You may not be able to claim home loan interest rebate even after possession

[s1joshi]

16 Aug 2014
Hindustan Times (Delhi)
Sonu Iyer The author is partner and national leader – Human Capital Services, EY

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 deduction 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 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 arises 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 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 government 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.

Link : http://paper.hindustantimes.com/epaper/ ... 7b43e3c1fb

Hindustan Times epaper : Dated 16 August 2014, Page 7

[dheerajjain]

This is not good at all. Govt does not provide any relief against builders and there is no law in India for Real Estate regulation. Yet Govt charges service tax on Real Estate and in double edged sword against honest middle class tax paying citizens, Govt is denying tax benefits also if flat possession is delayed beyond 3 years after taking Loan.In the example cited in article, there is a direct loss of at least Rs 9 lakhs in Interest tax exemption if flat possession is delayed beyond 3 years after taking home load. Check detailed illustrations provided in article.

Builders and Govt have looted us. Modi in his independence speech did not utter a single word for reining in corruption and for resolving exploitations faced by middle class.

[cujatin]

TO b honest ... Really shocking for me ..its like last big lunch that you get by builder, govt & Bank ...before dying in this fight .. On the other hand surprised too .. There are enough articles on net telling all that bullshit of tax exemptions on home loan and they dont mention this at all ....

Jatin

[s1joshi]

These are some hidden secrets... almost similar to clauses in builder buyer agreement

Somehow believe there are lot of issues with the IT exemption in current form, For the first time borrowers, First of all, why the exemption should be postponed till possession, and even when you continue to wait for ages in silence , and hope some day when you receive possession, you may be able to re-claim the interest paid, then such clauses pop's up from no where.