House loan Interest u/s 24(b), repayment(80C) deduction if construction not completed ?

SHARE:

We have asked a Question On Simple Tax India Face Book Page ,regarding house loan benefit on under constructed house. The question is reproduced here under

"House is not completed by 31.03.2013 ,whether benefit of house loan under following sections can be claimed in Financial year 2012-13 as per income tax act /rules. 

  1. 24(b) (Interest ) 
  2. 80 C (repayment of House loan principal )
Option were
A) Both Yes    B) Both No     C) 1 yes 2 No    D) 1 No 2 Yes.

Quiz results : Answer given by participant shows that ,there is confusion in general public about the correct answer. 
  1. 42% person has selected answer B , i.e House loan interest and loan repayment,both, can not be claimed if house construction is not completed before end of previous year .
  2. 38% person has selected answer D , i.e House loan interest can not be claimed but house loan repayment benefit can be claimed even if house construction is not completed before end of previous year.
  3. 12%  person has selected answer A , i e House loan interest and Loan repayment,both, benefit can be claimed even house is not completed before end of previous year.
  4. 8%   person has selected answer C , i.e house loan interest can be claimed but loan repayment benefit can not be claimed if house is not completed before end of previous year.
What is correct answer according to you ? . Lets discuss these issue with relevant provisions of Income tax act/rules in details .

1. Interest of House loan ,if house is not completed by end of previous year [section 24 (b)] : Interest on house loan is allowed under section 24(b) ,so relevant part of section 24(b) reproduced here under.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years.
As per Explanation given to section 24(b) ,Deduction of House loan interest payable by the assessee in  previous year in which such property has been acquired or constructed will be deducted in five equal annual installments,commencing from the previous year in which the house is acquired or constructed.

So pre-construction period interest is not allowed before completion of house.However pre-construction period is different from pre-Emi period.

Meaning of pre-construction period Interest as per section 24(b): Pre-construction period means the period commencing(started ) on the date of borrowing and ending March 31 ,immediately prior to the date of completion of construction /date of acquisition or date of repayment of loan , which ever is earlier.(read more details about pre-emi interest here)

Example: If Ram takes a loan of Rs 400000 for constructing a House on 10 May .2010. Construction of  house is completed on 25.02.2013. what is pre-construction period.

Solution :Pre-construction period start from date of loan to March 31,immediately prior to date of completion of construction. in above example house completed on 25.02.2013 ,so pre-construction period is 
  • 10.05.2010 to 31.03.2012
Suppose interest for above pre-construction period is Rs 70000, then it will be available for deduction in 5 equal installments of 14000 each , from Financial year 2012-13 to 2016-17.

Correct answer : So there are clear cut provisions about how to claim pre-construction period interest of House loan and it can not be claimed till completion of House .As per quiz result also , 80% (42+38) person have also selected the correct answer that Interest on house loan can not be claimed in previous year , if house is under construction before the end of previous year.

2.Deduction of repayment of House loan, if house is not completed by the end of previous year [Section 80C]: Relevant part of section is reproduced here under.

(xviii) for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head "Income from house property" (or which would, if it had not been used for the assessee's own residence, have been chargeable to tax under that head), where such payments are made towards or by way of (installment of house loan)  "
As per above section, deduction of repayment of house is available only if house income is taxable under "Income from house property " Further department has issued a clarification circular 498 dated 04.11.1987 that deduction under section 80C for repayment of house loan paid in a previous year can only be claimed if house construction is completed before the end of previous year.

Complete circular is given below
  Circular : No. 498 [F. No. 275/111/87-IT(B)], dated 4-11-1987.

Repayment of loans, etc., taken for purchase/construction of house - Whether deduction admissible under sub-clause (ii) of clause (b) of sub-section (2) where construction of house is still continuing during previous year relevant to assessment year 1988-89

1. I am directed to refer to para 4(8)(e)(ii) of this Department’s Circular No. 489 [F. No. 275/51/87-IT(B)], dated 25-6-1987 [see under section 192] wherein the incentives provided under section 80C to the income-tax payers in respect of housing loans, etc., taken from specified institutions have been explained.

