Home Loan Prepayment Charges Too Get Tax Benefit

17 May 2013

If you have prepaid a loan and paid additional charges you can get tax deduction on them. The Mumbai bench of the Income Tax Appellate Tribunal said in a recent verdict that prepayment charges are allowed as deduction for Income Tax purpose.

The interest paid on home loan is allowed as deduction on income from house property u/s 24. If this results in net loss on income from house property you can set it off against certain other incomes like salary and thus lower your taxable income.

In connection with an appeal filed on housing loan where the appellant had prepaid the loan and paid charges of about 1.6 crores, the tribunal bench said prepayment charges are directly linked to the housing loan and should come under the definition of the term interest.

It rejected the stand taken by Income Tax department and ruled that both direct interest and prepayment charges are allowed for deduction from house property.

Since banks had been banned from charging prepayment fees on floating rate home from June 2012 this verdict will apply just to those who might have prepaid their home loans in April-May 2012. However this will help in pending assessment of earlier years.

Source: TOI


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