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T. Banusekar

CAN interest on capital borrowed for extension of a house be claimed as a deduction? If the answer is in the affirmative can an employer take into account the interest on the loan repaid for such extension in computing the tax to be deducted at source?

N. Swaminathan

Reply

Section 24 permits a deduction to be claimed towards interest on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing a house property. It is felt that interest on capital borrowed for extension of an existing house will also qualify for the deduction.

While computing the tax to be deducted at source the employee may give particulars of his other incomes which the employer must take into account in deducting tax at source on salaries. The law does not permit the employee to give particulars of a loss from any head other than the head income from house property.

An employee may, therefore, give particulars of a loss under the head house property, which an employer must take into account in determining the tax to be deducted at source. Thus, in a case where the property is self occupied the employer must take into account the loss arising as a result of the interest payment on loan taken for extension in computing the tax to be deducted at source which means that the deduction requirement would correspondingly be reduced.

If the house were let the interest would go to reduce the income from house property, and if particulars are given to the employer, must be taken into account in determining the tax to be deducted at source. In brief it may be said that such interest can be taken into account in computing the tax to be deducted at source.

Query

I purchased a plot of land out of my own savings in 1995. I had incurred a sum of Rs 19,285 as stamp duty and registration charges for purchase of the land.

I thereafter constructed a house on the said land in the 2000 and have let out the property, the income from which is offered to tax as income from house property after reducing the available deductions including interest on borrowed capital for constructing the house. I have not claimed the stamp duty and registration charges as a deduction in computing the house property income.

I understand that the same can be claimed as a deduction. Since I have not claimed the same as a deduction earlier, can I claim it as a deduction in computing the house property income? Though my house was constructed in 2000, the same has so far not been assessed to tax by the municipal tax authorities. I have, therefore, not claimed any municipal tax as a deduction.

I have received a notice from the income-tax authorities asking me to produce proof for payment of municipal taxes and then get the refund due to me. Despite my approaching the municipal tax authorities for the assessment they are not in a mood to assess my property. Kindly guide me on how to go about getting the refund from the Income-Tax Department, under the circumstances.

Anil Garg

Reply

Stamp duty and registration charges cannot be claimed as a deduction in computing income from house property. These will, however, qualify for a rebate under Section 88.

It has been clarified on several earlier occasions that the stamp duty and registration charges on land on which the house is constructed will also qualify for rebate under Section 88. However, the rebate cannot be claimed in the current year. The rebate is to be claimed in the year of payment in accordance with Section 88(2)(xv)(d). The only course open to the reader may be to approach the Board in terms of Section 119 and request the Board to admit the belated claim for rebate in the year of payment. It may be noted that the aggregate of sums specified under Section 88(2)(xv) which will qualify for the rebate cannot exceed a sum of Rs 20,000 (Rs 10,000 up to assessment year 2000-01).

There seems to be no reason why the reader should be concerned about approaching the municipal tax authorities for assessing his house in order to claim the refund from the Income-Tax Department. Municipal tax is allowable as a deduction under Section 23 only in the year of payment irrespective of the year to which the payment relates. The reader is, therefore, correct in not claiming any deduction by way of municipal tax. It would not be correct on the part of an Assessing Officer to require an assessee to produce any proof when no deduction has been claimed by way of municipal taxes.

The reader is advised to approach the Assessing Officer and to explain that no deduction has been claimed by way of municipal tax payment, and there should be no difficulty in the reader getting the refund thereafter. As and when the municipal tax is paid the reader can claim it as a deduction in computing his income from house property irrespective of the year to which it relates.

Query

In the Budget speech, the Finance Minister had announced that there would be no change on the deduction available on housing loans in computing house property income if the same is self occupied or in the availability of rebate under Section 88 on the principal repayment of such housing loan where the house is self occupied. Kindly let me know whether there is any change that is proposed in respect of a property that is let?

Kanak R. Nambiar

Reply

The Finance Bill 2003 does not propose any change in respect of the rebate available under Section 88 for the principal repayment or on the interest paid on housing loan if the house is let. The deduction in respect of interest on housing loan as is proposed by the Finance Bill 2003 will be as follows:

In respect of a self occupied property: Rs 30,000. If the capital is borrowed on or after April 1, 1999 and the construction or acquisition is completed within three years from the end of financial year in which the capital is borrowed: Rs.1,50,000.

If the property is let or is deemed as let, the interest on housing loan can be claimed as a deduction without any ceiling limit.

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