IT’S that time of the year when your employer asks you to submit proofs against investments to claim income tax deductions.
Apart from a total deduction of R1.5 lakh towards investment in Employees’ Provident Fund (EPF), Public Provident Fund (PPF), insurance premium, tuition fees for children, etc., an additional deduction up to R2 lakh per year can be claimed for interest paid on housing loan. Such benefit can be claimed by any individual taxpayer if the property is residential and self-occupied.
However, to claim deduction, it is essential that the acquisition (possession) is obtained or construction of the residential property is completed within five years from the end of the financial year in which the loan was taken. The said tenure of five years was increased from financial year 2016-17 from the earlier three years.
Along with the requirement to submit interest certificate from banks/financial institutions, employers ask their employees to submit copy of possession/occupancy certificate to validate whether the period of completion of construction is within the stipulated time.
Many of us fail to claim such deduction for non-availability of the said certificate. Either the builder would have not applied for it or not obtained the same from appropriate government authority or, he/she would have misplaced the document.
In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that in order to claim housing loan deduction, a certificate from the housing society showing the possession of the house in the taxpayer’s name is sufficient. The ruling pertains to 2006-07, when the assessee availed a home loan to purchase a flat and claimed R1.5 lakh as deduction towards payment of interest. During the course of assessment proceedings, the Assessing Officer (AO) disallowed the claim on account of non-furnishing of possession/construction completion certificate. On appeal by assessee, Commissioner of Income Tax appeals [CIT (A)] also confirmed the order of AO. He further appealed to the ITAT and attached the certificate obtained from his co-operative housing society.
On hearing the facts, the tribunal held that “the proviso nowhere states that the assesee should furnish completion certificate from the appropriate (government) authorities. In our view, the evidences furnished sufficiently prove that the assessee has taken possession of the flat during the relevant financial year under consideration”. It set aside the order of CIT (A) and allowed the deduction of housing loan interest to assessee.
This order brings a huge relief to homebuyers and will help them to reduce the number of litigations over deductibility of interest on home loans. This ruling is not binding in respect of other cases but may be of persuasive authority. Also, while filing tax return, though no evidences/documents are required to be submitted to tax authority, one should retain all the evidences to substantiate the deductions claimed.
The writer is partner, People Advisory Services, EY India. The article includes inputs from Ajit Kamdar, senior manager, People Advisory Services, EY India