Wednesday, May 28

Section 80EE - Final & IPC - Correct Solution & Interpretation - Mistake in Material

Section 80EE
Conditions:
1. The taxpayer is an individual.
2. He has taken a loan from Financial Institution.
3. The loan has been sanctioned by the financial institution during previous year 2013-14.
4. The amount of loan sanctioned for acquisition of the residential house property does not exceed Rs.25 lakhs.
5. The value of the residential house property does not exceed Rs.40 lakhs.
6. The taxpayer does not own any residential house property on the date of sanction of the loan.



Amount of deduction:

(i) If the above conditions are satisfied, interest payable for the previous year 2013-14 on the aforesaid loan shall be deductible under section 80EE upto maximum of Rs.1 lakh.
(ii) In a case where the interest payable in previous year 2013-14 is less than Rs. 1 lakh, then balance deduction shall be allowed under 80EE in the previous year 2014-15. (Point to be noted: Language is “interest payable for the previous year is less than Rs. 1 lakh” and not the “deduction claimed under section 80EE is less than 1 lakh”)
(iii) Further, where a deduction under this section is allowed for any assessment year, in respect of interest on housing loan, deduction shall not be allowed in respect of such interest under any other provision of the Income-tax Act, 1961, for the same or any other assessment year.



-->


Practical:
Illustration 11 (CA Final Module DT - Pg. 11.23) (Can also be used for IPC students for clarity)-
Mr. A purchased a residential house property for self-occupation at a cost of Rs.30 lakh on 1.6.2013, in respect of which he took a housing loan of Rs.24 lakh from Bank of India@11% p.a. on the same date. Compute the eligible deduction in respect of interest on housing loan for A.Y.2014-15 and A.Y.2015-16 under the provisions of the Income-tax Act, 1961, assuming that the entire loan was outstanding as on 31.3.2015 and he does not own any other house property.

Solution (Wrong - as shown in Module)-


For A.Y.2014-15
(i) Deduction under section 24(b) = Rs. 1,50,000

[Rs. 2,20,000 (Rs. 24,00,000 × 11% × 10/12) Restricted to Rs. 1,50,000]
(ii) Deduction under section 80EE = Rs. 70,000
[Rs. 2,20,000 -Rs.1,50,000]


For A.Y.2015-16
(i) Deduction under section 24(b) = Rs. 1,50,000
[Rs. 2,64,000 (Rs.24,00,000 × 11%) Restricted to Rs.1,50,000]
(ii) Deduction under section 80EE = Rs. 30,000
[Rs. 1,00,000 – Rs. 70,000, allowed as deduction in P.Y.2013-14]


Correct Solution-
For A.Y.2014-15
(i) Deduction under section 24(b) = Rs. 1,50,000

[Rs. 2,20,000 (Rs. 24,00,000 × 11% × 10/12) Restricted to Rs. 1,50,000]
(ii) Deduction under section 80EE = Rs. 70,000
[Rs. 2,20,000 -Rs.1,50,000]


For A.Y.2015-16
(i) Deduction under section 24(b) = Rs. 1,50,000
[Rs. 2,64,000 (Rs.24,00,000 × 11%) Restricted to Rs.1,50,000]
(ii) Deduction under section 80EE = NIL
[Interest payable for the previous year 2013-14 was Rs.2,20,000 (which is more than 1 lac) and therefore, no further deduction is allowed under 80EE during previous year 2014-15.]


IDEAL APPROACH if Asked in Exam-

1. Solve the question correctly i.e. as per Income Tax Provision and not as solved by ICAI Module (as we have shown above)

2. Give below Note-
The question has been solved as per Section 80EE, and hence in AY 2015-16, no deduction u/s 80EE will be allowed as "Interest payable" for the AY 2014-15 was Rs.2,20,000 (which is more than 1 lac). This question could also have been solved using method used in Study Material,i.e.assuming as "Deduction claimed" for the AY 2014-15 was Rs.70,000 (which is less than 1 lac) and therefore, balance deduction of Rs.30,000 is allowed under 80EE during AY 2015-16.

Speak your mind