Wednesday, Nov 29, 2023

Interest Paid On Money Borrowed For House Purchase, Renovation, Repair Can Be Claimed Under Section 24 (B)

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Interest Paid On Money Borrowed For House Purchase, Renovation, Repair Can Be Claimed Under Section 24 (B)

Interest paid to friends and relative on money borrowed for house purchase, renovation and repairs can be claimed under Section 24 (b) of the Income-tax Act, 1961. Dividend income is taxable on accrual basis. Holding period for calculating capital gains is to be calculated from the date of purchase by the original owner

QNA on income tax and rebates

Can I claim income tax rebate on personal loan if it is used for home renovation? What documents will I require?

Answer: For claiming deduction under Section 24(b) of the Income-tax Act, 1961 for interest paid on money borrowed for purchase, repairs, renovation etc. of property, it is not necessary that the money should have been borrowed as a home loan. 

Even interest paid to your friends and relatives for money borrowed for these purposes can be claimed under Section 24(b). What you need to prove is that the personal loan was used for the purpose of renovating the property. This can be easily established by linking the credit of the personal loan in your bank account and its corresponding use for making payments for renovation, etc.

Though you are not allowed to attach any documents with your income tax return (ITR), you need to preserve the documents in case your case is selected for detailed scrutiny. You need to preserve the copy of the bank statement for the relevant period, as well as the statement of personal loan where the interest paid is reflecting.

You also need to preserve expenses voucher for renovation.

My late father had some dividend to be received from a few companies and they became unclaimed in an era when dividend income was tax-free. Yesterday, I received these dividends. Can I claim them as tax-free income, or do I have to go by the current rule of taxation of dividend, which is taxable? The companies did not deduct any tax at source (TDS), although the amounts were in excess of Rs 5,000.

Answer: The dividend is taxable on the basis of accrual. The right to receive dividend accrues when it is approved by the board of director of the company, or when it is approved by the shareholders in the annual general meeting. 

As the dividends had accrued when your father was alive, it was his income. Moreover, the dividends belonged to the era when the same was not taxable in the hands of the shareholder, and the companies were liable to pay dividend distribution tax on the dividend declared, and it was an exempt income in the hands of your father, and as such, he did not have any tax liability in respect of those dividends though they were not received by him. 

The right to receive these dividends represent his estate which passed on to his legal heirs. The dividends received by you is an inheritance received by you, which is not an income under the provisions of Section 56(2). So it is not even your income and you are not liable to pay any tax on it. Strictly speaking you are not even required to disclose it in your ITR.

My father is a senior citizen aged 77 years. He recently sold a property in January 2023 for Rs 32 lakh. This apartment was gifted by his elder brother. The property was purchased by his elder brother in the year 1988-90 for Rs. 2.50 lakh. How will the profits be computed in respect of this property, as he had not paid for it?

Answer: For capital gains purpose in case of a capital asset which is acquired either under a gift or as an inheritance, the holding period will be computed from the date when it was purchased by the original owner. 

Since the combined holding period of your father and uncle is more than 24 months, the profits will be taxed as long-term capital gains (LTCG). In such cases, the amount paid by the original owner, i.e., your uncle along with any cost incurred for its improvement shall be taken as the cost of acquisition for computing the LTCG. 

Since the property was acquired by your uncle before April 1, 2001, you can take the fair market value of the property as on April 1, 2001 as cost of acquisition for your father, and apply cost inflation index for 22-23 for computing the capital gains.

For arriving at the fair market value as on April 1, 2001, you have to obtain a valuation report from a registered valuer. Please note the fair market value of the property as on April 1, 2001 cannot be higher than the stamp duty valuation of the property as on April 1, 2001.

The author is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)