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Do Home loan form part of Cost of acquisition

Ayushraj (Professional) (125 Points)

31 March 2010

Can repayment of Home Loan taken for a Flat by an individual be added to cost of aquisition of the said Flat?

Can Processing Fees, Stamp Duty paid on Mortgage Deed (for Home Loan) added to the cost of acquisition of a Flat?

Can payment of Interest on Housing Loan for aquiring House form part of Cost of Acquisition?

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7 Replies

kartik_somu (B.Com, ACA, CISA, CIMA) (1665 Points)
Replied 31 March 2010

processing fees and stamp duties paid on purchase of house forms part of cost. Interest on loan will not form part of cost

Amir (Learner) (4016 Points)
Replied 01 April 2010

Dear Ayushraj,

Repayment of Home Loan is not a "Cost of Acquisition" it is a mode of payment of "Cost of acquisition"

However in case of Loan an additional benefit is also provided u/s 80C that repayment of principal will be eligible to get deduction apart from being it considered as Cost of Acquisition which you will be deducting at the time of sale of property -

So there is double benefit - One in the form of Repayment of Principal and the other in the form of "Cost of Acquisition

As far as processing fee, mortagage deed and stamp duty are concerened, It form part of cost of acquisition.

Now coming to Interest -

a) If it is a Property of Business - then Interest upto the period of construction will be included in the Actual Cost & depreciation will be allowed on that. Where as interest for the post construction period will be allowed as revenue expenditure u/s 36.

b) If it is not an asset of Business (i:e Personal Asset) - Unlike the case of principal here double benefit is not avialable - I mean only that part of Interest which has not been claimed u/s 24 can be added to the Cost of acquisition.

C.Balaji (Learner) (1867 Points)
Replied 01 April 2010

Dear Ayushraj.....

Repayment of Home Loan taken for a flat cannot be added to Cost of Acquisition .........

Repayment of Housing Loan principal can be claimed as ded u/s 80C..........

As Amir bhai said.....there is double benefit - One in the form of Repayment of Principal and the other in the form of Cost of Acquisition

As far as processing fee, mortagage deed and stamp duty are concerened, It forms part of cost of acquisition.

As rightly said by Amir..........

b) If it is not an asset of Business (i:e Personal Asset) - Unlike the case of principal here double benefit is not avialable - Interest which has not been claimed u/s 24 can be added to the Cost of acquisition.

Raj Saxena (1412th Tiger) (Struggling Student) (272 Points)
Replied 01 April 2010

Aaamir bhai what do u mean by

Originally posted by : Amir
	So there is double benefit - One in the form of Repayment of Principal and the other in the form of "Cost of Acquisition

Dipali Bathia (Associate Taxation) (21 Points)
Replied 20 March 2012

can u please suggest some case law for interest on housing loan can be added to cost of acquisittion when it is not claimed as deduction u/s.24?

Prasanna (Articled Assistant) (119 Points)
Replied 04 June 2012

INTEREST PAID FOR ACQUIRING ASSET CAN BE TREATED AS PART OF COST!

In many situations, a taxpayer may acquire a capital asset by taking a loan or borrowing funds, being required to pay interest on the same. An interesting question that would arise for consideration in such cases is whether the interest paid by the taxpayer on such loan or borrowing can be added to the cost of acquisition while computing his taxable capital gains when he later sells the asset?

This issue came to be decided by the Delhi High Court in the case of ‘CIT vs. Mithileshkumari’ 92 ITR 9 (Delhi), wherein the High Court had occasion to consider a case where a lady taxpayer had raised a loan from her mother-in-law for acquiring a land. When she sold the land she included the amount paid towards interest on loan in the actual cost and disclosed the remaining amount as capital gain on sale of land. The Assessing Officer held that amount paid towards interest could not be added to the cost of the land.

The Delhi High Court held that it would be reasonable, to include in the actual cost of the capital asset all expenses which were incurred by the taxpayer in acquiring the capital asset as distinct from the items of expenditure which were incurred for retaining or maintaining the capital asset. The fact that the amount of loan was paid by the taxpayer to the vendor for acquiring the land and that the amount of interest was paid to a different person, namely, her mother-in-law, did not make any difference so far as the taxpayer was concerned in respect of the actual cost of the land to her. It would not also make any difference whether the interest was paid on the date of the purchase or whether it was paid subsequently. Therefore, the taxpayer was justified in adding the interest amount towards the actual cost of the land, for purposes of computation of capital gains.

DOUBLE DEDUCTION FOR SAME INTEREST NOT ALLOWED!

However, in the above context, it also needs to be borne in mind that if the taxpayer has been allowed a deduction in respect of the interest paid for the acquisition of the asset under any provision of the Income-tax Act, such as interest deductible on housing loan interest deductible on housing loan under Section 24 or against income from other sources under Section 57, double deduction for the very same interest cannot be claimed by the taxpayer as part of the cost of acquisition of the capital asset, while computing the taxable capital gains in case of transfer of such asset. This principle has been laid down by the Karnataka High Court in its judgement in the case of ‘CIT vs. Maithreyi Pai’ 152 ITR 247.

Mithilesh Vazalwar (c.a final) ( ) (37 Points)
Replied 08 October 2013

Originally posted by : kartik_somu
	processing fees and stamp duties paid on purchase of house forms part of cost. Interest on loan will not form part of cost