Timely pos­ses­sion holds the key

To avail of tax ben­e­fits on a hous­ing loan for a self-oc­cu­pied prop­erty, one must meet some con­di­tions laid down by the IT Act

HT Estates - - HTESTATES - Fi­nan­cial Year (FY) To­tal de­duc­tion In­ter­est paid Case 1: Con­struc­tion com­pleted in FY 13-14 (within 3 years) Post-con­truc­tion in­ter­est Pre-con­truc­tion in­ter­est De­duc­tion avail­able 10,81,542 Case 2: Con­struc­tion com­pleted in FY 14-15 (af­ter 3 years) Po

Ac­com­mo­da­tion is one of the most ba­sic ne­ces­si­ties of the com­mon man. Given the in­creased rentals, what can be more lu­cra­tive than own­ing a house and en­joy­ing a tax break for the in­ter­est paid on hous­ing loan?

If you are pay­ing mort­gage for your house, Union Bud­get 2014 must have brought some relief. The max­i­mum de­duc­tion limit on ac­count of in­ter­est pay­ment on hous­ing loan taken for a self-oc­cu­pied house has in­creased from ₹ 1.5 lakh to ₹ 2 lakh. This will re­duce your tax bill by ₹ 20,600 if you fall un­der the 30% tax bracket.

Though many are well aware of this ex­emp­tion, very few know about the eli­gi­bil­ity cri­te­ria for avail­ing this ex­emp­tion.

The tax ex­emp­tion of ₹ 2 lakh out­lined above is sub­ject to the ful­fill­ment of the con­di­tions laid down by the In­come Tax Act, 1961 (IT Act). The con­di­tions are as fol­lows: The prop­erty should be ac­quired or con­structed with loan taken on or af­ter April 1, 1999 The prop­erty should be ac­quired, or con­struc­tion must be com­pleted within three years from the end of the fi­nan­cial year in which the loan is taken If the above con­di­tions are not sat­is­fied, the tax ex­emp­tion is lim­ited to ₹ 30,000 only.

This limit in­cludes the de­duc- 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 tion avail­able on ac­count of in­ter­est paid dur­ing the pre­con­struc­tion pe­riod. The in­ter­est paid dur­ing pre-con­struc­tion pe­riod is el­i­gi­ble for ex­emp­tion post com­ple­tion of con­struc­tion in five equal in­stall­ments over a pe­riod of five years.

Most of us are not aware that this in­vest­ment (at­tract­ing tax ex­emp­tion) is ac­com­pa­nied with an im­per­a­tive con­di­tion of com­ple­tion of con­struc­tion within a span of three years from the end of the fi­nan­cial year in which the loan was bor­rowed. De­lay in hand­ing over the pos­ses­sion by the builder shall re­sult in de­pri­va­tion of the tax ex­emp­tion of ₹ 2 lakh to the in­di­vid­ual and limit it to ₹ 30,000.

There have been nu­mer­ous case rep­re­sen­ta­tions 4,08,717 3,82,381 3,53,143 3,20,683 2,84,646 2,44,638 2,00,221 1,50,908 96,161 35,381 - - - 2,28,848 2,28,848 2,28,848 2,28,848 2,28,848 - - - - - 3,20,683 2,84,646 2,44,638 2,00,221 1,50,908 96,161 35,381 with tax au­thor­i­ties where un­know­ingly in­di­vid­u­als have claimed ex­emp­tion for ₹ 1.5 lakh un­til last year when they were ac­tu­ally only el­i­gi­ble for ₹ 30,000. Any such mis­take will not only re­sult in a tax de­mand on ex­cess de­duc­tion, but also lead to an ad­di­tional cost on ac­count of in­ter­est and penalty on the tax de­mand.

A pru­dent ques­tion here aris- - - - 1,50,000 2,00,000 2,00,000 2,00,000 2,00,000 96,161 35,381 - - - - 2,92,985 2,92,985 2,92,985 2,92,985 2,92,985 es as to whether the in­tent of the govern­ment for in­tro­duc­ing the tax ex­emp­tion for the ben­e­fit of the masses is be­ing ful­filled with the de­nial on ac­count of de­layed pos­ses­sion. The fail­ure on the builder’s part to com­plete the con­struc­tion of the house and trans­fer the pos­ses­sion within the stip­u­lated pe­riod is be­yond the in­di­vid­ual’s con­trol and hence should not dis-en­ti­tle the in­di­vid­ual from the ben­e­fit laid down in the IT Act pro­vi­sion.

In the in­ter­est of the tax payer, the govern­ment needs to take note of the sub­stance of the tax pro­vi­sion in­cor­po­rated in the statute and not its form. The sub­stan­tial role of the pro­vi­sion is to en­cour­age own­er­ship of the prop­erty by in­di­vid­u­als and to pro­mote in­vest­ment in

the hous­ing sec­tor. The - - - - 2,84,646 2,44,638 2,00,221 1,50,908 96,161 35,381 - - - - 30,000 30,000 30,000 30,000 30,000 30,000 in­tent of the govern­ment for spec­i­fy­ing the con­di­tion of com­ple­tion within three years should be to pro­vide a rea­son­able time-frame so as to pre­vent mis­use and mis­in­ter­pre­ta­tion of the statute paving way for rev­enue leak­age.

The gover nment should give a blue­print spec­i­fy­ing the per­cent­age of com­ple­tion that shall be con­sid­ered sub­stan­tial or other con­di­tions on sim­i­lar lines for claim­ing tax ex­emp­tion. This would be a wel­come move for mid­dle-class in­vestors and help them man­age their in­vest­ment bou­quet. It will also help sus­tain and in­crease the flow of in­vest­ment in the real es­tate sec­tor.

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