Delayed Posession of Flat - Tax Implications

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  1. Sanjiv16

    Sanjiv16 New Member

    I would like your views on the tax implication for the below –
    I booked a flat with a builder in Nov 2009 and got a home loan sanctioned for the same in Jan 2010. The home loan was a “”Construction Linked Plan”” loan with the first disbursement being made in Feb 2010 and the last disbursement in June 2012. I got possession of the flat in April 2016, and the registry done. The registry was done at a higher rate, as the circle rate was higher than the cost of flat(when booked). The difference in cost of flat and circle rate is +14 lacs. What would be the income tax implications on the above ? The said flat is still empty and woodwork is to be done, and will most probably be let out. The EMI for housing loan I have been paying since April 2010. What housing loan deductions can be claimed for the above ? And what would be the income tax liability on the difference in circle rate and cost of flat when booked ? Am presently staying in a rented flat in the same city. Thanks in advance for the help.
     
  2. ZED

    ZED Well-Known Member

    S.56(2)(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person
    (b) any immovable property,
    (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:

    Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:

    Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;


    That is to say, the difference would be chargeable to tax u/s 56(2)(vii) ,but it shall not be chargeable if on or before the date of agreement for transfer, the consideration was paid to the builder by other than cash mode .




    The principal amount can be claimed as deduction u/s 80c, since the receipt of the possession.

    Interest part relating to pre acquisition period can be allowed as deduction u/s 24(b) in 5 equal installments from the year in which possession is received.

    Kindly refer the following provision for more details.


    24. Income chargeable under the head "Income from house property" shall be computed after making the following deductions, namely:—

    (a) a sum equal to thirty per cent of the annual value;

    (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

    Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :

    Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within *[three] years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed two lakh rupees.
    * 5 years if the loan was taken in F.Y 2016

    Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:

    Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

    Explanation.—For the purposes of this proviso, the expression "new loan" means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.
     
  3. Sanjiv16

    Sanjiv16 New Member

    Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:

    Does this mean that Income Tax is not applicable on the difference amount of 14 lacs, IF I do not intend to sell the flat within the next 3 years ? Sorry for the trouble, but am a layman taxpayer.

    For the second part for the prior interest paid to pre acquisition period will it be deductible in 5 equal installments from the year in which possession is received upto a maximum limit of 2 lacs OR only 30,000.00 prior interest would be allowed as tax deductions ? The 5 instalments amendments is applicable from 1st April 2017 ?
     
  4. ZED

    ZED Well-Known Member


    No sir,
    Those 2 provisions are different. The crux was written in coloured text. I reiterate it for you.

    The difference would be chargeable to tax u/s 56(2)(vii) ,but it shall not be chargeable if on or before the date of agreement for transfer, the consideration was paid to the builder by other than cash mode .


    In your case it shall be 30,000 per year, including the interest for the year which relates to post acquisition.
    5 Year installment system is applicable since many years. Its not from 01.04.17.
    The pre construction period interest, lets say its =x , shall be allowed in 5 equal installments from the year in which possession will be allowed.
    I hope your doubt is clear.
    You may contact me on my mail if you have any other doubt.
     
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