2. References have been received from some quarters enquiring whether the repayment of loans taken for the purchase or construction of a new residential house property, the construction of which is still continuing would qualify for deduction under section 80C.
3. According to the provisions of sub-clause (ii) of clause (h) of sub-section (2) of section 80C, in computing the total income of an assessee, a deduction shall be allowed for any sum paid towards the purchase or construction of a residential house property subject to the fulfilment of the conditions laid down therein. For the admissibility of this deduction, the construction of the house property should be completed after 31-3-1987 and the income from the same should be chargeable to tax under the head ‘Income from house property’ in the relevant assessment year. For the guidance of Drawing and Disbursing Officers and other persons responsible for the payment of income chargeable under the head ‘Salaries’, it is clarified that in a case where the construction of the property does not get completed by the end of the previous year relevant to the assessment year 1988-89, no deduction under this provision shall be admissible to the assessee in the assessment of his income for this assessment year. This aspect may please be kept in mind while deducting the tax at source under section 192 in the financial year 1987-88.
The above circular was issued before the insertion of new section 80C but wording of the old and new section remain the same ,so this is applicable in present scenario also . 

Correct answer : is that if house is not completed before end of previous year then you can not claim deduction under section 80C for repayment of House loan in previous year.Only 50 % persons get it right (42+8).Further worst is that unlike interest on house loan you can not claim pre-construction house loan repayment in future years also.(read more about House loan and section 80C )

Conclusion: Correct answer is "B" that both of above benefit can not be claimed for under constructed house and most of Public know this fact regarding interest but confused about house loan repayment . 

Positive side of the above discussion is that ,if your house is under construction and you wants to claim deduction in Financial year 2012-13, under section 
  1. 80C (repayment of house loan) and 
  2. 24(b) (Interest on house loan )
then work hard and complete the house before 31.03.2013 ,and claim following deduction in financial year 2012-13
  • House loan repayment deduction u/s 80C  for complete financial year 2012-13. and 
  • Interest on house loan 
    • one fifth of pre-construction period interest i.e 1/5 of interest up to 31.03.12 and 
    • Complete interest of Fy 2012-13.
Further if your house is not completed before 31.03.2013 then you will not able to claim house loan benefit in Financial year 2012-13.
Copyright :This post can not be copied and published on other websites without written permission of Simpletaxindia. Legal Action may be taken against violation.

