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Tax deductions that can be availed for reconstructing a house

"Demolishing a house and building a new one on the same plot is considered the reconstruction of the house."

ET CONTRIBUTORS|
Aug 19, 2019, 01.11 PM IST
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As per Section 24(b), deduction is allowed for interest paid on loan taken for reconstruction of property.
I took a loan 16 years ago to buy a house. I availed of the tax deduction on interest outgo. I want to demolish the old house and build a new one on the plot now. If I take a home loan, will I be eligible for tax deduction on interest outgo and the principal?

Amit Maheshwari, Partner, Ashok Maheshwary and Associates replies, "Demolishing a house and building a new one on the same plot is considered reconstruction of the house. As per Section 80C, deduction is allowed for repayment of loan taken for acquisition and construction of a house and not reconstruction. Hence, you are not eligible to claim deduction for repayment of principal amount. As per Section 24(b), deduction is allowed for interest paid on loan taken for reconstruction of property. The deduction amount cannot exceed Rs 30,000 if it is a self-occupied property. If the property is let out, the whole interest is allowed but the loss under the head, house property, will be adjusted only up to Rs 2 lakh and the balance carried forward to the next year."

I invested my retirement benefits in a bank FD, earning an interest income of Rs 3.5 lakh. In the last fiscal, I lost Rs 8 lakh in derivatives trading. Can this loss be adjusted against my interest income?

Archit Gupta, CEO, ClearTax replies, "Income from derivatives is classified as business income and further classified as speculative and non-speculative income. If the derivatives are listed/traded on a recognised stock exchange in India, then income is treated as non-speculative business income. If the derivatives are not traded on a recognised exchange then the income is considered as speculative business income. According to the set-off and carry forward provision of the Income Tax Act, loss from a speculative business will only be set-off against speculative business income. Loss from a non-speculative business can be adjusted against any other source of income such as capital gains, income from other sources or house property income. It cannot be set off from salary income. Therefore, you can set-off your derivative trading loss against interest income of Rs 3.5 lakh, provided the derivatives were traded on a recognized exchange. If the derivatives were not listed, you can’t set-off this loss against interest income."
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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