CA Paras Dawar

Simultaneous Claim of Interest on Housing loan & HRA; Interest deduction against Capital Gain

Assessee claim deduction of Interest on Housing Loan to acquire house property u/s 24(b) and simultaneously claim HRA exemption on rent paid (if he resides in property other than acquired). Further upon sale of said property, interest already claimed as deduction u/s 24(b) can be added to cost of property for the purpose of computing capital gain.   

An assessee can claim deduction of Interest on Housing loan taken to acquire a house property u/s 24(b) of the Income Tax Act. Section 10(13A) allows an assessee to claim HRA exemption in respect of rent paid for residential accommodation occupied by him. Further, where expenditure was incurred by way of interest on loan taken to acquire a house property, same shall be allowed to be added to cost for the purpose of computing capital gains upon sale of the said property.

The question under consideration is whether an assessee can claim all the aforementioned benefits together. Or to be more precise, does availment of one the benefit, precludes assessee from claiming other benefits.

 HRA Exemption

Explanation to section 10(13A) provides that HRA exemptions shall be available if both the conditions are satisfied :

(a) the residential accommodation occupied by the assessee is not owned by him ; and

(b) the assessee has actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him

Deduction for interest as per Section 24(b):

Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within [five] years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed two lakh rupees.

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:

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.

Section 23(2) :

(2) Where the property consists of a house or part of a house which—

(a) is in the occupation of the owner for the purposes of his own residence; or

(b) 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, the annual value of such house or part of the house shall be taken to be nil.

Further, ‘at any other place’ mentioned in section 23(2)(b) includes any other place in the same city. Reference is drawn to the decision of Hon’ble High Court of Delhi in CIT v. Mr. Justice Avadh Behari Rohtagi [1986] 157 ITR 441 wherein it was held that where a person owns a house property in a city and resides at another house in the same city by virtue of his employment, exemption u/s 23(2) of the Income Tax Act, 1961 shall be available in respect of the house owned.

Upon perusal of the aforementioned provisions, it can be concluded that deduction u/s 24(b) and exemption u/s 10(13A) are altogether different. Section 24(b) operates independently of section 10(13A) and none of the two sections exclude the operation of the other. Nothing in the two sections precludes an assessee from claiming benefits under both the sections simultaneously, provided aforementioned conditions are fulfilled. Hence, it can be concluded that an assessee can claim deduction u/s 24(b) in respect of housing loan taken to acquire a house property. At the same time, exemption of HRA u/s 10(13A) can be claimed in respect of rent paid for residential accommodation occupied by him if he resides at a place other than owned by him.

Now the question that remains is “Whether assessee can include interest paid on loan taken to acquire a house property in the cost of the house property despite the same being already claimed as deduction u/s 24(b) in previous years?”

To address this issue, reference is hereby made to the decision of Chennai Bench of the Income Tax Appellate Tribunal in the case of ACIT v. C. Ramabrahmam (2012) 27 taxmann.com 104 wherein the Tribunal observed the following :

1. After perusing the above said provisions, we are of the opinion that deduction under section 24(b) and computation of capital gains under section 48 of the “Act” are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’.

2. A perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48.

3. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the “Act”.

Conclusion

Upon consideration of the aforementioned discussion, it can be concluded that an assessee claim deduction of Interest on Housing Loan to acquire house property u/s 24(b) and simultaneously HRA exemption on rent paid (if he resides in property other than acquired). Further upon sale of said property, interest already claimed as deduction u/s 24(b) can be added to cost of property for the purpose of computing capital gain.

(For any feedback, comment or suggestion author may be reached at parasdawar@gmail.com)

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27 responses to “Simultaneous Claim of Interest on Housing loan & HRA; Interest deduction against Capital Gain”

  1. DEEPAK says:

    can i invest in capital tax saving bonds (like NHAI ) ( Rs 50 lacks) and purchase a house 40 lacks) simultaneously in order to save my long term capital gain tax

  2. No Name says:

    Hi,

    I have a home loan and I want to take benifit of HRA, home loan interest under section 24 and principal amount under section 80C.

    I am leaving in my own home for which I took a home loan.

    My question:

    This is possible to get HRA benefit after showing rent receipt.

    What are the chances, income tax people will catch me?

    I know lot’s of people are doing these things and I know income tax people don’t have that much time to catch this type of situation because their intention is also to catch big fraud where crore of transaction happen.

    Is there any record where income tax people catch these type of situation?

    And what will happen if Income Tax does scrutiny?

  3. Biswajit says:

    Hi,
    I have taken home loan in Nov 2014 and paying EMI since Jan 2015. I registered the flat last month. I have not occupied it yet. I am currently living in a rented house. In the company prepared Form 16, the rent component is present. Can I also claim the home loan interest paid so far in this Fy 2015-16 tax returns?
    –Biswajit

  4. Swapan Julka says:

    Hello,

    I am a salaried employee. I am staying at a house in Mumbai, which is a little far from my workplace (office). This house is owned by my parents. I have submitted a rent receipt to my employer after taking signature on it from my mother on a revenue stamp on the receipt, after paying rent to my mother. Now, I am buying a house in the same city (Mumbai) at a building which is much closer to my office. I wish to claim tax benefit of interest which I will pay on a home loan which I am taking to purchase the house. I intend to claim both HRA and interest. Now, while I understood that I can claim the benefit of both even if both properties are in the same city, if the assessing officer sends a query asking why I continue to live in the house which is far from my office rather than the new house which is much nearer, what can I provide as a possible explanation? I wish to continue living in the same property (on rent) where I’m currently living.

    Thanks
    Regards,
    Swapan

  5. Kavita says:

    Hello

    I have purchased a property in bangalore which is currently under construction. I yad taken home loan in oct 2014. Possession wil be given by mar 2016. I opted for complete EMI instead of pre emi.
    How do i claim HRA (since i m currently staying on rent) and house interest while submitting proofs for income tax for this financial yr 2015-16??

    Thanks
    Kavita

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