The government wants you to own a house and the same becomes evident from the various tax benefits allowed under the income tax laws to the persons who own a house. Let us understand the various beneficial tax provisions which prove that the government wants you to own a house.
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Tax benefits for repayment of home loan:
As per Section 80C of the Income Tax Act, 1961, an individual and a Hindu Undivided Family are entitled to claim deduction upto Rs. 1.50 lacs in respect of principal repayment of the home loan, taken for the purchase or construction of a residential house. The loan should have been taken from specified institutions like bank, housing finance company, central government, state government , local authority or even a public limited company which is your employer.
For claiming these benefits the house should be complete and possession should have been taken by you. So for an under construction house at the end of the year, you cannot claim this benefit.
The government wants you to continue to own the house is evident from the provision of Section 80C(5) which requires you to retain the house and not to sell it before completion of five years from the end of the year in which possession of the house is taken. In case you sell the house before completion of five years no tax benefits shall be available for the year in which you sell the house. Moreover all the tax benefits claimed earlier by you on such house shall be reversed in the year in which you sell the house and it shall be treated as income of the year. There is no such reversal provision in case you prepay the home loan even before completion of five years. So the government does not mind you prepaying the home loan but does not want you to trade in the house.
Tax benefits for payment of the amount owed towards cost of the house:
Section 80C also allows you deduction within the overall limit of Rs. 1.50 lacs in respect of payment of instalment or part payment of the amount due to any company or cooperative society where you are a shareholder or a member for amount outstanding in respect to cost of the house allotted to you by such company or cooperative society. Deduction is also available for payment of amounts due to any housing board, or any development authority towards purchase consideration for such house purchased under any scheme of these authorities for construction or purchase of a house.
Tax benefits for payment of stamp duty etc:
It is not only the principal repayment of the loan which is allowed under section 80 C, even any amount paid by you towards stamp duty, registration charges or transfer charges are also eligible for the tax benefits. The deduction in respect of these amounts is available only if the possession of the house is taken during the year. So even if you take possession of the house on 31st March of the year, you can claim the tax befits of under Section 80 C for home loan repayment, cost payment as well as stamp duty and registration charges.
Tax Benefits for interest payment in respect of completed house:
Under Section 24(b) of the income tax act, you are allowed deductions for interest paid on money borrowed for purchase, construction or even repair, renovation of the house. This deduction is available from the year in which the construction of the house is completed and possession taken in case of an under construction property. The quantum of deduction will depend on whether the house is self occupied or let out. In case of let out property full interest is allowed to be deducted. However in case of self occupied house property the amount of deduction shall be restricted to Rs. 2 lacs generally. However in case of an under construction house if the construction is not completed within a period of three years from the end of the year in which the amount of the loan was disbursed, the quantum of deduction shall stand restricted to Rs. 30,000/- in a year. Looking at the usual delay in completion of the construction of the house in the country and in order to give relief to the tax payers the government, in the current budget of 2016, has proposed to extend the period of completion of the construction of the house from three years to five year.
For claiming interest deduction it is not necessary that the loan has to be taken from specified institutions as is required for claiming deduction for loan repayment. Even interest paid to friends and relatives also qualify for this deduction as long as you are able to establish the linkage between the money borrowed and its end usage for the house purposes.
Since the deduction is available from the year in which the construction of the house is completed and possession is taken a question may arise as to what happens to the interest paid before completion of the construction. The law has provided for it. You can claim such interest, which is generally referred to as Pre EMI interest, in five equal instalments from the year in which construction of the house is completed. The overall deduction is restricted to Rs. 2 lacs in case the house property is self occupied. Here also the law requires you to continue to own the house for at least for five years failing which the claim for Pre EMI interest not claimed shall lapse for the remaining years.
Additional Deduction in respect of Interest on Loan:
a) Section 80EE – Dedution amounting to Rs 50,000 is allowed in addition to deduction under section 24(b).
- The loan should be sanctioned between 1st April 2016 – 31st March 2017.
- The value for the property should not exceed Rs 50 lacs and the sanctioned loan amount should not exceed Rs 35 lacs.
- The purchaser should be a first time home buyer also this is applicable only in case of residential house property.
- The benefit will be applicable till the time of repayment of loan continues.
b) Section 80EEA – Additional deduction amounting to Rs 1,50,000 is allowed in addition to deduction under section 24(b).
- The loan should be sanctioned between 1st April 2019 – 31st March 2021.
- The stamp duty value of the house should not exceed Rs 45 lacs.
- The carpet area of the house should not exceed 60 sqmtr in metro cities and 90 sqmtr in other cities.
Only the individual is allowed to claim the deduction under this section provided he does not own any other house property.
