There is some bad news in the budget for taxpayers repaying home loans. Till now they could get tax benefit twice on the interest portion of the loan. Firstly, by claiming deduction up to 2 lakh every year (for self-occupied property) under section 24 (available only under the old tax regime). Second, after selling the property, he was allowed to add the interest portion of the loan to the total cost of acquisition (purchase price), which is used to arrive at the capital gain.
Starting from assessment year (AY) 2024-25, the Budget has added one or more conditions to it. To be sure, the IT laws did not have a provision to allow taxpayers to avail double tax benefit on home loan interest. This was a loophole which the tax payers were taking advantage of.
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For properties sold after March 31, sellers cannot include the interest portion of the home loan in the cost of acquisition while computing capital gains, if they have already claimed a deduction on the same. Adding the interest amount increases the cost of acquisition and thus reduces the tax on capital gains. This essentially means that the taxpayer was getting double tax benefit on the same interest amount.
Now the question arises whether the home owners should claim the deduction every year or leave it to use the interest amount later to reduce the capital gains tax?
A back-of-the-envelope calculation suggests that choosing the latter is more beneficial. Long Term Capital Gains (LTCG) made on house property enjoy indexation, which means that the interest amount will also increase to adjust for inflation during the holding period and the tax on capital gains will be significantly lower.
A word of caution here though. “The assumption here is that when the homebuyer sells the property in future, the current tax rules will not have changed by then. This is less likely to happen, especially as the government moves towards a simpler tax regime,” said Jigar Mansatta, a Jamnagar-based chartered accountant. which may see a lot of changes in income tax rules in the next few years.
“I would suggest that taxpayers claim deduction under section 24 while it is available,” he said.
Since deduction is limited to 2 lakh (for self-occupied property), the interest over and above this limit can be included in the cost of acquisition at the time of sale of the property. Entire interest is deductible under section 24 for let-out properties.
While this change will come into effect from April 1, it is advised that taxpayers selling property in FY 2022-23 do not include the interest component in the cost of acquisition while filing tax returns, if they claim deduction on the same. Is. Mansatta said, ‘In case of dispute, the court will consider the rule announced by the government, even if it is not in force at the time of filing Income Tax Return (ITR).’
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