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PCC - Tax - House Property - Pre-construction period Query

VUELVE (CA- Student) (346 Points)

09 March 2010  

Hello Friends,

 

I have a small query in PCC Taxation, in the topic Income from House Property, Pre-Construction Period Calculation. Here is the question in my book :

 

B purchased a piece of land, the built-up area of house was 1,000 sq ft. Ground Floor and an equal area in the first floor. B Started the construction on 1.4.2008 and completed the construction on 1.7.2009. B Occupied the ground floor on 1.7.2009 and let-out the First Floor for a rent of Rs.15,000 p.m. However, the tenant vacated the house on 31.12.2009 and B occupied the entire house during the period 1.1.2010 to 31.3.2010. B has availed a housing loan of Rs.12 Lakhs at 10% p.a on 1.7.2008. No repayment was made by him till 31.3.2010.


So in this question i've calculated current period interest as follows :

For the purpose of Self Occupied and Let out portion, i'm taking 50%.

12,00,000*10%*50% = 60,000

 

This is what I did but in my text book padhuka its given in this way which i didn't understand :

 

current period interest  ------- 12,00,000*10%*50% = 60,000

prior period interest ----------- 12,00,000*10%*9/12*50%*1/5 = 9,000


I understood why we have taken 1/5 but i didn't understand why 9/12 is considered.

 

Please explain me pre-construction period in this case fully in detail.

 

Thank you..!!

 

 20 Replies

itika mehra (articled assistant) (202 Points)
Replied 09 March 2010

heey dear frst u tell me hw did u got 1/5

VUELVE (CA- Student) (346 Points)
Replied 09 March 2010

1/5th is as per provisions u/s 24 (b) that the pre-construction period interest is deductible over for 5 years equally. That's why 1/5th...!!

bhushan sachdeva (ca final student) (73 Points)
Replied 09 March 2010

pre incorporation interest is the interest relating  to the period F.Y  which is prior to the financial year in which construction was completed

 

9 months = 1-7-2008 to 31-3-2009

 

VUELVE (CA- Student) (346 Points)
Replied 09 March 2010

Why are you considering 1.7.2008 to 31.3.2009 and why not 1.4.2008 to 31.3.2009  ?? I'm confused. Can you please explain me much more elaborately ?

itika mehra (articled assistant) (202 Points)
Replied 09 March 2010

Originally posted by : bhushan sachdeva


pre incorporation interest is the interest relating  to the period F.Y  which is prior to the financial year in which construction was completed

 

9 months = 1-7-2008 to 31-3-2009

 

Its not 1-7-2008 dear its 1-7-2009

so i think thepre incorrporation period is frm 1-4-2008 to 31-3-2009.

i didnt find any date in que as 1-7-2008

can u  xpalin me???

VUELVE (CA- Student) (346 Points)
Replied 09 March 2010

@ Itika Mehra : 

 

If it is 1.7.2009 then it is called current period Interest and its not pre-construction Interest. Our A.Y is 2009-10 so it can't be 1.7.2009.

itika mehra (articled assistant) (202 Points)
Replied 09 March 2010

O
   

hey dear bt it will b utp 31st of march 2009 n nt 31-7-2009 coz preconstruction period is either dat ends on replayment of loan or 31st march prior to completion of construction vchevr is early.

VUELVE (CA- Student) (346 Points)
Replied 09 March 2010

@ Itika Mehra :

 

What you say seems to be right but i'm not sure and my question is if the date is considered as 31.3.2009 then should i take pre-construction period as 1.7.2008 till 31.3.2009 ? If so then why should i consider the period beginning from 1.7.2008 ? Please explain...!!

Karan Bhatia (Student) (43 Points)
Replied 09 March 2010

Your pre-construction period is 9 months. From 1.7.2008 to 1.4.2009. That's why it is 9/12.

VUELVE (CA- Student) (346 Points)
Replied 09 March 2010

My question is how is this period taken ? on what basis we are taking 1.7.2008 ??

Mohd.Siddiq Memon (Faculty) (87 Points)
Replied 09 March 2010

Dear All 

The loan for the above construction is taken on 1.7.2008

The Pre consruction period starts from 1.7.2008(date of taking loan)  to 31st March 2009 (31st march immediately preceeding the date of completion of construction) i.e. 9 Months 

12,00,000 @ 10% p.a means  12,00,000 @ 10% p.a*(pre construction period) i.e.9/12 = 90,000

So Pre construction Interest is 90,000

50% for self occupied i.e. 45000

1/5 of above = 9,000

NOTE : WE ARE CALCULATING NTEREST FOR PRE CONSTRUCTION I AND NOT PRE CONSTRUCTION PERIOD.

HOPE YOU DOUBT IS CLEAR

Sharad Suman Das (art) (141 Points)
Replied 10 March 2010

dear friend,

before solving the problem you have to recall the provision regardig preconstruction interest and postconstruction interest.

"pre construction period commences from the date of Borrowing of Loan or when Construction Commences Whiever is Later.

Pre Construction period ends on 31st March of the F. Y. immidiately preciding the year of completion of Construction."

in your case loan taken on 1.07.2008 and pre construction is from 1.07.2008 to 31/03/2009

hence the pre construction interest will be 12,00,000*10%*9/12*50%*1/5 = 9,000

as per your query 9/12 came bcoz there is 9 months between 1.07.2008 to 31.03.2009

and 1/5 came deduction in respect of preconstruction interest is given over 5 years equally.

therefore total interest wwill be 60000+9000=69000

i hope this is enough for your query.

Ishaan (?.) (90 Points)
Replied 10 March 2010

As the loan was taken on 1.7.2008 thus we will consider period from 1.7.2008 to 31.03.2009

VUELVE (CA- Student) (346 Points)
Replied 10 March 2010

Thank you all for making me understand....!!


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