Key Highlights:
• Home loan prepayment/foreclosure charges will be deductible under the head “Income from house property”
• Taxpayer can set them off against other heads of income such as salary.
• This verdict is also applicable for taxpayer who has prepaid their home loan in previous year IE FY 2012-13. They can claim deduction before July 31, 2013.
• Avoid Fixed Interest Rate home loan - Reserve Bank of India in June last year had prohibited banks from charging foreclosure charges or prepayment penalties of any kind on home loans taken on floating interest basis.
Also Read : Invest in Spouse’s name to cut Tax
According to an order by Mumbai bench of the Income Tax Appellate Tribunal, prepayment charges for home loan will be deductible under the head 'income from house property'. This means taxpayers can set them off against other heads of income such as salary.
The tribunal has said that both interest and prepayment charges come under the definition of housing loan interest.
"When we incorporate the definition of 'interest' in Section 24(b) (of the Income Tax Act), the position which emerges is that not only the amount paid designated as interest but also any other amount paid by whatever name called in relation to such debt incurred also qualifies for deduction," the tax tribunal said in its order.
Also Read : Enjoy hassle free online PF transfer & withdrawal from July 1, 2013
The verdict will reduce tax liability of those who have prepaid property loans with 'income from house property'. The decision will help them claim deduction in the current assessment year as well as for previous years. A taxpayer can claim only one house as self-occupied and has to include income from the property (even if it is vacant) in the rest for tax computation.
Case – Hearing an appeal filed by Windermere Properties, the tribunal examined the definition of interest. Interest on housing loan is admissible as a deduction under income from house property. The bench comprising R K Gupta and R S Syal observed, "The appellant had obtained a loan from HDFC for acquisition of property. The bank accepted the early repayment of loan on receipt of prepayment charges (of Rs 1.56 crore). It is obvious that these prepayment charges have a live and direct link with the housing loan."
Dismissing the stand taken by the tax department, the tribunal bench added, "It is beyond our comprehension as to how the amount paid as interest for the housing loan taken is allowable as a deduction but the amount paid as prepayment charges of the very same loan is not deductible."
Both the direct interest and prepayment charges were held by the tribunal to fall within the definition of the term interest and allowable as a deduction from house property income.
Also Read : Why home loan is better than renting
"This ruling will help those who had paid prepayment charges during FY 2012-13. This payment will be deductible from income from house property. As a next step in the tax computation, salaried employees can claim a set-off against their salary income while filing their returns, the due date for which is July 31," explains Sonu Iyer, tax partner, Ernst & Young.
It must be noted that the Reserve Bank of India in June last year had prohibited banks from charging foreclosure charges or prepayment penalties of any kind on home loans taken on floating interest basis. Against this backdrop, it is likely that taxpayers for the financial year 2012-13 would have paid foreclosure charges only during April and May 2012. However, tribunal decision will also help in the course of pending assessment of earlier years.
Source – Yahoo! Finance
About the Author: Manoj Harchandani is a certified TRP (Tax Return Preparer), authorized by Income Tax Department, Government of India. He is a tax planner and investment advisor. If you need ITR filing assistance, tax advice, tax saving tips, short term/ long term investment advice, please write him at manojh.trp@gmail.com
Other Posts:
Importance of filing Income Tax Return (ITR)
Know ITR (Income Tax Return) Forms
Belated ITR fling rules and other aspects
Tax saving thru’ Medical Insurance Policies u/s 80D
Benefits of Income Tax Return (ITR) Filling
Never buy a second house
Invest in Spouse’s name to cut Tax
Never change house before 3 years
Tax Saving through Home Loan
Enjoy hassle free online PF transfer & withdrawal from July 1, 2013
Leave home not liability when you are not around!
Check EPF (Employee Provident Fund) balance online
Why home loan is better than renting
Even home loan prepayment/foreclosure charges eligible for tax benefit now!
