Income Tax--Current Issues

Practice Update

V.K. Subramani

CLAIM OF INTEREST ON HOUSING LOAN AND PRINCIPAL BY SPOUSE HAVING SOURCE OF INCOME

When a residential house is acquired or constructed, the interest on moneys borrowed for such acquisition/construction is eligible for deduction. To just recap, a taxpayer can claim 2 residential premises as self-occupied and their annual value would be 'nil'. Interest on moneys borrowed is eligible for deduction in respect of self-occupied house subject to a maximum of Rs. 2 lakhs. Therefore, any amount of interest in excess of Rs. 2 lakhs is to be ignored. On the other hand, in the case of let-out property there is no monetary limit for deduction of interest but the loss from house property (which normally arises due to interest expenditure) is eligible for set off up to a maximum of Rs.2 lakhs. In effect, loss from house property beyond Rs.2 lakhs is not eligible for set off and carries forward benefits.

There is one exception, where the claim of interest on housing loan could exceed Rs. 2 lakhs and it is contained in section 80EEA. When a taxpayer acquires a residential property satisfying the conditions enumerated in section 80EEA, it is eligible for deduction up to a maximum of Rs. 1,50,000 under section 80EEA (contained in Chapter VI-A) after exhausting the deduction under section 24 if there is any interest remaining unclaimed (for the reason that it is more than Rs.2 lakhs).

Generally, a question would arise about the interest and principal fully paid by one spouse having source of income and its eligibility for deduction. When a spouse has no income and his/her name is shown as joint owner of the property, whether the entire payment made by the spouse having income could be claimed by him in entirety, is debatable. Unless the fraction of ownership is stated clearly, the payer may not be able to press his claim for deduction under sections 24 and 80C for the entire payment made during the year. It would be better to have an agreement with such spouse for taking his/her portion of land on lease or rent for putting up the construction and take loan only in the name of spouse having source of income to avoid any doubt in allowance of claims.