80C benefit reversal

Aman 1
Viewed 1566

Hi! Got 3 questions around reversal of home loan benefit (principal) claimed under section 80C.

I bought a flat in resale in Jan 2008(FY08) and now planning to sell by June/July 2012(FY13)

My queries are:

1) How do these 5 years for benit reversal get computed.... is it simply month based, like 60 months or is it financial year? Since I bought in FY08 and selling in FY13, will this get exempted or will reversal be applicable for me?

2) if reversal is applicable, would the tax "benefit" be added to my income or the total amount I declared for exemption...simply put, if I declared Rs. 50,000 in section 80C for exemption, will 50,000 be taken as my income or Rs. 15,000 - the broad tax benefit I would have got @ 30% tax rate

3) I am salaried guy...so under section 80C, I got benefit of EPF contribution in the year as well...coupled with 5 year bank FD I made in a particular year that gets 80C benefit....so let’s say my EPF contribution every year was on an average Rs. 75,000. Along with this, I declared home loan principal amount as per final certificate from bank (say Rs. 45,000) + Bank FD for Rs. 10,000, which all totaled to more than Rs. 100,000. Now my question is...will benefit reversal happen for Rs. 45,000 or for balance Rs. 15,000 only (75,000 EPF+10,000 FD) In remaining years, I didn’t make any FD since I was anyways hitting the Rs. 100,000 mark...so I declared my EPF at Rs. 75,000 and home loan principal benefit of Rs. 45,000. Similarly like above, will reversal happen for balance Rs. 25,000 or Rs. 45,000?

Many thanks in advance.

benefit-reversal home-loan-principal section-80c
1 Answers
  1. Five years term is counted from end of financial year. If you sell residential property before enf of five years from end of financial year in which you got possession, the 80C tax deduction will be reversed and tax deduction claimed in earlier years under section 80C would be added to yoru taxable income in the year in which you sell the property.
  2. Whole deduction taken would be added to income. If 50K was declared under 80C, this 50K would become taxable now.
  3. In case you had other 80C eligible deductions as well and total amount was more than one lakh, you can get 80C home loan principal benefit revered only to an amount equal to one lakh - other 80C deductions. If total eligible 80C investments were 1.30 lakh and home loan part was 45K only, then only 15K would be added to taxable income. This amount needs to be computed separately for each year in which tax benefit was taken.
Pankaj Batra5212
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