Income Tax on Property


(Querist)
14 November 2019
hi Team,
i am negotiating a settlement of refund ( Principal and Interest)with the builder as the possession is delayed for booked property. i have a question regarding the tax treatment of such money received
The Property was booked in 2012 and was supposed to be delivered in 2017, but not delivered till date
payments have been made between 2012 and 2017
Allotment letter was issued in Dec 2014, Agreement was signed in Apr 2013

1) I know that the Principal will be treated as Capital received hence no taxation
2) The interest that i receive will it be treated as a Capital or a revenue receipt
3) I have taken a home loan on the above property , and have not yet claimed any deductions under Chapter VI / Section 80C since it was an under construction property
My Questions
in case its considered as a Revenue receipt , can i deduct interest paid to the bank as expenses plus legal fees paid to lawyers etc as expenses and then pay tax ?
or will those deduction as expenses will not be allowed
All help will be truly appreciated
regards,
Ranpreet


CA R SEETHARAMAN (Expert)


Click to Talk 15 November 2019
Yes you can deduct interest paid to the bank as expenses plus legal fees paid to lawyers etc as expenses and then pay tax


CA Sumiit B Nagpal (Expert)
16 November 2019
Hi Ranpreet
In my opinion you are giving away a right to purchase the property back to purchaser, so correct course of action in this case would be to show the amount received as capital gains.
You can calculate long term capital gain by taking the receipts ( principal + intt) as full value of consideration and indexation can be applied on the amounts paid for allotment and afterward including interest and all as cost of acquisition and cost of improvement. This will be correct treatment as per my understanding and With indexation benefit tax would be saved to a large extent.


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