Transfer expense or house property deduction?
This query is : Resolved
09 July 2012
can u let me kno ur views on my following query:
a let-out flat (i.e. not self-occupied) was sold for 30 lacs. Out of receipt of 30 lacs, 10 lacs (6 lacs principal, 4 lacs interest) was re-paid to bank for outstanding loan.
Now for filing of return, these 10 lacs will be reduced from Sale consideration (as expense towards transfer) OR interest part to be reduced u/s 24 (i.e. under house property)?
A relevant case-law/circular will be very much helpful
a let-out flat (i.e. not self-occupied) was sold for 30 lacs. Out of receipt of 30 lacs, 10 lacs (6 lacs principal, 4 lacs interest) was re-paid to bank for outstanding loan.
Now for filing of return, these 10 lacs will be reduced from Sale consideration (as expense towards transfer) OR interest part to be reduced u/s 24 (i.e. under house property)?
A relevant case-law/circular will be very much helpful
09 July 2012
No, u did not claim the amount of Principal and Interest as sales consideration. Sales Consideration mean any expenses for sale of property. U can claim the amount of interest (4 Lakh) as loss under Income from house property and carry forward the same.
11 July 2012
If your client in question is not into the Business of Letting out properties on rent then charging of the Income from LOP under head " Business Income" gets ruled out.
There are two heads of Income that needs to be considered here, One is Income from HP and the other is Capital Gains
Holding the aforementioned assumption as true,
Income from Let Out Property will get taxable under the Head Income from House Property by virtue of Section 22 ( the charging Section). Section 24(b) of the Act prescribes the upper limit up to which Interest on Borrowed Capital can be claimed as a Deduction.
Since your client has sold the said House Property aspects of Capital Gains should be looked into. Section 48 of the I Tax Act prescribes the Mode of Computation of Capital Gains. The said Section has listed 3 specific deductions from the full value of consideration to compute Capital gains viz:
1. Expenditure incurred wholly & exclusively in connection with such transfer
2. Cost of Acquisition of the said Asset
3. Cost of Improvement thereto.
The Bank loan is taken for the Purchase of the said House Property and the Principal and interest component are paid towards repayment of this Bank loan.
In my opinion while computing the Capital Gains your client won't be eligible to claim an additional deduction of this Principal portion of the Bank Loan because you will already be claiming a deduction of Purchase Price of the said Property ( As the Bank loan was taken to make payment towards this Purchase Price,dedn principal component also would amount to double dedn). Now let us consider whether your client can take a deduction of the Interest Component while computing the Capital gain ? The Interest component cannot be said to fall under 1 & 3 of the aforementioned list of deductions as prescribed. The interest component could however fall under point 2 and could be considered towards Cost of Acquisition of the said Asset ( based on few judicial rulings) if:
- Interest is paid on moneys borrowed to purchase an asset AND
-the sums so paid towards Interest are NOT subject matter of deductions under any other head of Income. So if the Interest paid is/was claimed as deduction u/s 24(b) then the same cannot be allowed as a deduction under section 48.
So in my opinion you have to evaluate your decision to claim deduction on the Interest component in light of the relevant sections, facts of the case and should be supported by Judicial precedents
There are two heads of Income that needs to be considered here, One is Income from HP and the other is Capital Gains
Holding the aforementioned assumption as true,
Income from Let Out Property will get taxable under the Head Income from House Property by virtue of Section 22 ( the charging Section). Section 24(b) of the Act prescribes the upper limit up to which Interest on Borrowed Capital can be claimed as a Deduction.
Since your client has sold the said House Property aspects of Capital Gains should be looked into. Section 48 of the I Tax Act prescribes the Mode of Computation of Capital Gains. The said Section has listed 3 specific deductions from the full value of consideration to compute Capital gains viz:
1. Expenditure incurred wholly & exclusively in connection with such transfer
2. Cost of Acquisition of the said Asset
3. Cost of Improvement thereto.
The Bank loan is taken for the Purchase of the said House Property and the Principal and interest component are paid towards repayment of this Bank loan.
In my opinion while computing the Capital Gains your client won't be eligible to claim an additional deduction of this Principal portion of the Bank Loan because you will already be claiming a deduction of Purchase Price of the said Property ( As the Bank loan was taken to make payment towards this Purchase Price,dedn principal component also would amount to double dedn). Now let us consider whether your client can take a deduction of the Interest Component while computing the Capital gain ? The Interest component cannot be said to fall under 1 & 3 of the aforementioned list of deductions as prescribed. The interest component could however fall under point 2 and could be considered towards Cost of Acquisition of the said Asset ( based on few judicial rulings) if:
- Interest is paid on moneys borrowed to purchase an asset AND
-the sums so paid towards Interest are NOT subject matter of deductions under any other head of Income. So if the Interest paid is/was claimed as deduction u/s 24(b) then the same cannot be allowed as a deduction under section 48.
So in my opinion you have to evaluate your decision to claim deduction on the Interest component in light of the relevant sections, facts of the case and should be supported by Judicial precedents
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