HOUSING LOAN

Query 1]

1. I have a query. I took a loan from SBI (May, 2012) for Rs. 20,00,000/- for purchasing a residential plot under Govt. scheme. The bank gave me a loan under the realty category. My monthly installment is Rs 24, 465/ but I’m not getting any rebate in income tax. My query is, how I can get the income tax rebate on the interest amount I’m paying to the bank every year.
   For that,

2. Do I need to build one room, kitchen and toilet and then start claiming the income tax exemption? Or

3. Should I go for additional loan from the bank to construct a house?

My query is, if I go for “A”, will I get the income tax exemption? Or if I go for option “B”, will I get exemption on the new loan only or whether it will be addition of two loans interest? Kindly suggest me.

2. My second query is, as my plot is mortgaged with the bank, do I need to inform them before starting the construction and if yes, what is the procedure for that?

[Rajesh-rajesh4971@yahoo.com]

Opinion:

1. Deduction towards the Interest on Housing loan u/s 24(b) & towards repayment of the principal portion of housing loan u/s 80C is available in respect of loan taken for purchase or construction of the house property.
2. The loan taken merely for purchase of plot would not be eligible for deduction, neither u/s 24(b) nor u/s 80C. However, where the assessee constructs the house property on the plot purchased by availing loan, then the tax payer can claim deduction;
   

   a] U/s 24(b) towards interest payment:.

   For deduction up to Rs. 1.50 Lacs towards interest payment, the house construction need to be completed within a period of 3 years from the date of first disbursement of bank loan. If the construction is not completed within a period of 3 years, deduction would be restricted to a maximum of Rs. 30,000/-.

   b] U/s 80C towards the principal repayment:

   The deduction is available subject to the condition that the loan is avail from the Banks or Housing Finance Company or LIC or NHB or other specify lender only.

3. It may further be note that Interest in respect of pre-construction is deductible in five equal annual installments commencing from the financial year in which the construction of house is complete. The “pre-construction period” means the period commencing on the date of borrowing & ending on the March 31^st immediately prior to the date of completion of construction /acquisition. If the house is complete in any particular year then one should note that the pre-construction interest doesn’t include the interest for the period from 1^st April of that year to the date of completion in that year.

4. With above basic background of the provision under the Income Tax Act-1961, point wise opinion to your queries are as under:

   No deduction towards interest is available on the loan taken for purchase of plot (which is not let out). The principal repayment in such case is also not eligible for deduction u/s 80C.
   B. If the house property is construct within a period of 3 years from the date of first disbursement then entire amount of interest, subject to a maximum of Rs. 1.50 Lacs, can be claim as deduction. If the construction is complete after a period of 3 Years, deduction amount u/s 24(b) cannot excel Rs. 30,000/ though deduction towards Principal repayment u/s 80C, subject to overall maximum cap of Rs. 1 Lacs, is available fully. In case of plot purchase, the Construction of a residential house property is a condition precedent for claiming deduction u/s 24(b) & u/s 80C. In your specific case, the deduction would be eligible even if you construct the house out of your own resources.
   C. Additional loan may be avail for the construction of the house property though it is not mandatory to avail the additional loan for claiming the deductions. If you avail the additional loan for construction of a house property, then the deduction would be available on both the loans take together.
   D. In normal course, the construction could be commence without informing to the bank as the mortgage title is not affect by carrying out the construction in the said plot.

Query 2]

I want to know, my brother residing in Nagpur, is getting House Rent Allowance Rs. 9,280/- and he is paying Rs. 6,000/- as House rent. His total Basic is Rs 46, 400/- pm plus 72% DA.

Can he claim Income tax rebate for the amount he is paying as house rent? [Rajesh-rajesh4971@yahoo.com]

Opinion:

Salaried Assessees who are in receipt of House Rent Allowance (HRA) from an employer can claim an exemption u/s 10(13A) of the Income Tax Act-1961 read with Rule 2A of the Income Tax Rules, 1962.
The least of following can be claim as deduction u/s 10(13A):-

1. An amount equal to 50% of salary, where the residential house is situate at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of salary where residential house is situate at any other place;
2. House rent allowance received by the employee in respect of the period during which the rental accommodation is occupied by the employee during the previous year; or
3. The excess of rent paid over 10% of salary.

Following points need to be take in to consideration while calculating the amount of HRA admissible as exemption u/s 10(13A):

“Salary” for the purpose of computation of exemptions u/s 10(13A) means Basic Salary and includes Dearness Allowance if terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per the terms of contract of employment AND EXCLUDES ALL OTHER ALLOWANCE & PERQUISITE. Exemption is not available where an employee lives in his own house, or in a house for which he doesn’t pay any rent.

HOUSING LOAN

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