Tax on Refund (Cost of Flat+ Interest) By Builder

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  1. Varun Dand

    Varun Dand New Member

    Hi

    My mom bought a flat which was to be given possession in 2005. After a long litigation process, the court ordered developer to pay amount paid for purchase of flat (which was 85% of total cost) + 15% simple interest starting Dec 2006.
    Base amount 16.82lacs + interest 30 lacs = total 46 lacs.

    My mom had been paying EMIs all these years and couldn't claim any interest deduction in income tax because the possession of flat wasn't received.

    1- Will the interest income from developer be counted as 'Income from other sources'? If yes, can I deduct the interest paid to bank for all those years as EMI? Logically, if interest income is considered 'Income' and not capital gains, then my interest paid to bank must be considered as 'Expenditure' and not loan repayment. So my tax liability becomes 30 lacs - X Rs interest paid to bank.

    2- If the interest income is capital gains then my tax liability will be 46 lac - cost of flat indexed at today's value? Can I save tax by using section 54EC.

    If the above is open to ambiguity or interpretation, what should my settlement with developer be worded like to fall into the Capital Gain Category and avoid TDS?
    Primarily we intend to buy another house with ready possession so that no tax liability remains.

    I have read article on your website and some other websites, I think 'Capital Gain' applicability is possible. Need expert advise.

    Some references I read
    http://www.forum.charteredclub.com/...-paid-by-builder-for-delayed-possession.7083/
    https://www.caclubindia.com/experts...sation-on-cancellation-of-allotment-79456.asp
     
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