Interest on borrowed capital

Tax queries 2569 views 9 replies

Anuraag Sharma

Sr Executive Finance

845 Points Posted on 22 May 2009

Whether interest on borrowed capital a part of cost of acquisition of a capital asset???

If yes..then refer this query....

An individual Assessee borrows fund for aperiod of 5 years for purchasing a house property which is to be used by him for his own residence

It avails deduction of interest paid on such borrowed under section 24...

In seventh year(from the date of acquiistion of property)...it "transferred" its house falling u/s 2(47) and gains some profit on its transfer

Now he added the interest paid(total) into the cost of acquisition of asset....

In this way he enjoys double benefit one by caliming deduction u/s 24 and another by reducing his tax liability arising on tarnsfer of a capital asset.....

Is this correct??Plaese guide reagrding this...??

Replies (9)

PiyushAgrawal

Chartered acooutant in practice

575 Points Posted on 23 May 2009

Originally posted by :Anuraag Sharma
"	Whether interest on borrowed capital a part of cost of acquisition of a capital asset??? If yes..then refer this query.... An individual Assessee borrows fund for aperiod of 5 years for purchasing a house property which is to be used by him for his own residence It avails deduction of interest paid on such borrowed under section 24... In seventh year(from the date of acquiistion of property)...it "transferred" its house falling u/s 2(47) and gains some profit on its transfer Now he added the interest paid(total) into the cost of acquisition of asset.... In this way he enjoys double benefit one by caliming deduction u/s 24 and another by reducing his tax liability arising on tarnsfer of a capital asset..... Is this correct??Plaese guide reagrding this...??	"

I think You can't add intrest in cost of aquitisition.

If i am wrong plz make me correct???

thanks in advance

Anuraag Sharma

Sr Executive Finance

845 Points Posted on 23 May 2009

I have read that " interest on borrowed capital for purchasing/constructing a house property is a part of capital acquisition"

I have read yhis in A Students Guide to Income Tax of taxmann's publication (by Dr. V.K.Singhania) 40th edition.....

Now please answer my query.........

Ankit

38 Points Posted on 24 May 2009

yaeh Anuraag is right Interest is a part of cost of acquisition

and in this manner assessee can avail these exemptions twicely..........

nice tax planning.....

deepak K Gujrati

CA-practice

1077 Points Posted on 25 May 2009

Int paid on borrowed capital is capitalised till such time the asset does not start commercial production. As soon as commercial production is started it is not capitalised. it is treated as revenue expenditure. But this true if it is a business asset. In case of residential house if interest has been claimed as an expense and not capitalised then how it cab form part of capital asset. Intest paid cant be capitalised.