one of my client has purchased a under construction flat & taken housing loan on the same. Builder has make agreement with my client in this manner that, he will refund interest amount on housing loan for one year to my client. Now my question is that how should i treat this transaction in my books of account as per income tax law.
Dear Friend,
In case of interest on housing loan there is a chance to avail deduction, whether it's a self occupied or a let out house. Here this flat under construction can be treated as self occupied and not generating any income. Here there are two things
1. You have paid interest on housing loan
2. There is aproposal for refund of initial year HL interest from contractor/builder
As per income tax act, the interest on housing loan can be availed only on the the amount of interest paid in the respective financial year. Here if you are getting the entire interest refunded from the builder then you are not eligible for deduction. If the amount is refunded or adjested in the due course or in the subsequent instalments, then it can be adjusted in that respective financial year interest.
The principal amount repaid can be deducted u/s 80C.
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