Can You Claim Interest Deduction Without Completion Of House?

I have purchased a house. At the time of purchase I had taken a loan of Rsx. I paid the full amount to the builder. The possesion of the property has not been given yet. My question is can I claim income tax benifits on the same.I mean interest on the home lean and principal payment.While deduction of interest u/s 24 is allowable only after completion of your house, no restriction is there for claiming deduction of principal payment u/s 80C. Suman, New Delhi

The aggregate of interest paid till the year of completion can be claimed in five equal instalments from the ffinancial year in which construction was completed. This is as per the Explanation given under section 24 of the I T Act .

Explanation : Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:

For example , let us say your house is completed in FY 2010-11 and till the year FY 2009-10 you paid interest of Rs 2,00,000 and during FY 2010-11 , RS 75,000 as interest . Then for the Asst Yr 2011-12 (Fy 2010-11) you can claim deduction of interest u/s 24 as under

• Interest paid during FY 2010-11 RS 75,000
  1/5 of accumulated interest Rs 2,00,000 Rs 40,000
  Total interest claimable Rs 115000

In rest of four succeeding years, similarly Rs 40,000 will be claimed. But overall limit of allowable interest Rs 1,50,000 is applicable in every case which mean that in any case the deduction of interest for self occupied property can not be more than 1.5 lakh for rented property , there is no such limit.

No TDS On Service Tax Included in Gross Rent U/s 194I!

A long awaiting clarification regarding the deduction of tax at source on the service tax component included in gross value of rent has come out in form of circular from CBDT vide CIRCULAR NO. 4/2008, DATED 28-4-2008 which is given below for readers

Representations/letters have been received in the Board seeking clarification as to whether TDS provisions under section 194-I of the Income-tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
2. The matter has been examined by the Board. As per the provisions of 194-I, tax
is deductible at source on income by way rent paid to any resident. Further rent
has been defined in 194-I as rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,-
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to or building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings, whether or not any or all of the above are owned by the payee;
3. Service tax paid by the tenant doesn't partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. These instructions may be brought to the notice of all officers working in your region for strict compliance.
5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.
[F.No.275/73/2007-IT(B)]

I am surprised that the problem has been only partially been given attention to. Even in case of other provision of TDS u/s 194C or 194J , the service tax component creates the same problem and the service tax is not an income for the payee. The logic given in point 3 of this circular is also applicable to other cases , and in author's view restricting the circular to 194I is letting the problem and controversy persist. The circular must be revised by CBDT to mitigate the problem faced by taxpayer.