ATM :: Home loan interest is tax exempt after construction is over

There is no specific requirement to disclose the fact in the ITR form
Parizad Sirwalla | Wed, Oct 01 2014. 06 39 PM IST |
I have come to know that one can take exemption for interest paid on second home loan only after the construction is over and the benefit is available in five instalments starting the year when the construction is complete. During the period when the house is under construction, do we have to mention the amount of interest anywhere (Schedule CFL) in the income tax return (ITR) form? I am filing ITR 2. —Amit

Yes, your understanding is correct. The deduction towards interest paid on housing loan taken against an under-construction property can be availed only from the year in which the construction of the property is completed.

There is no specific requirement to disclose the fact in the ITR form that you are paying the interest on housing loan availed against the under-construction property.

I purchased an apartment in Gurgaon four years back and now plan to sell it. Will the sale proceeds attract short-term capital gains or long-term capital gains (LTCG)? Are there re-investment options to save tax? —Aravind Narayanam

The capital gains, if any, arising from sale of a residential property held for more than 36 months from the date of acquisition shall be termed as LTCG.

The aforesaid LTCG can be claimed as exempt from tax by re-investing in one new residential property in India within the specified time frames (i.e. within one year prior to sale date or two years from the sale date or within three years for an under-construction property) as per section 54.

Alternatively, the LTCG can be invested in specified bonds issued by the National Highways Authority of India or Rural Electric Corp. Ltd under section 54EC within a period of six months from the date of sale of property subject to the cap of Rs.50 lakh subject to specified conditions.

The investment in a new property or specified bonds has a lock-in period of three years. Accordingly, if the new property is sold or the bonds are converted into cash within a period of three years, the exemption shall be revoked. If you take any loan or advance against the security of the said bonds, the same shall be deemed to be converted into cash.

The amount invested in a residential property or specified bonds shall be claimed as exempt from tax and the balance amount, if any, shall be taxable at a flat rate of 20.6% (including education cess). Further, if your taxable income during the financial year 2014-15 exceeds Rs.1 crore, you will be liable to pay surcharge at 10% on the basic tax rate.

While calculating LTCG, the cost of acquisition and improvement has to be adjusted by applying the cost inflation index notified by the tax authorities in the year of purchase and sale, respectively.

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