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T. Banusekar

I AM employed in a nationalised bank. I had taken a housing loan from my employer bank in 1987 and constructed a house which is self-occupied. I have now taken another housing loan of Rs 5 lakh from my employer bank, using which I propose to construct another house. The estimated cost of construction is Rs 7 lakh.

Since the plot on which I propose to construct the house is owned by my wife — a postal department employee — she has been named as a co-borrower of the loan. The balance of Rs 2 lakh, towards cost of construction, is met out of her savings. I will be repaying the loan and interest thereon. Can I claim the deduction in respect of the interest and also the rebate in respect of the principal repayment?

T. Baskaran

Reply

It would be possible for you to claim the interest as a deduction and also the principal repayment as a rebate. This can be done if the Rs 2 lakh contributed by your wife is either taken as a loan from her to you or as a gift from her to you. The loan of course may be interest free. The law recognises dual ownership in respect of immovable property, that is, the ownership of land by one person and that of building by another.

In the instant case, if you are to be the owner of the house you propose to construct, though your wife may be the owner of the land, the benefit under Section 24 in respect of the interest on loan and also the rebate under Section 88 on the principal repayment will be available to you.

Query

In computing the tax to be deducted at source, can an employer take into account the interest on loan taken from housing loan institutions towards construction or acquisition of a house, irrespective of whether the house is self-occupied or let-out. What will be the situation if a fresh loan is taken from a housing loan institution for repayment of the existing loan taken for purchase or construction of the house?

S. K. Rajasundaram

Reply

The employer can take into account the interest on loan as a deduction in computing income from house property which, in turn, can be reduced from the salary if such income, after taking into account the deduction, results in a loss in computing the tax to be deducted at source. This can be done if the employee furnishes the particulars in Form No. 12C.

The employer can take this into account if the loan is taken for purchase or construction, that is, if the loan is the original one. If a fresh loan taken to repay an existing housing loan it appears that the employer can still take into account the interest thereon in computing the tax to be deducted at source.

In this connection, reference may be made to Circular No. 28 of August 20, 1969, of the Board, where the Board has clarified that if a fresh loan has been raised to repay the original loan and if the second borrowing has really been used to repay the original loan and if this fact is proved to the satisfaction of the assessing officer, the interest paid on the second loan would also be allowed as a deduction. Reference may also be made to the third proviso to Section 24(b) which provides that a deduction shall be allowed in respect of interest if the assessee furnishes a certificate from the second lender that the fresh loan is taken for repaying the original loan.

Reference may also be made to Circular No. 9 of November 18, 2003, wherein it has been clarified that the employer can entertain a claim for higher deduction in respect of interest up to Rs 1.50 lakh if the employee furnishes a certificate from the person to whom interest is payable on the capital borrowed specifying the amount of interest payable by such employee for construction or purchase of the residential house or for conversion of a whole or part of the capital borrowed which remains to be repaid as a new loan.

These clearly indicate that the employer can take the interest on the fresh loan into account in computing the tax to be deducted at source.

Query

I had taken a loan from a government department for purchase of a house, which I did in 1990. I have in this year paid interest of Rs 50,000 towards the loan. Can I get any tax benefit as a result of the payment of the interest? The principal has already been repaid.

M. M. Kekre

Reply

You can claim the interest as a deduction under Section 24 in computing income from house property. You have not indicated whether the property is self-occupied or let-out.

If the property is self-occupied the annual value will be taken as nil and the interest can be claimed as a deduction subject to a maximum of Rs 30,000. If the property is let you can claim the interest as a deduction against the annual value without any limit.

Queries may be sent to: q&a@thehindu.co.in or by post to Q&A, Business Line, 859/860, Kasturi Buildings, Anna Salai, Chennai - 600 002.

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