House property
Q. A super-senior citizen will be grateful for your reply on financial matters that are beyond his understanding.
I sold a house in Madhya Pradesh (December 2021) and now I am in the process of buying/ getting constructed a house in Vellore, Tamil Nadu. The cost of construction will be more than what I got in Madhya Pradesh when I sold my house. Will I be liable to pay Income Tax if the new house in Vellore is built within three years from the day I sold the house in Madhya Pradesh?
Do I have to inform the I-T Department about this now? If so how?
P.O. Alexandar
A. It is assumed that you were in possession and ownership of the residential property that you have sold in Madhya Pradesh in December 2021 for more than two years; in which case, on sale of this property, the long- term capital gains thus arising shall be exempt from tax if the entire long-term capital gains amount is invested in another residential property under Section 54 of the Income Tax Act, 1961.
As long as the new residential property is constructed within three years from the date of sale of the Madhya Pradesh residential property, you will be exempt from the payment of tax arising out of the long-term capital gains.
You have to declare the sale of the Madhya Pradesh property in ITR-2/3 as applicable to you wherein you have to mention the sale price, transfer expenses, value on which the stamp duty is paid, cost of acquisition, date of acquisition, name of the buyer and PAN of the buyer.
You are to ensure that the long-term capital gains amount is deposited into a Capital Gains Deposit Scheme account in a nationalised bank before you file the return.
Once you have deposited it, you have to mention the purchase/construction of the new property under Section 54 and the date of deposit of funds into the Capital Gains Deposit Scheme in the relevant section of the ITR. You can issue payments towards construction from the Capital Gains Deposit Scheme account directly.
Provident Fund
Q. I retired on March 31, 2021 but was relieved only on November 21 due to organisational changes.
I have an EPF balance of about ₹25 lakh after almost 40 years service.
Can you please advise what is the last date to withdraw the amount, whether I have to pay Income Tax on withdrawal and also what is a tax-free/tax-friendly option to invest this sum and get a steady income stream over the next 10 years. This clarification will be of great help to me.
S.Chandar
A. Withdrawal of EPF balance subject to PF rules is not taxable when you have been in continuous employment for five years and will be treated as an exempt income. It is to be noted that the commuted part of the EPF balance withdrawal alone is non-taxable. Monthly pension from EPF is taxable under ‘Income from Other Sources.’
Home Loan
Q. I have a query on home loan interest- exemption claim for Income Tax — pre and post handover, and to check if there is a provision to claim HRA and home loan interest exemption at same time. I am currently living in rented accommodation.
I purchased a house in August 2021, for which loan EMIs started November 2021 onwards.
The builder gave possession in March 2022. Currently, we are doing woodwork to get the house ready for moving in.
My question is how can I claim the interest paid on loan prior to possession (November 21 – March 22). Can I claim HRA and home loan interest exemption, post possession, as we get the woodwork done to make the house ready for living?
Abhishek
A. With respect to the interest portion of the EMI which was paid until the date of completion or handover, the deduction of interest under Section 24 of the Income Tax Act, 1961 cannot be claimed in the year of payment of such interest.
However, the interest paid until such completion is to be divided into five equal parts and each part can be claimed as deduction in the form of pre-construction interest from the year of completion of construction for a period of five years.
It is to be noted that the maximum deduction under this provision cannot exceed ₹2 lakh per year, including the regular interest paid for those respective five years.
With respect to the HRA claim, you can claim the HRA exemption (which is computed based on the rules prescribed) until the time you move into the residential property that you have purchased as the residential property that you have purchased is not yet in a liveable condition.
(The adviser is partner, GSS & Associates, Chartered Accountants, Chennai)