COMMENTS

BLOGGER: 12
Loading...
Get Latest Updates In your Inbox

$show=index

Name

. SECURITIES (MNP) (TDS)2007-08 ` 01.07.12 01.09.2008 01.10.2012 06.07.2009 07.08.2012 1 PERCENT EXCISE ITEMS LIST 1 sep 1% excise 10 year nsc 10(10C) 1000 court cases judgements supplied to ITO 1000 rupee note 11-2008 11-2010 130 items 14.08.2008 15 august 150 Rs coin 15g 15h 18-12-2009 192(1A) 192A 194 I 194A 194c from 01.10.2009 194H 194j 194LC 1981-2007 2% cst 2% excise 2004 2008 2008-09 FY 2010 206AA 234A 234B 234C 234c interest calculator 234E 23AC 23ACA 23B 24C 24q annexure II 25 paisa coin 271(1)(c) 271B 271H 272B 27A 280 280 challan 281 282 283 29 AUGUST 29.04.2010. 29/08/2008 29/2008 service tax 2g meaning use 3 idiots 30 MARCH 31st March 32-2010 33 of 2009 35(2AA) 35(2AB) 3CD 3g meaning use 40(b) 43B 44 AB EXEMPTED INCOME 44AA 44AB AGRICULTURE 44AB new limit 44AB NON RESIDENT 44ad 46/2012 45/2012 49C 5 day week 5 years post office deposit 5/2011 50 paisa coin 54b 54EC 54ee 54f 54gb 5th paycommission punjab 6 % excise 6 crore advance limit 6/2005 69/2010 6th cpc 6TH PAY COMMISSION 70% of pan etds 7th Central Pay Commission 8 tips to save tax 80C 80ccc 80CCD 80cce 80CCF 80CCG 80d 80DDB 80EE 80G 80GG 80GGA 80GGB 80ggc 80tta 80U 85% of pan etds 86/2008 DATED 13-08-2008 87A rebate 89(1) 89(1) relief calculator 9.5 % rate for private epf 92E 95% of pan etds 98 dated 04/01/08 aadhaar aakash tablet aam admi aar Aayakar Sampark Kendra abatement abolished ACCOUNT PAYEE DRAFT Accounting ACCOUNTING CODE accounting code for services ACCOUNTING FOR GOVT GRANTS accounting standards ACES ADD IN Add-Ins additional relief in budget 2010 adjustment of advance FBT with advance Tax advance rullings advance salary ADVANCE TAX CALCULATOR advance tax challan ADVANCE TAX CUT OFF AMOUNT ADVANCE TAX DATES AFFIDAVIT AG Projects Technologies Ltd RT age 80 addition pension aibea wage revision aibea wage revision latest news aiboa aiboc aiboc wage revision AIG AIR airline ticket booking tds airlines all is well allowances allownces alphabet of inspiration alteration on check allowed alternate minimum tax AMENDED 3CD amendment in companies bill 2011 amendment in gratuity act 2010 amendment in registration service tax AMENDMENT IN SERVICE TAX ON RENT amendment to finance Bill 2010 AMNESTY SCHEME 2007 amt Anna Hazare anna hazzare bill vs govt lokpal bill appeal apply for new pan card against old pan card aqb arbitration arrears of salary arrears of sixth pay ARRERS TAX AS-12 ASBA assessee in default ASSESSMENT REOPENING ASSESSMENT YEAR 2008-09 REFUND atm atm 100 per day atm cash without card atm tips atm wrong debit audit cases itr filing audit limit enhanced Audit Questionaire AUDIT REPORT AUS VS IND.INDIA VS SL Automated teller machine AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX ay 2010-11 bad debts Bank Bank account bank audit bank audit 2012 bank charges BANK SALARY bank strike 06/07/09 and 07/07/09 banking law amendment banknotes banks npa provisioning BARE ACT bare rules BASE RATE BY BANKS bcct BIMAL JAIN biometric pan card black and white form not acceptable black money BLOCK PERIOD blogging bobay refund BONUS bonus share book discount BOOK ON EFILING BOOK REVIEW books of accounts BOOMING INDIAN ECONOMY both House rent allowance both hra and house loan Brass Scrap BRIBE CASE BROKER BSE bsnl broadband bsnl broadband usage bsnl land line sms alert BSR CODES BUDGET 2009 budget 2010 budget 2010-11 budget 2011 BUDGET 2012 budget 2013 BUDGET 2014 BUDGET 2014 CONTEST budget expectations BUDGET HIGHLIGHTS budget live on computer budget live telecast budget notification budget on tv budget speech BUDGET SPEECH DOWNLOAD Budget-2014 Budget-2015 BUDGET-2016 BUDGET08 Business BUSINESS AND PROFESSION MEANING BUSINESS COVERED UNDER 44ab BUY HOUSE C FORM CA CAN ONLY AUDIT MVAT CA CLUB INDIA CA GIRISH AHUJA CA NITIN GUPTA CA PARDEEP JAIN CA ROHIT GUPTA ca services CA sudhir Halakhandi CA Swapnil Munot CA Vikas Khandelwal calculate arrear CALCULATE NEW PAY calculate your emi calculation of tax on salary arrears CALCULATOR CALCULATOR REVISED capital asset capital formation huf Capital gain capital gain account scheme 1988 CAPITAL GAIN INDEX capital gain on repayment of loan capital gain on tenancy rights capital goods capital revenue CAPITAL SUBSIDY CAR LOAN RATE INCREASE carry forward