Processing Fees and Inurance Allowed as deduction from Rental Income ! Every home loan borrower must read it
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled in favor of the assesse holding that loan processing fees, annual maintenance charges, and loan protection insurance qualify as “interest” deductible under Section 24(b).
Key Details of the Case
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Dispute: The assessee acquired commercial property in Noida for ₹58.30 crore using a ₹60.50 crore overdraft facility from Standard Chartered Bank and let it out. He claimed a deduction of ₹1,17,03,182 under Section 24(b) from house property income.
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AO & CIT(A) Action: The Assessing Officer and CIT(A) restricted the Section 24(b) deduction to ₹72,25,774 (actual interest charged) and disallowed ₹44,77,708, which represented loan-related processing fees, annual maintenance charges, and protection insurance.
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Core Issue: Whether ancillary bank charges and insurance paid in connection with a loan taken to acquire let-out house property fall within the statutory definition of “interest” under Section 24(b).
Tribunal’s Ruling & Reasoning
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Broad Scope of Section 2(28A): The Tribunal noted that “interest” under Section 2(28A) includes not only interest payable on moneys borrowed, but also “any service fee or other charge in respect of the moneys borrowed or debt incurred.”
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Harmonious Reading: Reading Section 24(b) alongside Section 2(28A), the bench held that loan processing fees, annual maintenance charges, and protection insurance are charges directly in respect of the borrowed capital.
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Precedent Followed: The Tribunal relied on the Mumbai ITAT decision in Peepul Tree Properties (P.) Ltd. vs. ACIT (160 ITD 138), reaffirming that as long as loan charges are genuine and not part of a tax evasion device, they are fully allowable under Section 24(b).
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Verdict: The addition of ₹44,77,708 was deleted, and the appeal was allowed in full.
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