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loan processing fee

SukanyaP (Sr.AO) (32 Points)

24 October 2009

Can I claim the processing fee, which I paid to LIC for purchasing a flat, on par with interest on loan amount, to be deductible from total income?

Request answers with the support of section/rule numbers pl

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6 Replies

Sunil (Trader) (2611 Points)
Replied 24 October 2009

Definition of Interest as per Chapter 1 Section 2 includes such processing fees also. Normally for business purpose such fees are chargeable as interest whether you avail the loan or not. This would mean that the loan should be sanctioned then whatever amount you pay as fees or commission (like discount charges or commission) is concerned is interest as long as it has connection to the loan sanctioned to you even though you may not have been disbursed the loan immediately after sanction.This means all these fees should be paid to whoever disburses or sanctions to you the loan and not to anyone else. If you pay a fee to any other person in connection with the loan like say for arranging the loan, then that cannot be interest. There has to be a direct nexus between sanctioning / disbursing the loan and charges or fees paid.

It should be allowed against the income from House property also as much as it is allowed as expense as the definition of interest is in this section for the entire Income Tax Act and in no section is it defined in any other way.

CA CS VINAYAK PATIL (CHARTERED ACCOUNTANT) (921 Points)
Replied 24 October 2009

processing fee can be claim under section 80c

Sunil (Trader) (2611 Points)
Replied 24 October 2009

Vinayakji. Interest can be claimed only against income from HP. Therefore the processing fee in the nature of interest on borrowing for house property can only be claimed against the income from HP. In Section 80C you can only claim that portion which is going towards repayment of principal. Payment for a fee can in no way be towards the principal.

praveen (Chartered Accountant) (6971 Points)
Replied 24 October 2009

i am not sure on this, correct if it is wrong.

I thought that only interest can be claimed as deduction or loss under house property and not processing charges.

Please give me the subsection of 2 describing interest as including processing fees.

Sunil (Trader) (2611 Points)
Replied 25 October 2009

Chapter 1, Section 2, Clause 28A defines the word INTEREST for the entire Act. If you can draw a nexus between the processing fee being actually for that housing loan and paid to the bank who is disbursing that housing loan to you, then that processing fee falls under the definition of interest for the income tax act. For your income against house property, if they specifically state that processing fee is not included, then you cannot claim it. However, if they have stated that interest is allowed, then interest will be allowed as defined in Section 2 above unless they define it in a different way particularly for the income against HP.

If you want to, you read the section for Income against H thoroughly and see if interest is specifically defined for that section. If not, then the definitions above will remain applicable and will include any fees in connection with that debt that you pay to the bank. However, I do not think you can claim cheque / ecs bouncing charges and other penal charges as penal charges are specifically disallowed in all sections of Income Tax Act. you should have the certificate from bank indicating that you have paid interest including charges on strength of which you claim the expense of interest.