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T. Banusekar

I BOUGHT an apartment in July 2001. The possession of the apartment was given to me in June 2002. The property remained vacant from then until May 2003. I have taken a loan from HDFC for purchasing this apartment for which the interest that has accrued and which I have paid is Rs 25,000.

I have also repaid the principal to the extent of Rs 5,000. The property would have fetched a rent of Rs 36,000 per annum if it had been actually let. How should I claim deduction in respect of the interest, which relate to the period 2001-02 and 2002-03?

Acharya

Reply

You can claim the interest up to March 31, 2002, in five equal annual instalments beginning from the previous year 2002-03 (assessment year 2003-04). You can claim interest relating to the previous year 2003-04 and the subsequent years in those respective years. You can claim the rebate under Section 88 in respect of the principal repayment in the year of payment of the same.

From the facts stated by you it appears that you are proposing to let out the house on rent and that you have not been able to find a tenant from June 2002 to May 2003. It also appears that the actual agreement to purchase the apartment was in July 2001 and that only the possession was handed over by the promoter in June 2002.

In computing income under the head house property, where the property is let out for the part of the year and vacant for the part of the year or the property is vacant throughout the year, the sum for which the property can be reasonably be expected to let but if the actual rent received or receivable is lesser due to the vacancy, such actual rent less municipal taxes paid is taken as the annual value of the property.

As regards the claiming of interest as a deduction, the same can be claimed as a deduction against income chargeable under the head income from house property. The interest that relates to the preconstruction period can be claimed as a deduction against the income under the head income from house property in five equal annual instalments commencing from the year in which the purchase or construction is complete.

Preconstruction period interest refers to the interest up to the end of the previous year immediately preceding the previous year in which the house property is purchased or constructed. In your case the interest up to March 2002 can be claimed in five equal annual instalments beginning from the assessment year 2003-04 (previous year 2002-03). The interest from April 1, 2002, can be claimed in full in the respective years to which it relates.

Section 88(xv)(c) provides for a rebate on repayment of any amount borrowed by the assessee from various institutions, including a bank for purchase or construction of a residential house. Therefore rebate under Section 88 can be claimed even while the house is being constructed so long as there is an actual repayment of the housing loan.

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