Interest on Housing Loans: Stay Out of Income Tax Net..!

Income-Tax Appellate Tribunal (ITAT) of Chennai has held that interest on home loans will continue to remain out of the tax net even if the house is sold later.

In an order that will provide relief to those who invest in houses, the ITAT, Chennai, held that interest on loans taken for buying housing properties will continue to remain out of the tax net, even if the house is sold later.


The ITAT clarified that the interest paid for borrowed loans is certainly an expenditure that should be taken into account while computing the income from house property as well as in computing capital gains arising from sale of the same property. The ruling was made on October 31, 2012 by a two (2) member bench comprising Mr. O.K. Narayanan and Mr. S. S. Godara.


In this case, the taxpayer Mr. C. Ramabrahmam borrowed money for buying property & claimed deduction for interest paid for the borrowed funds, while computing income from house property.

However, when the house was sold, the taxpayer treated the interest paid on loan as “cost of acquisition” for the purpose of computing capital gains and claimed deduction there too.

The assessing officer, however, refused to accept the claim on the ground that interest has been allowed as deduction under section 24 (b) of the IT (Income Tax) Act that deals with income from house property and the deduction can not be allowed again while computing capital gains arising from the sale of the house.

The first appellate authority, Commissioner (Appeal), allowed the claim of the tax payer. But, the IT department moved the ITAT, the second appellate authority for deciding tax disputes.

The ITAT dismissed the appeal, holding that deduction under section 24 (b) of the IT Act and computation of capital gains under section 48 of the IT act are covered under different heads of income.

The first section deals with house property &  the other section deals with capital gains. The first deduction was claimed when the taxpayer computed income from house property, while the second claim was made when the house was sold and capital gains were computed.

The ITAT held that both these provisions of the IT Act are altogether different, the taxpayer is entitled to claim deduction of interest paid on borrowed loans while computing capital gains too.

Mr. Vispi T Patel, Vispi T Patel & Associates said, : “ This is a correct interpretation of the concerned law. This order will be a relief to the taxpayers who are in similar situations”.

 Src: ET
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