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T. Banusekar

AN employee has taken a loan from certain individuals for constructing his house. If the employee gives the particulars of the interest he pays for the loans, can the employer take cognisance of the same in arriving at the tax that needs to be deducted at source from the employee's salary? If the answer is in the affirmative what particulars should the employer call for other than the receipt for payment of interest from the employee?

R. Srinivasan

Reply

If an employee gives particulars of his other incomes not being a loss (except a loss under the head income from house property), the employer shall take cognisance of the same, and the tax deducted on such income in determining the tax to be deducted on salaries. The amount of tax deduction on salaries, however, cannot be lesser than the tax on salary as reduced by the rebates and deductions, if any, available to the employee. This, however, will not apply in respect of a case where the employee gives particulars of a loss under the head income from house property. The prescribed particulars are to be given in form 12C. So long as the employee has given the particulars that are required in form 12C, the question of calling any further particulars from the employee by the employer does not arise.

Query

I have taken a housing loan from my employer under a staff housing loan scheme of Rs 4 lakh. The loan bears a 10 per cent interest annually, simple rate of interest. The loan was borrowed on October 1 this year. The principal is repayable in 180 equal instalments. After the repayment of the principal, interest is collected in 60 monthly instalments. Interest debited for the period from 1.10.2002 to 31.3.2003 would be Rs 20,000. I have also taken a Rs 2 lakh housing loan under a public loan scheme for the same house at an annual interest rate of 11 per cent, compounded quarterly. The EMI for this loan is repayable in 180 instalments. The repayment commences from May 2003. Interest up to 31.03.2002 will be Rs 6000, which has to be paid before 31.3.2002, that is, before the EMI commences. The house for which the loans have been borrowed will be completed in April 2003. Can I in the circumstances, claim the interest for the period 2002-2003 as a deduction against my salary income? In case of the first of the loans mentioned, can I claim the interest as a deduction in the year in which it accrues, though not paid or should it be claimed only from the year in which the repayment starts?

Johny Joseph

Reply

Interest on loans borrowed for purchase, construction, repairs, renewals or reconstruction of a house property can be claimed as a deduction under Section 24 in computing income from house property. Interest accrued up to the previous year immediately preceding the previous year in which the construction or, as the case may be, the purchase is completed can be claimed as a deduction in five equal monthly instalments commencing from the previous year in which the construction or, as the case may be, the purchase is completed. In the reader's case, therefore, the interest accrued up to 31.03.03 can be claimed in five equal instalments commencing from the previous year 2003-04 (assessment year 2004-05). It may also be noted that if the property is self-occupied, interest can be claimed only subject to the limits stipulated by Section 24. Interest on loans borrowed can be claimed only in the year of accrual and cannot be claimed as a deduction in the year of payment. Section 24 in this regard is clear, as it provides that the interest "payable" on capital borrowed can be claimed as a deduction. The reader can, therefore, claim the interest relating to the respective years only in those years, and not in the year of their actual payment, which commences after the repayment of the principal.

Interest on housing loan at any rate cannot be claimed as a deduction against the salary income. If on a computation of income from house property there is a loss, the same may be set off against the salary income of the assessee.

However, in the reader's case for the previous years 2001-02 and 2002-03 (assessment years 2002-03 and 2003-04), interest cannot be claimed as a deduction as explained already. Therefore, the question of a loss arising in these previous years does not arise. For the previous year 2003-04 (assessment year 2004-05), however, there may be a loss under the head house property, which may be reduced from the salary income of the reader.

Query

Can interest on housing loan payable during the construction period be claimed as a deduction fully in the year in which the construction of the house is completed?

R. Muthukrishnan

Reply

Interest on loan borrowed for the purpose of purchase or construction of a house property and accrued up to the previous year immediately preceding the year in which the purchase, or construction, is completed can be claimed only in five equal instalments commencing from the previous year in which the purchase or construction is completed. Pre-EMI interest cannot, therefore, be claimed fully as a deduction in the year in which the purchase or construction of the house is completed.

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