bopardikar
(CA final passed)
(109 Points)
Replied 01 January 2010
yes i agree with u Amir
1st it is difficult 2 calculate interest part...
2nd we cannot claim deduction u/s 80C for principle part...
C.Balaji
(Learner)
(1867 Points)
Replied 02 January 2010
Totally agree with Mr.Shailendra....... the assessee has to prove that the O/D is taken and utilised for construction/purchase/any other purpose as specified in the Act....
But it's always good to go for loan than O/D.....
GSTR 9 and 9C for FY 23-24 as amended by Notification 12/2024 dated 10th July 2024(with recording)
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