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Recovering pre-emi interest on subvention tds

A. K. De (NA) (29 Points)

25 May 2015

I bought a flat where the builder agreed to pay PRE-EMI Interest till possession. With the bank it had aggreement till April '15. From May, I have to pay the PRE-EMI and they would reimburse it till possesion. On the first rembursement, a 10% TDS was deducted on acount of TDS-Interest-Others (94A). The builder's CA is saying(verbally), they will furnish Form 16 (or 16A) and I can get the refund. And since this is reimbursement, this won't get added to my income at all, but I can still claim the refund. I would appreciate any help or ideas on how to do the tax filling in such a case and any other specific details or anything else I should claim from builder. Urgent reponse would be appreciated hugely.

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9 Replies

Nikhil Kaushik (Fellow CA) (85053 Points)
Replied 25 May 2015

well logically the interest portion should be added to your income...rather Form 16A will seal the deal for it to be treated as "Income"

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A. K. De (NA) (29 Points)
Replied 26 May 2015

Originally posted by : Nikhil Kaushik
	well logically the interest portion should be added to your income...rather Form 16A will seal the deal for it to be treated as "Income"

In Section 94 A there is a wording

(4) Notwithstanding anything to the contrary contained in this Act, where, in any previous year, the assessee has received or credited any sum from any person located in a notified jurisdictional area and the assessee does not offer any explanation about the source of the said sum in the hands of such person or in the hands of the beneficial owner (if such person is not the beneficial owner of the said sum) or the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory, then, such sum shall be deemed to be the income of the assessee for that previous year.

So, I am thinking this may be a valid section for this. Could you please let me know the nuances of section 94 A in juxtaposition to my problem

Nikhil Kaushik (Fellow CA) (85053 Points)
Replied 26 May 2015

well you have gone way to far....why bother about 94A. section 56 itself is sufficient to include this as income in your hands...

Z ( ) (2960 Points)
Replied 26 May 2015

[TDS on interest on other than interest on security is covered u/s 194 A ]& not 94A (Special measures in respect of transactions with persons located in notified jurisdictional area)

You are referring to wrong section

94A is the Code for TDS under section 194A

Also am under impression that there should be no tax deduction on this because it does not fall within meaning of interest (in my understanding)

Because this is in nature of reimbursement , they have not taken a loan from you.

S2(28A) "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.

[Although in case of doubt I would have also recommended to deduct the tax and let the other person claim the refund, lest interest etc will be on me]

It would be great if someone throws light on this.

Nikhil Kaushik (Fellow CA) (85053 Points)
Replied 26 May 2015

First, the querist was refering to 94A only..not 194A...

lets see what exactly your transaction is. You take a loan from a bank for which interest is to be paid by you. However, you enter into an agreement with the builder and he pays the interest upto a certain date. So in essence all he is doing is taking over a liability on your behalf.

That is why it is an income. Take an example, till last year a lot of confusion prevailed as to whether gas subsidy will be taxable income or not. Only after govt clarified that such subsidy wont be taxed there was relief. Even gas subsidy was reimbursement in nature.

In your case, the pre-emi interest is to be aggergated and claimed as deduction under section 24b once the property is ready. Since someone else is bearing the accumulation, it is natural for it to be considered as income in your hands.

Now coming to section 2(28), isn't the whole argument is that builder will bear the interest cost? Once you agree that what builder is bearing is interest and that he is paying it on your behalf (only that he is routing it via your account as you are the borrower), it wont change the nature of transaction. Well the above is my interpretation

Further, whether you consider it as interest or not is relevant only for TDS purpose. With regards to your tax liability, What is not exempted as income and cannot be treated as capital receipt will be taxed. What is not covered under any other specific head of income, is taxed under section 56 covers all incomes that are not classified otherwise.

As I said, it is my interpretation. Good chance that there may be an alternative and equally stronger opinion for an alternative thought.