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Land property and cg tax

Dev (Software Engineer) (28 Points)

23 July 2013

I bought a peice of land 2 yrs ago for Rs.10 Lakh. This was funded by a personal loan of about Rs. 7 lakh @ 14%.

Now, I am planning to sell this land at its market value of Rs.15 lakh. I will invite a STCG tax for Rs.5 lakh.

Q> Is there a way to offset the interest paid on the Rs.7 lakh borrowed money over the profit I make? If so, what is the section under which I can do this. I do not want to use this gain to buy a house or reinvest in land.

Thanks

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9 Replies

CA Nitin K. Varshney (FCA DISA CCA Peer Reviewer (ICAI)) (606 Points)
Replied 25 July 2013

You can not claim interest on housing loan as an expenditure. Interest on housing loan will be claimed in income from house property as a loss and the principal part of repayment will be claimed u/s 80C. so there is no provision to claim interest on HL as expenditure of as COA.

CA Nitin K. Varshney (FCA DISA CCA Peer Reviewer (ICAI)) (606 Points)
Replied 25 July 2013

Dev (Software Engineer) (28 Points)
Replied 27 July 2013

Originally posted by : CA Nitin K. Varshney

I appreciate your response. Thanks for that.

However, you have misunderstood the Question. I have not taken a house loan. Its a PERSONAL LOAN. Imagine, I've incurred an interest of Rs.2.5 lakh on the Rs.7 lakh I borrowed as PERSONAL LOAN from the bank in the last 2 years, can I offset this 2.5lakh from the 5lakh STCG??

CA Nitin K. Varshney (FCA DISA CCA Peer Reviewer (ICAI)) (606 Points)
Replied 27 July 2013

it was a personal loan. will u tell me this loan was taken for which purpose? If it was a personal loan taken for any other reason except for that particular house property, it can not be claimed as cost of acquisition for that house property.

so pls clear the purpose of personal loan.

Dev (Software Engineer) (28 Points)
Replied 29 July 2013

Hi Nitin,

The purpose for the personal loan was marriage. But because marriage got cancelled, I used it to buy a plot.

Can i count the interest as acquisition cost?

I am filing ITR-2. Is the correct section to delcare this CG_OS?

Thanks again for your help,

CA Nitin K. Varshney (FCA DISA CCA Peer Reviewer (ICAI)) (606 Points)
Replied 29 July 2013

as per my view interest on loan can not be claimed as cost of property. and it was personal loan not housing loan, u hv to proove it that u invested the money on house to claim interest as loss on house property.

Dev (Software Engineer) (28 Points)
Replied 29 July 2013

Hi Nitin, thanks again.

I can prove that the personal loan was used up to buy the plot/site coz, the transaction was all done in checks. And I didn't have any other money in the bank at that time. Once the loan amount was disbursed to me, it was paid to the seller in the form of checks.

But the interest I pay is still a loss on the property I bought right? can it not be used to offset against any gains I make on this property?

CA Jaspreet Singh Sidana (Chartered Accountant) (45 Points)
Replied 29 July 2013

Mr Dev... i wud like to knw whether plot is situated in the municipal limits of the city..and sir for claimin interest off set u r talkin abt is the interest claimed on self occupied house property..its only the plot of land and thus wud not constitute a house property..and if its a vacant land situated outside the municipal limits of the city is is outside the definition of capital asset and no capital gain shall b charged on that..otherwise the only option to avoid the cap gain is to invest the amount in another property ...interest cannot b used to offset ur gain amount....