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Interest on plot of land

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)

10 May 2014

Dear Friends

i would like to discuss one case given below:

Mr. X Purchase a plot of land in 2010 for INR 50 Lac with the borrowed money 20 lac from bank.

in last 4 year Mr. X has paid interest on loan say 5 lac

Query: will this interest amount Rs. 5lac be added to cost of plot or will it be a simply drawing

because no deduction is available u/s 24 b for this interest as plot is not a residential house.

To my mind it should be added to cost of plot for calculating capital gian if said plot sold.

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8 Replies

CA Raj Doshi (Practising CA) (8784 Points)
Replied 10 May 2014

Your query is not clear. Please add more details as to whether let out or self occupied. And to add " House property " means any land or building appuertenant thereto. There is no requirement for reidential or commercial usage. Waiting for your reply with more insights on to your query. Regards

RAJ CHETAN DOSHI

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 11 May 2014

Originally posted by : Raj C Doshi
	Your query is not clear. Please add more details as to whether let out or self occupied. And to add " House property " means any land or building appuertenant thereto. There is no requirement for reidential or commercial usage. Waiting for your reply with more insights on to your query. Regards RAJ CHETAN DOSHI

as i told in my original query that it is a "plot of land" . it is not being used my me or nor let out to any one.

no question of building or land appartunent there to because there is no building attached with land.

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 12 May 2014

anybody to answer

CA Raj Doshi (Practising CA) (8784 Points)
Replied 12 May 2014

The interest cannot be capitalised while calculating the capital gains. Principal of loan repaid could be taken u/s 80C if the conditions therein are fulfilled.

CA Raj Doshi (Practising CA) (8784 Points)
Replied 12 May 2014

And I agree that interest is simply drawing. You cannot capitalise because the plot of land is ready and the amount of interest paid is not used for bringing the land to it current state and location.

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 12 May 2014

Dear Doshi

i would like bring you attention to following:

1. we can not take benefit u/s 80c for principal amount repaid because this is not a residential house property.

2. Yesterday i came to know one case law "CIT vs. Mithlesh Kumari (1973) 92 ITR 9 Del"

where highcourt says that can capitalise such interest with cost of plot for capital gain purpose in case of sale of plot.

let me know if i am wrong

CA Raj Doshi (Practising CA) (8784 Points)
Replied 13 May 2014

I will reply to your case laws soon regarding capitalisation. However please read the following . I assume you already have one s.o.p So this plot of land if you claim to be idle , it will be a case of deemed to be let out property. So on an advisory point , you should assume it to be let out or deemed to be let out as the case may be and introduce rent in cash max 15000 if you claim to be let out ( so no TDS provisions applicable ) . This will lead to claim interest on loan u/s 24 for both let out and deemed to be let out as plot of land is house property within the definition. This is on an advisory footing. Coming to sale of plot of land , being long term asset other than residential house property you can claim exemption u/s 54F.

CA Raj Doshi (Practising CA) (8784 Points)
Replied 13 May 2014

As per the case law , you are completely right tax pandit. Interest cost can be capitalised in this case since plot of land is not let out and thus no income. Regards Raj Chetan Doshi