of losses in late return cas cash flow statement CASH PAYMENT DIS ALLOWANCE CASH PAYMENTS EXCEEDING 20000 CASH SUBSIDY cbdt cbec CBI ARRESTED centeral sales tax rate CENTRAL PAY COMMISSION CENTRAL PROCESSING CENTER CENTRALISED PROCESSING OF RETURNS Cenvat CENVAT Credit Rules cgas 1988 challan challan 281 CHALLAN 289 challan correction challan Form 17 CHALLAN STATUS INQUIRY change change in cst rate change in excise duty rates CHANGE IN PAN ADDRESS CHANGE IN PAN DATA change in tds rates in budget changes CHANGES IN SERVICE TAX ACT changes in new itr forms CHANGES IN TDS CHARGES ON CASH PAYMENT OF CREDIT CARD BILL charitable organisation check name from PAN check tds deducted online Cheque cheque bounce cheque payment before due date cheque tender date /realisation date Cheque Truncation CHEQUE VALIDITY child care leave CHILD DEPENDENT PREMIUM CHILD MARRIED PREMIUM child plan childeren name children education allownces chip based atm card cibil cibil for companies CII 2007-08 CII 2008-09 CII 2010 cii 2012-13 CII2011-12 cin CIRCULAR 3/2010 DT 2.03.2010 CIRCULAR 8-2010 CIT v. Emilio Ruiz Berdejo (2010) 320 ITR 190 (Bom.) cloning of atm card clubbing of income COLLECTION CHARGES COLOR SCHEME COMMISSION ON SMALL SAVINGS common error in 2009-10 common error in itr 4-5-6 compa companies bill 2012 COMPANIES RATE COMPANY BILL 2011 company deposit Company Law Settlement Scheme COMPANY REGISTRATION complusory payment of taxes Composition scheme service tax COMPUTER AS FAX MACHINE computer sytem at ito office CONCEPT PAPER configure yahoo mail in outlook express consolidate account statement construction purchase of house Consultancy Service Consumer Price Index continues services CONTRIBUTION TO NEW PENSION SCHEME CONTRIBUTORY PENSION FUND CONVERT FIGURES INTO WORD EXCEL COPARCENER CorpMcash corporation bank correction etds CORRECTION IN PAN DATA correction in section CORRECTION RETURN CORRECTION RETURN.ETDS cost accounting cost audit cost inflation index cost inflation index 2012-13 COST INFLATION INDEX FY 2010-11 COST INFLATION INDEX FY 2011-12 COST OF INDEXATION CALCULATOR court case in entry tax punjab cpc phone number cpf Credit card CREDIT CARD BILL PAYMENT ICICI BANK credit scores cricket team critical illness CROSSED DEMAND DRAFT CRR crr reducred CS DIVESH GOYAL CST CST 3% OR 2 % cst act 1956 cst form CST FORM STATUS cst rate changed CST REDUCE RATE ctt currency CURRENCY TRADING ILLEGAL custom custom changes in budget cusual leave DA MERGE da rate da rate 01.07.2012 da rate january 2013 da rate july 2012 da rate wef 01.01.2012 date extension DDO ASK RENT RECIPT ddt dearness allowance Debit card DEBT EQUITY RATIO debt funds debt trap declared goods DEDUCTION 80C deduction for higher studies deduction on saving bank interst deduction u/s 80DD Deemed income of employee deemed services defective return defence officers defence pay defence pay scales DELAY IN FILING delete ledger in tally DELHI HIGH COURT demat deposit tax of two quarter in single challan depreciation depreciation on car depreciation on commercial vehicle. DEPRECIATION ON INTANGIBLE ASSETS depreciation rate depreciation rate 2009-10 DETAIL AFTER E FILLING DETAIL OF TIN Determination of value DIFFRENT TYPE OF TAXES digital signature din direct payment in bank account DIRECT SUBSIDY direct tax bill direct tax changes in budget direct tax code direct tax code 2009 Disability insurance discussion Paper distribution of salary dividend distribution tax dividend striping dnd do not call. document identification number document ientification number documents required for service tax registration domestic transfer pricing donation dot double taxation dow jones download download 89(1) relief calculator download direct tax code 2012 download form 16A download fvu download idfc INFRA BONDS FORM draft reply drawback rates dtaa dtc DUE DATE AY 2010-11 due date ay 2011-12 due date extended due date extended to 31.08.2012. due date for service tax return due date form 16 due date form 16a due date June due date march tax due date of return 2008-09 due date pf esi due date to deposit tds DUE DATES DUE DATES CALENDAR DUE DATES CALENDER DUE DATES INCOME TAX DUE DATES SERVICE TAX DUE FAMILY PENSION DULICATE PAN DUPLICATE TAN dvat e book Income Tax rules e book on service tax E ERA OF TAXES e filing do and don'ts