“TAX SAVING VIA HOUSING LOAN: DEDUCTION DILEMMA

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Query 1]

I have purchased a flat, registered value Rs. 16 Lacs + Rs. 1.20 Lacs towards registration charges, VAT etc. Total cost is Rs. 17.20 Lacs, out of which bank sanctioned loan for Rs. 13.60 Lacs. I have also applied for supplementary loan of Rs. 3.40 Lacs for furnishing (furniture, grills etc) of flat. Total loan from bank would be Rs. 13.60 + 3.40 + 0.40 (insurance charges) = Rs. 17.40 Lacs. Bank also made a registered loan agreement for Rs. 17.40 Lacs. The supp. loan was paid directly to the vendors (arranged by builders) by bank, with my consent. My query is what amount I have to consider for getting tax exemption u/s 24b & 80C? Is it Rs. 13.60 Lacs or Rs. 17.40 Lacs? If bank provide consolidated statement, whether the main loan & supplementary loan is to be bifurcated? Please clarify. [Suryajeet- suryajeet.614@rediffmail.com]

Opinion:

Interest on housing loan availed for purchase or construction of house property is eligible for deduction u/s 24(b). Repayment towards principal is eligible for deduction u/s 80C.

Repayment towards the principal portion of supplementary loan taken for furnishing the flat / house property is not eligible for deduction u/s 80C. However, interest of supplementary loan so availed for furnishing the flat would be eligible for deduction up to a maximum of Rs. 30,000/- (& not Rs. 2 Lacs). In your specific case, as two separate loan accounts are not created, you would be required to divide the two loans in “13.60: 3.40” ratio.

Query 2]

My name is Ramesh Magarde & I am working in a private construction firm. I had purchased a home in my name in the year 2008 with a bank loan. I am currently paying the installments regularly till Sep. 2014. At the time of taking loan, I had mentioned my son (Praveen Magarde) as Co-borrower. As he was getting less salary at that time, he was not able to pay the installments. I had claimed entire deductions against home loan. Now, we both have decided to pay the installments in two parts, first 6 months- I will be paying and rest of the 6 months- my son will be paying the installments. My question is can we get the exceptions in tax for both of us each for 6 months installments paid by us individually? Currently we both are filing separate IT Returns. Please help me with the answer so that we can proceed further. [praveen magarde- praveenmag@gmail.com]

Opinion:

Ownership in a house property is one of the first & foremost vital pre-condition for being eligible to claim deduction towards housing loan interest & principal repayment. Without ownership in the house property, no right would emanate for deduction. The second pre-condition is the availment of loan towards the house property. In case of joint ownership, deduction is available on the basis of ratio in the loan (distinguish it from “ownership ratio” in the house property).

With above basic insight, one may rightly conclude that deduction cannot be claimed blatantly so as to suit the Individual requirements. The claim is to be backed by available documentary evidences to justify its eligibility. The mere fact that your son is making the repayment doesn’t make him eligible for deductions. His claim now could prove fatal for you as you alone have claimed entire benefit earlier.

Query 3]

We have recently purchased one flat of 1090 sq ft at waked, pune in the joint name of my  son  and myself (1st borrower son and 2nd borrower myself)  in which Rs. 27 Lacs is invested by me (myself and my wife savings), Rs. 3.00 Lacs by son and Rs. 30 Lacs from housing loan taken.  Completion of the flat will be in March-2015. (Sale deed would be for Rs. 54.22 Lacs). I already have one flat in my name in Nagpur, taken from bank loan.  Now it is free from any type of loan and is self occupied by me.

I have one 1500 sq. Ft open plot in manish nagar, Nagpur which will fetch me around Rs. 35 Lacs on sale. I am a bank employee in clerical cadre, aged 59 years and will be retiring in May-2015. I have following queries:

  1. How can I take benefit of money I will be receiving from sell of open plot by showing it as invested in the new flat taken above jointly? (Capital gain is expected at Rs. 34 Lacs).
  2. My son is at present in US and will be returning after 2 to 3 years and he will not be eligible for the income tax benefit on interest on housing loan till returning to India, because he is not getting any salary in India.
  3. From next year (May-2015), I will be pensioner. How I can avail benefit of interest on housing loan for my income tax calculation? At present we have decided to pay the EMI of housing loan from son’s account only. Please advice in the matter. [bsphadke@yahoo.com]

Opinion:

  1. One can save the Long Term Capital Gain (LTCG) arising from transfer of plot by claiming an exemption u/s 54F or u/s 54EC.
    I] Exemption u/s 54F:
    It may be noted that exemption u/s 54F shall be admissible if all the following conditions are satisfied:
    a) Taxpayer is an individual or a Hindu Undivided Family.
    b) Capital gain arises from the transfer of any long-term capital asset other than residential house property. (If residential hose property is transferred, exemption could be claimed u/s 54).
    c)  Taxpayer has, within a period of one year before or two years after the date on which the transfer took place purchases, or within a period of three years after that date constructs, a residential house.
    d)  Taxpayer does not own more than one house property, other than the new asset, on the date of transfer of the original asset.
    e)  Taxpayer do not purchase any residential house, other than the new asset, within a period of two years after the date of transfer of original asset or constructs any other residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.
    If all above conditions are satisfied, taxpayer can claim LTCG as exempt provided entire amount of net sale consideration is invested for new residential house property as mentioned above. If entire amount of net sale consideration is not invested, then exempt LTCG would be available proportionately. [U/s 54F, it’s the investment of actual net sale consideration that determines the claim of exemption.]
    II] Exemption u/s 54EC:
    Apart from exemption u/s 54F, taxpayers also have an option of claiming an exemption U/s 54EC as well. To save tax u/s 54EC, taxpayers have to invest the amount of LTCG, within a period of 6 months from the date of transfer, in the Specified bonds issued by Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI). For exemption U/s 54EC, Investment of LTCG is relevant and not the amount of net sale consideration as required in section 54F. [Other readers may note that there is a maximum investment ceiling of Rs. 50 Lacs for investment in 54EC Bonds.]
  2. In your specific, if you satisfy the conditions mentioned in I above, you can claim an exemption u/s 54F. However for full exemption, you need to record / documents or route the payment in such a way that your share in the pune house property is not less than Rs. 35 Lacs i.e., sale consideration of manish nagar plot. That is to say, your ownership in the new house property may not be in 50:50 ratio. Alternatively, you can think of claiming an exemption u/s 54EC as well jointly with section 54F. Further, as mentioned above, housing loan benefit in the form of deduction towards interest & principal repayment would be based on the basis of share in the loan.
  3. The pune house property would be your second house property. It may be noted that the second house property carries a different tax treatment Readers may please refer Tax Talk dated 21.07.2014 wherein tax treatment of second house property is discussed in length.

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