Tax deduction on under construction flat cancellation & new flat allotment in another project

Hi

Since it's a transfer of project from the builder, the initial loan also directly relates to the new house property. And thus, the interest paid on first loan shall form part of the pre construction interest.

The interest paid on the first and current home loan before possession of the house property shall be allowed as deduction in 5 equal installments starting from the year in which possession if transferred.

Example, if your registration is done on 30 June 2018, pre construction interest shall be interest paid upto 31st March 2018.

For this, in the year of possession/ registration, interest allowable shall be 1/5th of pre interest and current year's interest.

However, if the property is self occupied, the maximum allowable deduction in an year shall be Rs. 2 lacs.

Hi,

Hope you are doing well !

Yes, you can claim deduction for interest paid on the first home loan. It is not considered as transfer of property from your side .

This is only considered as rearrangement of house loan and also you have consentor agreement from the first project legal entity owners. So, there is no need to worry

You can claim the interest deduction on the new loan because you must not have claimed any deduction on the earlier loan because your home was under construction and no interest deduction is allowed till the home is under construction.

The interest payable in your prior period i.e under construction period is called prior period interest. The law allows you to claim deduction on this interest as well as on current home loan interest before possession in 5 equal instalments after possession.

The interest paid on this loan as well as on fresh loan is eligible for a deduction up to Rs 2 lakhs per year under Section 24 of the Income Tax Act assuming it is a self occupied property, If it's rented out then there is no limit.

This deduction is also available only after you have received possession of the Ready to move flat.

You can claim deduction on this amount for five years after possession. For example,if you paid a total interest of Rs 6 lakhs for the house was under construction and for second property before possession , you can avail of a deduction of Rs 1.2 lakhs for the next five years after possession.

Also, as per the provisions of Section 80C, you can claim up to Rs 1.5 lakhs for principal repayment of home loan including cost of registration and stamp duty of a residential house.

Thanks & Regards,

Payal Chhajed

Further, in case you have let out this property owned by you, you can claim deduction for the entire interest paid, without any upper ceiling against the rent received in respect of each such property. However, in case you own more than one house property and more than one houses are occupied by you, then, you have to choose any one property as self-occupied and the other property/properties are treated as let-out for which a notional rental income, based on the rent the property is expected to fetch, is required to be offered for taxation. So, once any such property is treated as let-out, you can claim the tax benefits for full interest paid, for money borrowed in respect of any of the property that is treated as let-out.

Thanks & Regards,

Payal Chhajed

Interest paid on first loan will be treated as pre-acquistion interest and you can claim the deduction in five installments from the year in which you got acquisition of second house.

Hi,

Since this is just an allocation of funds from one project to another, you can claim deduction for interest paid on the first home loan.

You will be able to take the tax benefit of the pre construction interest ober 5 years after getting the possesssion.

Hope that clarifies.

Regards,

Nikhil.

Yes you can claim tax deduction for interest paid for the first home loan .It will be pre construction interest and will be available in 5 equal installments from the date you acquire the second property.

Hi,

No, you will not be able to claim the interest paid on first house property.

Further, it is pertinent to note that you will have to compute capital gain tax on exchange of flat. Please note that capital gain is not only applicable on sale of property. Its applicable on transfer of property and transfer include exchange of property.

Further, you can add interest paid on first home loan in the cost of acquisition which will reduce your capital gain tax.