Thursday, February 28, 2013

ADDITIONAL ONE LAKH HOME LOAN INTEREST DEDUCTION U/S 80EE


on Thursday, February 28, 2013

Existing deduction :Under the existing provisions of section 24 of the Income-tax Act, income chargeable under the head Income from House Property’ is computed after making the deductions specified therein. The deductions specified under the aforesaid section are as under:-
  • A sum equal to thirty per cent of the annual value;
  • Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.
It has also been provided that where the property consists of a house or part of a house which is in the occupation of the owner for the purposes of his own residence or cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, then the amount of deduction as mentioned above shall not exceed one lakh fifty thousand rupees subject to the conditions provided in the said section.
New section 80EE
Keeping in view the need for affordable housing, an additional benefit for first-home buyers is proposed to be provided by inserting a new section 80EE in the Income-tax Act relating to deduction in respect of interest on loan taken for residential house property.

The proposed new section 80EE seeks to provide that in computing the total income of an assessee, being an individual,there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.

It is further provided that the deduction under the proposed section shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on 1st April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on 1st April, 2015.

It is also provided that the deduction shall be subject to the following conditions:- 
  1. the loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st March, 2014; 
  2. the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees; 
  3. the value of the residential house property does not exceed forty lakh rupees;
  4. the assessee does not own any residential house property on the date of sanction of the loan.
It is also provided that where a deduction under this section is allowed for any assessment year, in respect of interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Income-tax Act for the same or any other assessment year.

It is also proposed to define the term “financial institution”.

This amendment will take effect from 1st April, 2014 and accordingly apply in relation to the assessment year 2014-15 and subsequent assessment year.

‘80EE. (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.
(2) The deduction under sub-section (1) shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment  year beginning on the 1st day of April, 2015.
(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—
(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2013 and ending on the 31st day of March, 2014;
(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;
(iii) the value of the residential house property does not exceed forty lakh rupees;
(iv) the assessee does not own any residential house property on the date of sanction of the loan.
(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1),deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.
(5) For the purposes of this section,—
(a) “financial institution” means a banking company to which the Banking Regulation Act, 1949 applies including any bank or banking institution referred to in section 51 of that Act or a housing finance company;
(b) “housing finance company” means a public company formed or 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.’.

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  1. This section requires more clarity. Explanation provides that additional one lakh being provided over and above the current 1.5lakhs. Where as the section is drafted without this intention.

    Scenarios. 1) The loan is sanctioned during the FY 2013-2014 and the property is completed within 31-03-2014. In such a case, irrespective of the period of completion the person has only deduction either u/s 24 or 80EE. Because 80EE provides that only one deduction is available. So a person has to opt between 24 or 80EEE. A person could choose only 24 as it provides a higher value. i.e. 1.5 lacs.

    Scenario 2 ) The loan is sanctioned during the FY 2013-2014 and the property is completed after 31-03-2014. In such a case the person can get deduction u/s 80EE with a upper limit of Rs.1 lac. He cannot claim the deduction u/s24 as the property is not completed.

    Now the question is where is the question of assessee claiming 1.5lacs + 1 lacs? Did they just meant two different years ?????. Was that the intention of the Act?

    Any discussion or more clarity on it? Are we getting understanding wrong?

    ReplyDelete
    Replies
    1. Where a deduction under this section is allowed for any interest referred to in sub-section (1),deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

      In our view it means that double deduction is not allowed for same . but if amount is over and above from section 24 then it can be claimed in section 80EE

      Further one lakh deduction is available total in year fy 2013-14 and 14-15 .

      Suppose in first year interest u/s 80EE is claimed for 70000 and in second year only 30000 can be claimed..

      Delete
    2. See,

      This new section 80EE lacks clarity. Should it not say or define the following

      a) That this deduction is in addition to the one 24

      b) Should it not say "nothwithstanding" anything contained in income tax provision, This provision is applicable.
      In the absence of the same, how is one expected to derive that this is additional and over above the 24.
      Will there not be any problems during assessment

      On the other hand this section provides deduction in cases where the property is under construction. (The interest under construction have to be claimed in 5 years period) This new provision will enable those assessee claiming those interest during that assessment year in which the property is under construction.
      .
      What is the observation ?

      Delete
  2. Section 80EE provides only interest payable on acquisition of a house property not for construction of a house property.
    and it no need to mention that it overrules section 24. it is only applicable in a case where the interest payable is over and above 1.5 lacs.

    ReplyDelete
    Replies
    1. sir
      Its interesting to read you feedback. And it throws one more different dimensions in current context.

      However, i differ with you, Acquisiton need not mean acquring only ready to occupy house / resale flat. Acquisiton also means a flat is under construction. We usually call that as purchase of flat (acquisition of flat). It has two components namely one for agreement to sell land and agreement to construct. This section should also cover all these aspects.

      As said earlier, this seciton is loosely worded.

      Delete