I will like to share with you all a recent
relief which we all got recently from our beloved IT department.
A ruling by the Mumbai bench of the income
tax appellate tribunal spells welcome relief for tax payers who have paid huge
sum as prepayment or foreclosure charges on early repayment of their housing
loans.
Such taxpayers can claim prepayment charges
as deductible under the head of income House property and could set it off
against other heads of income. This will help in saving tax.
Hearing an appeal filled 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 compromising R.K.Gupta and R.S.Sayal 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 for 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.
So in my view –This ruling will help those
who have 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 set off against their salary income while filling
their returns, the due date for which is July 31.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.
