Taxpayers get a big relief with a decision of Mumbai bench of the income tax Appellate Tribunal. This decision is about the prepayment penalty paid to early repayment for the home loan.
In the decision, the prepayment charges can be claimed deduction from the income under the head income from house property. These charges can be claimed from any other head of income like income from salary etc.
This is a big relief to the taxpayers as many people paid a large amount as prepayment charges for the home loan and there was no rule to get the deduction from income tax.
The tribunal examined the appeal filed by Windermere properties. The Tribunal said that the interest on housing loan is deductible from income tax under the head income from house property. The appellant paid a sum of Rs. 1.56 crore as prepayment charges for a house loan to HDFC bank. The Tribunal said that these charges are live, true and direct linked with the house loan.
Dismissing the stand taken by the Tax department, the tribunal bench added, "It is beyond our comprehension as to how the amount paid as interest for the housing loan taken is allowable as a deduction but the amount paid as prepayment charges of the very same loan is not deductible."
Both the direct interest and prepayment charges were held by the tribunal to fall within the definition of the term interest and allowable as a deduction from house property income.
Reserve Bank of India had removed the prepayment charges for the house loan in June 2012-13 but a large number of income tax payer still paid prepayment charges for home loan in April and May 2012. This rule helps them to save a big money from income tax liability.
Moreover this rule is helpful to those people too who have still pending assessment for previous years.
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