How to know status of Income Tax REFUND
Transfer and withdraw Provident Fund in just 3 days
• Home loan prepayment/foreclosure charges will be deductible under the head “Income from house property”
• Taxpayer can set them off against other heads of income such as salary.
• This verdict is also applicable for taxpayer who has prepaid their home loan in previous year IE FY 2012-13. They can claim deduction before July 31, 2013.
• Avoid Fixed Interest Rate home loan - Reserve Bank of India in June last year had prohibited banks from charging foreclosure charges or prepayment penalties of any kind on home loans taken on floating interest basis.
Also Read : Invest in Spouse’s name to cut Tax
According to an order by Mumbai bench of the Income Tax Appellate Tribunal, prepayment charges for home loan will be deductible under the head 'income from house property'. This means taxpayers can set them off against other heads of income such as salary.
The tribunal has said that both interest and prepayment charges come under the definition of housing loan interest.
"When we incorporate the definition of 'interest' in Section 24(b) (of the Income Tax Act), the position which emerges is that not only the amount paid designated as interest but also any other amount paid by whatever name called in relation to such debt incurred also qualifies for deduction," the tax tribunal said in its order.
Also Read : Enjoy hassle free online PF transfer & withdrawal from July 1, 2013
The verdict will reduce tax liability of those who have prepaid property loans with 'income from house property'. The decision will help them claim deduction in the current assessment year as well as for previous years. A taxpayer can claim only one house as self-occupied and has to include income from the property (even if it is vacant) in the rest for tax computation.
Case – Hearing an appeal filed by Windermere Properties, the tribunal examined the definition of interest. Interest on housing loan is admissible as a deduction under income from house property. The bench comprising R K Gupta and R S Syal observed, "The appellant had obtained a loan from HDFC for acquisition of property. The bank accepted the early repayment of loan on receipt of prepayment charges (of Rs 1.56 crore). It is obvious that these prepayment charges have a live and direct link with the housing loan."
Dismissing the stand taken by the tax department, the tribunal bench added, "It is beyond our comprehension as to how the amount paid as interest for the housing loan taken is allowable as a deduction but the amount paid as prepayment charges of the very same loan is not deductible."
Both the direct interest and prepayment charges were held by the tribunal to fall within the definition of the term interest and allowable as a deduction from house property income.
Also Read : Why home loan is better than renting
"This ruling will help those who had paid prepayment charges during FY 2012-13. This payment will be deductible from income from house property. As a next step in the tax computation, salaried employees can claim a set-off against their salary income while filing their returns, the due date for which is July 31," explains Sonu Iyer, tax partner, Ernst & Young.
It must be noted that the Reserve Bank of India in June last year had prohibited banks from charging foreclosure charges or prepayment penalties of any kind on home loans taken on floating interest basis. Against this backdrop, it is likely that taxpayers for the financial year 2012-13 would have paid foreclosure charges only during April and May 2012. However, tribunal decision will also help in the course of pending assessment of earlier years.
Source – Yahoo! Finance
About the Author: Manoj Harchandani is a certified TRP (Tax Return Preparer), authorized by Income Tax Department, Government of India. He is a tax planner and investment advisor. If you need ITR filing assistance, tax advice, tax saving tips, short term/ long term investment advice, please write him at manojh.trp@gmail.com
Other Posts:
Importance of filing Income Tax Return (ITR)
Know ITR (Income Tax Return) Forms
Belated ITR fling rules and other aspects
Tax saving thru’ Medical Insurance Policies u/s 80D
Benefits of Income Tax Return (ITR) Filling
Never buy a second house
Invest in Spouse’s name to cut Tax
Never change house before 3 years
Tax Saving through Home Loan
Enjoy hassle free online PF transfer & withdrawal from July 1, 2013
Leave home not liability when you are not around!
Check EPF (Employee Provident Fund) balance online
Why home loan is better than renting
Even home loan prepayment/foreclosure charges eligible for tax benefit now!
How to know status of Income Tax REFUND
Transfer and withdraw Provident Fund in just 3 days
0 comments :
Post a Comment