Capital Gains Exemption:
Section 54 and 54F of the Income Tax Act, provide for exemption for long term capital gains if a house is purchased or constructed within specified period. In case the capital gains arise from a residential house held for more than three years, you are required to invest only the capital gains computed after taking into account the indexation benefits. In case the long term capital gains arise on sale of any asset other than a residential house property, you are required to invest the net sale consideration for purchase of a residential house property provided you do not own more than one residential house on the date of sale of such other asset.
From the above discussion it becomes amply clear that the government wants you to own a house and continue to own it and therefore it has provided many benefits under the income tax laws. There are other benefits under the banking and indirect tax area which also point towards government’s eagerness to ensure that every citizen has a roof over its head. This I intend to cover in my next article.
Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
(Republished with Amendments by Team Taxguru)
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To ADD (to share more thoughts primarily based on common sense):
No doubt, interest on ‘monies borrowed’ partakes the character of either revenue or capital -expenditure at the point in time when it is ‘incurred’. And, that depends entirely upon the purpose for which the borrowing is made. If the borrowing is for acquisition of a ‘house property’, which is a capital asset, then the interest payable / paid thereon could conceivably be regarded only as a capital expenditure; and is includible as ‘cost of acquisition’ of the said property. The stated proposition holds good for the interest so payable / paid up to the date of acquisition of the said property. As a corollary, the interest so capitalised and treated as such, most certainly cannot be allowed as a deduction on a revenue account.
As regards interest payable/paid for the subsequent period- that is, post acquisition of the property, – as provided in sec 24- will qualify for deduction in the computation of income from the property.
On the above stated premise, – presuming that has to be regarded / accepted as the right or the better view, then the ongoing controversies do not seem to carry any conviction; and, if forcefully presented and effectively addressed in further proceedings, are bound to fall like a pack of cards !!!
In a manner of sensible viewing, therefore, any such claim thus far being pursued, – entailing a duplication of deduction- will not be sustainable or sustained.
It is now left to the Government to think of and decide about a curative amendment of the applicable provisions, in order to set at rest any further dispute and litigation- better, the earliest done.
KEY Note:
For useful FEED-Input, suggest to go through the points of view discussed / canvassed for, based on the FIRST PRINCIPLES of law, in the 2 published Articles, –
TAXMANN’S –
“Taxation of CAPITAL GAINS- A Poser” – (2006) 5 CAT pg. 432
“Sec 14 A of Income-tax Act “– Interpretation of – A Critique – (2009)14 CPT pg. 819
OVER to all sundry having common concern !
ATTN: The learned writer / TEAM TG
This is a Follow-up:
To share/ re-share the comment posted by a leading CA Firm in reference to one of the ITAT Orders:
Q
The decision allows the deduction of housing loan interest under different sections of the ITA in the absence of any specific restrictions in the legislation. However, this view is not universally accepted in India and taxpayers should evaluate carefully the impact of dis-allowance and potential litigation before claiming such relief.
UQ
Be that as it may, for an independent Study(based on the FIRST PRINCIPLES (instead of, imprudently, based on inconsistent / mutually conflicting opinions handed out by the adjudicating authorities- mainly the ITAT) with a view to form one’s own right or better well-founded eminent opinion, so as to eventually but speedily resolve the controversies –
REsource: Sec.24 (b), sec 80C, sec 50 C and the provisions governing taxation of capital gains- mainly sec 48, 49) !!!
https://taxguru.in/income-tax/assessee-claim-housing-loan-interest-capital-gain-computation-48-fact-claimed-24b.html
(See the posted Comment (S) there under)
courtesy
(in the larger Public Interest , for THE COMMON GOOD)
Apropos of Pr. comment : Possibly the the reference is to sec 80 C . If so, to say that it is because “The government wants you to continue to own the house and not to speculate on it.” does not seem to make much much sense; is, in fact, not reconcilable with the scheme of the other connected provisions- e.g. taxation of gains from transfer as short-term or long term depending upon the period of holding.
Suggest a deep study for a better grip of the intent behind the said provision, if any clear !!!
“The government wants you to continue to own the house and not to speculate on it. This is evident from the provision which requires you to retain the house and not to sell it before completion of five years from the end of the year in which possession of the house is taken. ”
Which is the provision referred to ?
If I have two houses, is there any wealth tax charged? Is the wealth tax on lower/higher cost property?
In order to avoid the wealth tax, can I buy the second property in one of my family members (wife) name?
You have stated
1. In case of let out property full interest is allowed to be deducted.
2. However in case of self occupied house property the amount of deduction shall be restricted to Rs. 2 lacs generally.
The first house is bought for residing purpose and you can only “let out”, if you possess a house, i.e. “let out” house is second house.
Can it be said, that govt supports people making money on housing?
Are the deductions under payment of the amount owed, payment
of stamp duty and interest payment are taken together or they are taken separately?
The simple explanation is very powerful.
Thanks for the article Mr Balwant. It is written in a simple language for common person to understand.
Many people dont know the “5 years no selling” rule and may get into trouble if the IT dept notices it.