I took a home loan to construct a house and the monthly instalment that I pay is Rs11,744. The house is rented out for Rs8,500 per month. Can I claim income-tax exemption for the difference of Rs3,244? If yes, under which section, and what proof I need to provide while filing returns?
—Vishwanath N. Swamy
Section 24 of the Income-tax Act provides that for the purpose of computing income from house property which has been acquired/constructed with borrowed capital, deduction of interest paid shall be allowed as a deduction from the rental income. Further, one is eligible to claim deduction under section 80C for repayment of the principal amount provided the loan is taken from sources mentioned in the section.
For the purposes of claiming deduction with regard to the interest component, it is imperative that a certificate be furnished from the person to whom the interest is payable. Hence it would be prudent to segregate the principal and the interest component.
However, at the time of filing return, you are not required to submit any proof of deduction.
I want to sell an inherited non-agricultural plot which was transferred on my name in 1993. Should I consider the value of the property as per the government valuation in that year for the purpose of long-term capital gain (LTCG)? Also let me know whether I will get exemption on the LTCG if I buy another house.
At the time when a property is inherited, there is no capital gains tax and cost of acquisition in the hands of the transferee is deemed to be the cost of acquisition of the previous owner. If the non-agricultural plot inherited by you was acquired before 1 April 1981, then the cost of acquisition shall be the purchase price paid by the previous owner or fair market value as on 1 April 1981.
In a scenario wherein the property was acquired after April 1981, then it shall be the purchase price. Further, for computing the indexed cost of acquisition, indexation factor of the year 1993 will be applicable instead of year of purchase of plot by the previous owner.
However, there are some judicial cases which indicate that for computing the indexed cost of acquisition, the cost inflation index of the year in which the asset was first held by the previous owner should be considered for determining the indexed cost of acquisition.
As regards purchasing a residential house from the LTCG made on sale, as per section 54F of the Act, capital gains made by transfer of any capital asset other than residential house is exempt to the extent if it is spent to purchase new residential house within one year before the date of transfer of capital asset or two years after the date, or to construct a residential house within three years from the date of transfer of the capital asset.
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