How to treat interest on borrowed loan for construction of house property which is for business profession? Its urgent..................................... Reply please.................
Sandeep Pandey (CA FINAL) (1306 Points)
23 October 2009How to treat interest on borrowed loan for construction of house property which is for business profession? Its urgent..................................... Reply please.................
CA Suri Kota
(Assistant Manager @ EY)
(955 Points)
Replied 23 October 2009
Even it is used for business purpose ...it is considered as self occupied house property ..and the loan interset upto 1.5 Lacs is allowed.........
Gaurav Raichura
(CA-Final Student)
(82 Points)
Replied 23 October 2009
From the question which you have asked, it is not clear whether the property is used for business or not. Answer under different situations will be as follows.
1) If property is used for business then interest up to the date of completion of the construction will be capitalized and after that period will be treated as expense. Further on cost plus interest capitalized, depreciation can be claimed if the property's construction is completed and the same has been put to use for business during the previous year.
2) If property is not used for business purpose then if the assessee has already the one SOP, the property under discussion will be DLOP, taxable income from property will be calculated and interest payable will be fully deducted. BUT IF the assessee wants to treat the property under discussion as SOP, then only interest payable will be deductiable.
CA Suri Kota
(Assistant Manager @ EY)
(955 Points)
Replied 23 October 2009
Well .i dont think House property ....interest can be capitalized....as per As 16...exmaples of qualifying asets are...manufacturing plants, power generation facilities or inventories...etc.I think house property does not comes under this category...
Please clarify me......Gaurav.......
CMA RAVI GUPTA
(MT in VPL)
(493 Points)
Replied 23 October 2009
yes,suri kota you r right,interest of the pre contruction period is not capitalised and assesse can not clain depreciation on such interest.such interest is deductible in 5 equal installments from the previous year in which house is completed
saranraj
(CA FINAL)
(419 Points)
Replied 23 October 2009
the entire interest payable till date of completion of construction is to be capitalised to your building value which has to appear in the balance sheet. Interest paid subsequent to the date of completion to be charged to profit and loss account as revenue expenditure.
KUMAR.S
(CS Excutive student)
(48 Points)
Replied 24 October 2009
It any property is used for business then it doesn't come under income from house property. SO those rules wont get attracted here(claiming pre-construction interest under five equal instalment and other.). Asset should be capitalised. Interest upto the date of completion is capitalised and interest after construction is revenue expenditure. Depreciation can be claimed.
Gaurav Raichura
(CA-Final Student)
(82 Points)
Replied 24 October 2009
In AS-16, definition of qualifying asset reads as follows:
"A qualifying asset is an asset that necessarily takes a substantial period
of time
Further, the examples given by AS as well as by you includes building also bcz. if we take manufacturing plant as whole, it also includes building.
Please also refer PARA-9.2 of AS-10 which has been withdrawn now, but reflected in AS-10 as footnote.
If you have further doubt, please present it.
Aayush Kumar Agrawal
(Chartered Accountants)
(66 Points)
Replied 24 October 2009
THe amount of interest should be capitalised with the cost of the assets till the date of completion and thereafter it is to be chargerd to the profit and loss account as per the AS-16
Aayush Kumar Agrawal
(Chartered Accountants)
(66 Points)
Replied 24 October 2009
Interest cost till the date of completion of construction should be capitalised with the cost of the assets as per the AS-16 and there after charged to P/L A/c
varsha naik
(CA Final Student)
(107 Points)
Replied 24 October 2009
in this case, interst on borrowed capital in relation to business income of the assessee, hence question of house property income doesnt arise..so interest till d completion of d asset should be capitalised as per AS- 16and assessee can claim depreciation
santhosh
(Student)
(1174 Points)
Replied 24 October 2009
i think above clarifification are rit, according to the accounting procedures.... then wat will do in the taxation procedures....
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 24 October 2009
Attn Mr Suri Kota/Mr Gaurav
Word used is house property used for business in such a case building need not be factory building it can be a admin office building and AS-16 speaks of qualifying asset which takes substantial period to get completed whether admin building is also covered under AS-16?
Gaurav ur second discussion u said if it is DLOP then where is the question of Interest being allowed in House Property Computation?
GSTR 9 and 9C for FY 23-24 as amended by Notification 12/2024 dated 10th July 2024(with recording)
CAclubindia
