“INTEREST PERTAINING TO PERIOD PRIOR TO POSSESSION/ CONSTRUCTION OF THE HOUSE PROPERTY”


TAX TALK-23.07.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“INTEREST PERTAINING TO PERIOD PRIOR TO POSSESSION/ CONSTRUCTION OF THE HOUSE PROPERTY”
Query 1]
Sir, The following is the case:
Loan is taken for construction of independent House. Construction Started in April-2010. Construction is expected to be completed by August 2012. Full EMI have started immediately with effect from May 2010 for full Sanctioned Loan (irrespective of stage-wise disbursement).
1.      Whether we can claim deduction for Interest accrued during 2011-12 in Income from House Property, irrespective of Completion / Possession of House?
2.      Precisely, we seek your clarification as to whether the date of completion, or the date of occupation or the date of commencement of Loan repayment will be the deciding factor for computation of allowance of accrued Interest on House Property under the head Income from House Property, while computing the taxable income? Early clarification is solicited. [N. Subramaniam-sans592000@yahoo.co.in]
Opinion:
Interest in respect of pre-construction 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 & ending on the March 31st immediately prior to the date of completion of construction /acquisition.
If the house is completed in any particular year then one should note that the pre-construction interest doesn’t include the interest for the period from 1st April of that year to the date of completion in that year.
With above basic idea,
1.      In the given specific case, deduction towards interest is not available during the FY 2011-12 (& also in FY 2010-11) as the construction of the house is not completed before 31st March 2012.
  1. The deduction u/s 24(b) towards interest on housing loan availed for construction of house property is available from the year in which construction of the house property is completed.
  2. Interest pertaining to FY 2011-12 & 2010-11 can be claimed as deduction in 5 equal installments commencing from the FY 2012-13 to FY 2016-17.
  3. Interest for the period from April-2012 to August-2012 would not be considered as Pre-construction period interest & the deduction for the same would be available in the FY 2012-13 itself.

Query 2]
Sir, please provide Income Tax Notification details, whether Tax deduction at Source (TDS) is applicable on the Service Tax reimbursed to Contractors/ Professional consultants etc? Please enlighten. [tscbose@sunflagsteel.com]
Opinion:
  1. Section 194J deals with Tax Deduction provision in respect of Fees for Professional / technical services & Section 194C deals with Tax Deduction provision in respect of payment to contractors & subcontractors. Similarly, Section 194-I provides for deduction of Tax at Source in respect of Rent Payment.
  2. Circular No. 4/2008 Dated 28.04.2008 issued by Central Board of Direct Taxes (CBDT) specifically provide for exclusion of Service Tax in respect of Rent Payment U/s 194-I from TDS provision.
  3. As far as payment towards fees for professional or technical service u/s 194-J is concerned, it may be noted that CBDT has issued a circular F. No. 275/73/2007/IT (B) Dated 30.06.2008 to specifically provide for Deduction of Tax at Source from all the payment (including service tax) towards fees for professional charges. Applying the same logic of interpretation, we are of the considered opinion that TDS is to be done on all the payment/credit (including service tax) done u/s 194C.

Query 3]
Sir, I have made a donation of Rs. 1,00,000/- towards rehabilitation center for handicapped run by Shri Gajanan Maharaj Sansthan during the F.Y. 2011-2012. Can I claim the full amount as deduction while filing return now? I will be thankful for your guidance. [shailapoflee@yahoo.co.in]
Opinion:
1.      Section 80G provides for a deduction in respect of donations to certain funds, charitable institutions etc subject to the conditions that such funds/ institutions are approved u/s 80G(5)(vi) of the I.T. Act, 1961. If the receipt of Donation of Rs. 1 Lacs reveals the fact of approval of the said trust U/s 80G(5)(vi), then you can claim deduction @ 50% of the Donation u/s 80G of the Income Tax Act-1961.
2.      The full amount is not eligible for deduction from Income. The deduction admissible is @ 100% or 50% of the donation amount depending upon the fund/ institutions to whom the donation is done. The total deduction u/s 80G is restricted to a maximum of 10% of the adjusted gross total income.

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