TNN | Updated: Oct 31, 2016, 04.50 AM IST | Times of India
MUMBAI: In a recent order, the income tax appellate tribunal’s Mumbai bench has held that to claim an interest deduction against a home loan, a taxpayer is not required to submit a completion certificate from any government authority as proof of having obtained possession within the stipulated time period; in this case, three years from the end of the financial year during which the loan was taken. A certificate from the housing society is sufficient evidence, ruled the ITAT, a body that resolves income tax disputes.
The order will come as a major relief to home buyers facing litigation over deductibility of interest on home loans.
Under the Income-Tax (I-T) Act’s Section 24, interest paid on home loans is allowed as a deduction, subject to a yearly cap. Over the years, this cap been enhanced to Rs 2 lakh from Rs 1.5 lakh.
However, to claim deduction, possession of the residential property must be obtained or its construction completed in five years from end of the financial year during which the loan was taken.
The Finance Act, 2016, has increased this period to five years from the earlier three. When interest on a home loan is allowed as a deduction, it reduces the total taxable income, resulting in a lower I-T outgo.
In this case before the ITAT, relating to the financial year 2006-07, Sudhakar Mody bought a flat from Marathon Realty by availing of an IDBI Bank home loan. He claimed a deduction of interest of Rs 1.5 lakh, which was then the maximum amount allowed as a deduction each year. However, the I-T officer asked Mody to furnish a completion certificate from a government authority. As this was not furnished, the interest deduction claim was denied. This act of the I-T officer was upheld by the commissioner of I-T (appeals).
The tax tribunal observed that the flat was ready by October, 2006, and that a soft possession had been given to the flat owner. Further, Mody had obtained the flat’s final possession on March 24, 2007-before the end of the financial year on March 31. As evidence of the possession, Mody had furnished to the commissioner of I-T (appeals) a certificate from the housing society.
It is illegal to occupy a flat without an Occupancy Certificate by the local authority and moreover also be prosecuted
The ITAT held the taxpayer had obtained possession of the flat within the stipulated time period. The ITAT further stated: “The proviso to Section 24 of the I-T Act nowhere states that the taxpayer should furnish a completion certificate from the appropriate government authorities.”
The certificate from the housing society was held by ITAT as sufficient proof of the flat’s possession. In its order dated October 19, the ITAT concluded that the taxpayer was entitled to his claim for deduction of interest against a home loan of Rs 1.5 lakh.