Relief for home loan borrowers: Housing society certificate sufficient for availing tax sop

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Home buyers planning to take a home loan may get relief in case the developer has not obtained the completition certificate (CC). According to a recent order passed by the income tax appellate tribunal’s Mumbai bench, a letter from the housing society showing the possession of the house in the borrower’s name is sufficient for the borrower to claim income-tax exemption on the home loan. As per income tax rules, home loan borrowers can claim up to Rs 2 lakh exemption on the interest paid on the loan. They can also claim exemption on the principal up to Rs 1.5 lakh.

In this case, the borrower had availed a home loan to purchase a flat and claimed Rs 1.5 lakh as exemption towards repayment of interest. But the I-T department refused it saying the CC was not submitted. He appealed against the order saying he has obtained a certificate from the housing society. The tribunal then allowed the tax exemption.

The CC, or occupational certificate (OC) as it is known in some states, is issued by the local government authority. By law home buyers cannot move into their houses until the CC/OC is issued. But historically residents have been living in buildings that don’t have the CC/OC. While in many cases the developer may have applied for the CC and not got it, in some cases the developer may not even have applied for it, says Ashutosh Limaye, Head of Research and Real Estate Intelligence Service, JLL, India.

It is possible to get a bank loan without the CC, if it is a property under construction. If it is a completed building, then the bank uses its discretion before approving the loan. Since there are so many government department and agencies involved in issuing the OC, sometimes there is a delay.

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“Though it is wrong, hundreds of families live in buildings without the CC. The housing society can be formed without OC. The rule by the tribunal is a practical one as it allows a letter by the housing society to show possession of the property, instead of going strictly by the rule book,’’’ Limaye says.

In the absence of a CC/OC, services provided by the local authority, such as water, sewerage, etc are charged higher. So, residents in such buildings end up paying more taxes.

Some reasons for a delay in issuing CC/OC could be a query raised by the local authority and not answered by the developer. Or some violation such as construction of the building not as per the plans submitted for approval. Or incomplete submission of documents by the developer.

In case of old buildings, there was no requirement for CC/OC. And developers of such societies may no longer be active. So, that could be another problem.

“It is the developer’s responsibility to get the CC/OC. And it is interest of the residents and housing society to ensure it is done as it enhances protection for the members. Societies too can file for it in case developer does not do it,’’ Limaye says.

In some cases, a dispute between local authorities (such as the Brihanmumbai Municipal Corporation and Maharashtra Housing and Area Development Authority or MHADA in case of Mumbai) could be one reason why a CC is not issued, says Arvind Rao, a Mumbai-based Chartered Accountant. The building may have received No Objection Certificates from other agencies like fire brigade, and the BMC itself. Since the structure is complete, residents start staying in the building. “This particular case could be more of an exception and cannot be considered as rule. In normal circumstances, CC is a must,’’ he says.

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