Tax Benefit on Home Loan Prepayment Charges

By | May 18, 2013

Home Loan Prepayment Charges are deductible from House Property Income

Mumbai Bench of the Income Tax Appellate Tribunal has recently held that prepayment or foreclosure charges on early repayment of home loans are deductible under the head income from house property as well as it is also eligible to set off with other heads of income in case the payment is huge and cannot be set off against the income under the head of house property.

The norms of set off and carry forward shall be same as provided under section 73 of the income-tax act for loss under head Income from House Property.

The decision came on an appeal filed by Windermer Properties, who has procured housing loan from HDFC for acquisition of property, offered early repayment which was accepted by bank but with heavy prepayment charges (of Rs.1.56 crore).

The tribunal after examining definition of interest on housing loan which is admissible as a deduction under income from house property said that both the direct interest and prepayment charges are directly in nexus with the housing loan and fall within the definition of the term interest, hence allowable as a deduction from house property income.

It is a welcome relief for taxpayers who have paid huge sum as prepayment charges or foreclosure charges on early payment of their housing loan during the financial year 2012-13.

These charges/fees will be deductible from Income from House Property but in case income under above said head is not adequate to set off the charges, assessee is eligible to set off the same against their salary income while filing their income tax return, the due date for which is July 31st.

Note: Reserve Bank of India has already prohibited banks from levying foreclosure charges or prepayment penalties of any kind of home loans in floating charge basis in June Last year. So the benefit of above decision shall be available for the assessee who has paid charges earlier to June 2012.

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