11. Administrative charges and processing fees

The repayment of loan is eligible for deduction u/s 80C and interest payable thereon is deductible u/s 24. Some housing finance companies build up their initial charges into the EMI in which case, the tax benefits are available. If the company makes you pay a lump sum towards the administrative and processing charges, no tax benefit is possible as these are neither a repayment nor interest.

12. Difference between purchase and construction

Sec. 54 gives exemption from tax on long-term capital gains arising out of sale (or transfer) of a residential house, self-occupied or not, provided the assessee has purchased within 1 year before or 2 years after the date of sale or has constructed a residential house within 3 years after that date

Note that the exemption is available on purchase of new property made within 1 year before the sale of the old house. But in the case of construction, the exemption is not available if the construction is completed even 1 day before the sale of the old house. Illogical!

13. Dates of registration and acquisition

Normally, the title to an immovable asset does not pass till conveyance deed is executed and registered. However, in a landmark judgement, the courts held that "taking into consideration the letter as well as the spirit of Sec. 54 and the word 'towards' used before the word 'purchase' in Sec. 54, it is clear that the said word is not used in the sense of legal transfer and, therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting Sec. 54."

Thus, even if the documents are not registered but the following conditions of Section 53A of the Transfer of Property Act are satisfied, ownership in the property is held to have been "transferred" -

(a) there should be a contract in writing;
(b) the transferee has paid consideration or is willing to perform his part of the contract; and
(c) the transferee should have taken possession of the property.
When these conditions are satisfied, the transaction will constitute "transfer" for the purpose of capital gains.

14. Loss from house property

The treatment for loss from house property has a drawback. Suppose the normal income is Rs. 1,62,000 and the loss from the property is Rs 20,000. The total net income works out at Rs 142,000. This being less than Rs 150,000, the minimum tax threshold, no tax is payable.

In effect, only Rs 12,000 of the loss is useful for reaching the threshold. The rest of the loss of Rs 8,000 is wasted as it is not allowed to be carried forward!! This is so, because Rs 8,000 does not remain a loss but becomes a gap between the tax threshold and the income.

On the other hand, if the total income were Rs 15,000, then the assessee would be allowed to carry forward the loss of Rs 5,000. If the total income were nil, the entire loss of Rs 20,000 could be carried forward to next year Such carried forward loss can be adjusted only against income from house property.

(Excerpt from Taxpayer to Taxsaver (FY 2008-09) by A. N. Shanbhag and Sandeep Shanbhag, published by Vision Books.)

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