TAX TALK-07.05.2012-THE HITAVADA



TAX TALK-07.05.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“HOUSING LOAN BENEFIT: OLD LOAN REPAYMENT & NEW LOAN AVAILMENT”
Query 1]
Post Budget 2012-13, what are the provisions to get tax exemption on home loan's principal amount and interest amount? [vimal_sontake44@rediffmail.com]
Opinion:
There are no changes proposed in respect of deduction available towards principal repayment & interest payment u/s 24(b) or U/s 80C of the Income Tax Act-1961.
For the mass benefit, we are elaborating the income tax benefit towards principal & interest available in respect of home loan, as under:
Interest payable on Home loan:
1.      U/s 24(b) of the Income Tax Act-1961, deduction up to Rs. 150,000/- is admissible against the interest payable on the loan availed for purchase / construction of the self occupied house property.
[However, the acquisition or construction of the house property should be completed within 3 years from the end of financial year in which home loan was taken; otherwise, the deduction would be restricted to Rs. 30,000/-]
  1. In respect of loan taken prior to 01.04.1999, the deduction can’t exceed Rs. 30,000/-.
  2. Pre-construction period Interest [Loan taken against/for under construction property]:
    The interest paid during the period the house property is under construction is not deductible in the year of payment. Interest in respect of pre-construction period is deductible in five equal annual installments commencing from the previous year in which the house is constructed/acquired. For this purpose “pre-construction period” means the period commencing on the date of borrowing and ending on March 31 immediately prior to the date of completion of construction /acquisition.
  3. In respect of self occupied house property, it may be noted that for purchase / construction, interest deduction is admissible up to Rs. 1.50 Lacs whereas there is a ceiling of Rs. 30,000/- only in respect of loan taken for Repairs/ Renewal or Reconstruction.
Principal repayment of the home loan:
In respect of principal repayment of home loan, deduction is admissible u/s80C. Overall deduction U/s 80C (which also includes deduction towards LIC/ PPF, Tuition fees etc) can’t exceed Rs. 1 Lacs.

Query 2]
I am a State Government servant and had obtained loan of Rs.1,48,000/- from Govt. of Maharashtra in the year 1997 for purchasing a ready-built house. It was to be repaid in 172 installments and interest was to be paid thereafter in 48 installments.  
Since I intended to renovate the ground floor and construct a first floor of the said house, I approached a Co-operative Bank for grant of loan.  The Bank asked me to first clear the Govt. loan and was not ready to take over the said loan.  Accordingly, I have repaid the entire Govt. loan along with interest (i.e., Rs. 1,00,000/- towards interest + Rs. 36,000/- towards remaining amount = Total Rs. 1,36,000/-) in the month of November, 2011 and obtained loan of Rs. 8 Lacs from the Co-operative Bank (i.e. Rs. 2.50 Lacs for renovation of ground floor and Rs. 5.50 Lacs for construction of first floor, Total Rs. 8.00 Lacs.  
My office informed me that now I cannot take the benefit of housing loan.  My query is whether I can take the benefit of the housing loan while computing the income for the financial year 2012-13?[rajendra.halwai@yahoo.com]
Opinion:
1.      Existing Loan Repayment:
In respect of existing loan repaid by you, you shall be eligible for deduction u/s 80C towards the repayment of the principal part of the loan. As far as payment of interest is concerned, it may be noted that the interest deduction u/s 24(b) is available on accrual basis. Interest pertaining to the FY 2011-12 is eligible for deduction u/s 24(b) [and not entire interest amount of Rs. 1 Lacs paid by you at the time of foreclosure].
2.      New Loan Repayment:
In respect of new loan availed by you for renovation AND addition to the existing house property, the admissibility of deduction is as under:
a] Interest Deduction U/s 24(b)
i) Interest related to the loan taken for renovation (i.e., Rs. 2.50 Lacs) is admissible as deduction subject to a maximum cap of Rs. 30,000/-
ii) Interest related to the loan taken for addition to the existing house property (i.e., Rs. 5.50 Lacs), in our considered opinion, is admissible as deduction subject to the overall max cap of Rs. 1.50 Lacs u/s 24(b).
b] Deduction U/s 80C towards Principal repayment:
No deduction u/s 80C is available in respect of loan taken for addition, alternation or renovation or repairs of the house property.


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