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T. Banusekar

I HAVE borrowed some money from my friends and relatives for acquiring a new flat. Will the interest payable to them qualify for deduction?

P. Kalpana

Reply

Interest paid on loan taken for purchase, construction, repairs, renewals or reconstruction of a house property will qualify for deduction under Section 24 in computing the income from house property.

No distinction is made in this regard between loans taken from a housing finance company and from others, including friends and relatives.

You can, therefore, claim the interest paid to your friends and relatives on the loan taken for acquiring the flat as a deduction.

Query

I own a flat in Mumbai. This flat has been let out on rent. I stay in an accommodation provided by my employer, which is near the company in which I work.

Can I claim deduction in respect of interest on borrowed capital and principal repayment of the housing loan in respect of the house which is let on rent?

What would be the position if the property that I own is left vacant?

Rajesh

Reply

You can claim deduction in respect of the capital borrowed for acquiring the flat. You can also claim rebate in respect of the principal repayment of the housing loan. The maximum amount that will qualify for rebate is Rs 20,000, subject to the overall limits, and will be available only if the gross total income does not exceed Rs 5 lakh. If the property is vacant because of your not wanting to let it out, the annual value of the same can be taken as nil and the property treated as self-occupied if it cannot be occupied because of your employment being at a place which is different from where the property is located. In such a case, you can claim deduction in respect of interest up to a maximum of Rs 30,000 or, as the case may be, Rs 1,50,000, depending on when the property was acquired and when the loan was taken.

If it is vacant because of not being able to find a tenant, it would still be possible for you to take the annual value as nil and claim deduction in respect of interest without any ceiling. In both cases, the rebate will be available in the manner discussed.

Query

I have purchased a flat along with my wife. The stamp duty paid by me towards my share of the property is Rs 76,000. I paid this in December 2004. I have, however, not taken possession of the flat. The possession is likely to the handed over to me in October 2005. When will the stamp duty paid qualify for rebate? The EMI I have to pay on the loan that I have taken for purchase of the flat has already commenced. From when will the EMI qualify for tax benefits?

Santhosh K.

Reply

The stamp duty paid will qualify for rebate under Section 88 in the year in which it is paid. The rebate is to be claimed in the year of payment in accordance with Section 88(2)(xv)(d). In your case, the rebate can be claimed in the financial year 2004-05 (assessment year 2005-06). The principal repayment of the housing loan from out of the EMI will also qualify for rebate in the year in which it is paid.

The pre-EMI interest will qualify for deduction in five equal annual instalments beginning from the year in which the purchase or construction in completed. Pre-EMI interest will mean the interest up to the end of the previous year immediately preceding the previous year in which the purchase or construction is complete.

The interest of the year in which the purchase or construction is complete and of subsequent years can be claimed in the respective years.

Query

My sister and mother run small businesses. They earn Rs 75,000-80,000 per annum each. My mother is a senior citizen and my sister is entitled to rebate under Section 88C. They have not filed returns in the earlier years. They are now looking to raise a bank loan for purchasing a house. Can they now file their income-tax returns for the financial years 2001-02 and 2002-03 and claim the rebate they are eligible for making their tax nil? Will there be any penalty for filing the return late?

Anonymous

Reply

A return can be filed belatedly under Section 139(4) before the expiry of one year from the end of the relevant assessment year or before completion of assessment, whichever is earlier. In the case of your sister and mother it is assumed that no assessment has been completed. A return for the financial year 2002-03 (assessment year 2003-04) can be filed before March 31, 2005. No returns can be filed for the financial year 2001-02 (assessment year 2002-03), as the same will be barred by limitation. Penalty may be imposed under Section 271F to the extent of Rs 5,000 for failure to file the return before the end of the relevant assessment year.

This may be levied going by the strict language of the statute even if no tax is imposable since every person whose income exceeds the maximum amount not chargeable to tax is required to file a return. If, however, there is a reasonable cause for failure to file the return, no penalty will be imposed.

Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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