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Loss from Interest from a house property not yet acquired

Iam Singho (none) (91 Points)

04 December 2009

Hi,

I took a home loan to purchase a residential property from a builder under construction. As the construction was taking a long time, I sold the "right" to the property after three years.

When I sold the property, the construction was not yet complete, I had not registered the property and had neither moved into the property.

I made a cash gain of Rs. 5,00,000 in the sale. The interest on the housing loan paid in the previous 3 years was Rs. 2,00,000.

While calculating my total gain, can I deduct the interst on the housing loan as investment expense and claim a gain of only Rs. 3,00,000 ?

BTW, I am a NRI, and did not have any India originated income for the past three years and never filed an ITR in India.

Regards,

Iam

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16 Replies

Ajeej Hussain (Audit Executive) (189 Points)
Replied 04 December 2009

waiting for the reply guys

CA Ayush Agarwal (Kolkata-Pune-Mumbai) (27344 Points)
Replied 04 December 2009

no, U Can't Take Interest as deduction from CG.

& here there is no relevancy of Resident or non resident

Iam Singho (none) (91 Points)
Replied 04 December 2009

Originally posted by :AYUSH AGRAWAL
"	no, U Can't Take Interest as deduction from CG. & here there is no relevancy of Resident or non resident	"

Shouldn't the interest on the housing loan be counted as Investment Expense ? After all, I am investing in an immovable property and taking a loan for it ?

Iam Singho (none) (91 Points)
Replied 04 December 2009

Can anyone clarify my question ?

Shouldn't the interest on the housing loan be counted as Investment Expense ?

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 04 December 2009

Doesnt somewhere in sec 43(definition of cost) isnt it said that interest paid or payable before the asset is put to use forms part of cost of the asset..if so doesnt it form part of cost??

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 04 December 2009

so cant it be part of cost of acquisition?

Iam Singho (none) (91 Points)
Replied 04 December 2009

Originally posted by :Hareesh H Sharma
"	so cant it be part of cost of acquisition?	"

Since I didn't take possession of the house, all I have is an allotment letter. The interest I paid, is after the possession of the allotment letter.

Basic common sense tells me that interest paid should be basis of cost of aquisition - but there is some confusion. Hence asking opinion from the learned forum members.

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 04 December 2009

srry sir am nt any of those learned members..i just gave my opinion as to wat i hav gone thru in my curriculam...i hope some experts goes through this to give der opinion

Iam Singho (none) (91 Points)
Replied 04 December 2009

Please refer to the post in https://www.taxworry.com/2008/11/can-interest-paid-on-loan-taken-for.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+FAqOnIndianIncomeTaxLaws+(F.+A.Q.+on+Indian+Income+Tax+Laws!).

It seems interest loss can be a basis of cost calculation, if it has not been claimed previously.

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 05 December 2009

So, if the interest was already taken as deduction under I T Act, the interest can not be claimed as deduction, but if the interest was not taken as deduction under I T Act , it becomes cost of acquisition of asset and accordingly will be deducted while computing capital gains.

That explains it sir..anyway nice piece of info for me..thanx

Lalit aggarwal (.) (371 Points)
Replied 05 December 2009

i think it is of the nature of capital Exp. as it is before of construction period nd no deduction is taken in the head of house property till date,thus it should be treated as Cost of acquisition...

NARENDER PAWAR (CA final Student) (337 Points)
Replied 05 December 2009

intt. should be treated as a cost of improvement & it should be deducted having being indexed taking index rates of the year when such payment (intt. ) was paid.

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 05 December 2009

Dear Narender,

Did you go through that link posted about a case law...There it suggests that its part of cost of acquitions..So how come its cost of improvement ....

Iam Singho (none) (91 Points)
Replied 06 December 2009

Just as aquisition cost is indexed, so should interest payments be indexed to the date it is sold. Just that different years interest payment should be indexed different.