Tax Benefits On Rent Payment

I have taken a home loan from my bank for a house that I started constructing in November 2006. The construction of the house was completed in January 2009 and I have obtained the necessary completion certificate,etc....

Published:February 28, 2009 2:15 am

I have taken a home loan from my bank for a house that I started constructing in November 2006. The construction of the house was completed in January 2009 and I have obtained the necessary completion certificate,etc. from the requisite authorities to that effect. The house is lying vacant and I do not intend to let out the house as of now.

I have read in your column that I am entitled to claim the previous years’ interest payments as deduction in this year. Please explain how I should go about it.

Also,I have been staying in my father’s house since long and am paying rent to him for such stay. Will I be able to claim the tax benefit of both – rent payment from my HRA as well as home loan repayment benefit?

I am staying and working in Ghaziabad with my father. I have also built the new house in Ghaziabad itself.

Via Email

As per the income tax law,you cannot claim the deduction on account of interest payment on the home loan unless you have the house property. While your house is in construction,it is not a ‘house property’ as per the income tax law. Therefore,you are not allowed to claim deduction from your income on account of interest paid during the pre-construction period.

However,once the construction is complete,the interest paid after construction is allowed as deduction. Even the interest that was paid during that particular financial year will be allowed as deduction for that year itself,along with the interest paid after the completion of the construction or acquisition.

As for the interest paid prior to the financial year in which the construction or acquisition is completed,it shall be aggregated and allowed as deduction in five equal annual installment beginning the financial year in which the construction or acquisition is actually complete. This deduction would be in addition to the deduction actually allowed for that financial year for the interest payment for that year,and will be subject to the overall limit specified under section 24.

To sum it up,the interest that you pay for the period from 1 April 2008 to 31 March 2009 will be allowed as deduction for the financial year 2008-09 (assessment year 2009-10). The interest paid till 31 March 2008 shall be aggregated and allowed as deduction in five equal installments beginning the financial year 2008-09 (assessment year 2009-10). The overall limit of the deduction for the financial year 2009-08,however,would be limited to Rs. 1.5 lakhs,if the house is claimed to be self-occupied.

Now for the second part of your question. You can claim one house property as self-occupied with the resultant net annual value from it as NIL if that is the only property you own and you were not able to occupy it (or derive any other monetary benefit out of it) during the year in question,due to your employment in another city.

Since you have been working in Ghaziabad and staying in the same city with your father (and paying him rent for your stay with him),you cannot claim both the tax benefits at the same time. You will have to forgo one of them and can avail only the other in your income tax return.

I am a Government employee. My wife is a housewife having no earning as such. As a result of settlement of her share in the ancestral property of her late grandmother,she would be getting Rs. 8.33 lakhs this month. Kindly let me know firstly,what is income tax implication on the receipt? Is there any way by which we can save or reduce the tax liability?

Via Email

From what I understand from your mail,your wife is not the owner of the ancestral property in question. She is simply getting her share from the property,irrespective of the fact whether the property is sold or not. As such,she should not be taxed for receiving her share of ancestral property.

However,looking it from another angle,since the original property was in the name of her grandmother,it would have been passed on to somebody after her death. If your wife was the direct beneficiary of the original property and became the owner/co-owner of the property on her grandmother’s death,then she can be taxed for her share in the property. If this is the case,then she would be taxed on the capital gains from the property,the calculation of which would depend on various factors like how long has she held the property in her name,the cost of acquisition by the previous owner,the related transfer expenses,etc. For a precise calculation of the same,I would suggest that you contact an income tax practitioner who would go through your case personally and advise you accordingly. l

The author is a chartered accountant.

Confused about the various types of home loans on offer? Send in your queries to: estatesqueries@gmail.com

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