Prevention of Double deduction of Interest on Borrowed Capital for acquiring, renewing or reconstructing a property
Finance Act 2023 has inserted a new proviso under Section 48 of the Income Tax Act. The proviso has been introduced with the intention to preventing the double deduction of interest on borrowed capital in respect of the acquisition, renewing, or reconstruction of a property. Let’s have a discussion about the amendment.
Section 24 of Income Tax Act
Presently, Section 24 of the Income Tax Act provides deduction with respect to the amount of any interest payable on borrowed capital for acquiring, renewing, or reconstructing a property while calculating the income under the head “Income from House Property”. In case a property is occupied by the owner for his own residence or cannot actually be occupied by the owner by reason of his employment or business or profession at any other place, he/she can claim a deduction u/s 24 only to the extent of Rs. 2 Lakhs in respect of interest on borrowed capital.
Section 48 of Income Tax Act
Further, Section 48 of the Income Tax Act provides that the income under the head “Capital Gains” shall be computed by deducting the cost of acquisition of the asset and the cost of any improvement thereto from the full value of the consideration received/ accruing as a result of the transfer of the capital asset.
In simple words, for calculating the capital gains, the cost of acquisition and the cost of improvement shall be deducted from the sales consideration of the asset. However, it has been observed that in certain cases, the assesses made a claim of interest on borrowed capital for acquiring, renewing or reconstructing a property both under section 24 as well as under section 48 leading to a double deduction.
Firstly, a deduction for interest on borrowed capital was claimed as a deduction from the income from house property on a yearly basis. Thereafter, in the event of transfer/sale of the said property, the same interest forms part of the cost of acquisition or improvement and is thus reduced from sales consideration of the asset leading to lower capital gain income.
Amendment by Finance Act 2023
In order to prevent this double deduction, a proviso has been inserted after clause (ii) of Section 48 of the Income Tax Act as below:
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“Provided that the cost of acquisition of the asset or the cost of improvement thereto shall not include the deductions claimed on the amount of interest under clause (b) of section 24 or under the provisions of Chapter VIA.” |
The effect of this amendment is that if an assessee is claiming interest on borrowed capital on a property as a deduction under section 24 while computing “Income under House Property” and he/she later sells the said property, then such interest on borrowed capital which has already been claimed as a deduction u/s 24 shall not be added to the cost of acquisition or cost of improvement for the purpose of calculating the capital gains income. This will prevent instances of double deduction for the same item. This amendment is effective from 1st April 2024 i.e. A.Y. 2024-25 and onwards.
Disclaimer: The above article is meant only for educational purposes and does not carry any persuasive value. Therefore, the readers are advised to act in consultation with any professional before applying the information contained in this article. Taxwink is not responsible for any loss or damage caused to any person on account of any information contained in this article.
About Author: The article is contributed by CA Naveen Goyal who is a qualified Chartered Accountant with an experience of over 16 years in the field of Direct & Indirect Taxes. He is a prolific writer with a zeal to share knowledge on various issues pertaining to taxation laws in India. He can be reached at: support@taxwink.com
