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
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.