• Income Tax on Interest Amount in Real Estate settlement

Hello,

I am in a legal battle over a property where I am claiming a refund on full amount (Principal + Interest) for a property I booked around 10 years back.
Builder has agreed to pay that in an out of court settlement.
Interest Amount in more than 10L.
My question is , will I have to pay Income Tax on this interest amount.
Also, I have not had any kind of Income in India in the last 5 years due to me being abroad.


Thanks in advance!!
Asked 4 months ago in Income Tax

Your interest amount is taxable and you need to pay tax and file your return. You can claim double taxation relief while filing your US Tax return.

Further, the builder will have to deduct at source on the entire amount and you need to submit Form 15CA and 15CB to your bank to get the money transferred to your bank account in USA. 15CB needs to be issued by a CA. 

Please take professional assistance for ensuring that the transaction is done smoothly complying with regulatory requirements. 

 

B Vijaya Kumar
CA, Hyderabad
965 Answers
124 Consultations

5.0 on 5.0

Yes you need to pay tax on complete interest amount in the year of receipt

Vishrut Rajesh Shah
CA, Ahmedabad
826 Answers
34 Consultations

5.0 on 5.0

Yes, you have to pay income tax on this interest component. 

It can be reported as taxable under the head of other sources or capital gain. 

Since you will be under the 30% tax bracket, it will benefit you if you report under capital gain, where the tax rate will be 20% on Long Term capital gain with indexation benefit. 

The definition of capital asset also includes extinguishing any rights in a capital asset. At the time of booking, the buyer acquires a right into the flat. When the buyer refunds the amount with interest, he extinguishes his right. Thus the sales proceeds, including interest income, so received less indexed cost of acquisition, can be treated as capital gain in your hands. 

The entire 10 Lakhs will be taxed if you opt for other sources. Here you can take deduction u/sc 57, which provides 50% of the conclusion on compensation. Also, if you have taken any loan to pay that booking amount to the builder, you can claim that interest amount paid as a deduction from this 10 Lacs. 

You can choose whichever method gives you the best tax savings. 

If you find the answer helpful, please give 5-star ratings. 

 

 

Puja Sharma
CA, Jaipur
63 Answers

Not rated

Dear Sir,

 

Hope you are doing well !!

 

Yes, you need to pay tax on entire interest amount and show the same as Income from other sources while filing ITR in India.

 

We may assist you in entire procedure.

 

It is advisable to take a phone consultation for detailed discussion.

 

Payal Chhajed
CA, Mumbai
5175 Answers
244 Consultations

5.0 on 5.0

Hello

 

Yes you need to pay taxes on interest amount. For detailed consultation, obtain a phone consultation. 

 

 

 

Prerna Peshori
CA, Pune
94 Answers

5.0 on 5.0

That depends on how the builder shows the income in his books of accounts and whether he deducts and TDS or not.

If he deducts TDS you need to show it as interest income.

 

Whereas there have been various court judgement where courts have held such interest as capital receipt/ compensation and hence not taxable.

Thus, if this amount would have been received as per court order things would have been different but now the taxability of amount depends on the nature declared in the settlement agreement between two of you.

 

Hope you find the information helpful, if yes do rate if 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo
CA, Jaipur
4065 Answers
70 Consultations

5.0 on 5.0

Either it can be treated as capital receipt or income from other sources. The classification would depend on the drafting of the settlement agreement. If it is treated as income from other sources, you can claim deduction of 50% of interest amount u/s 57 subject to facts of the case. As per sec 57, exemption is available on interest received on compensation or enhanced compensation which is generally in land acquistion cases. In your case it is a refund of principal amount already paid to the builder. Builder is also liable to deduct interest u/s 195 and file Form 15CB/15CA. In respect to capital receipt, it is an extinguishment of rights in the property and capital gain would be calculated. Exemption u/s 54EC or 54F is available.

Vivek Kumar Arora
CA, Delhi
4493 Answers
621 Consultations

5.0 on 5.0

Ask a Chartered Accountant

Get tax answers from top-rated CAs in 1 hour. It's quick, easy, and anonymous!
  Ask a CA