Here's how housing society certificates will now suffice for tax benefits

Income-tax tribunal has ruled that completion certificates from govt authorities are not a must for availing of home loan tax exemption

Home buyers might get relief from the income tax (I-T) department even if the developer has not obtained the completion certificate. 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. According to 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 completion certificate was not submitted. He appealed against the order saying he had obtained a certificate from the housing society. The tribunal, then, allowed tax exemption.
 
The completion or occupational certificate is issued by the local government authority. “By law, home buyers cannot move into their houses until the completion/occupational certificate is issued. But, historically, residents have been living in buildings that don’t have such certificates. While in many cases, the developer may have applied for the certificate and not got it, in some cases the developer might not even have applied for it,” says Ashutosh Limaye, head of research and real estate intelligence service at JLL India.

 

It is possible to get a bank loan without the completion certificate, 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 this certificate, sometimes there is a delay.
 
“Though it is wrong, hundreds of families live in buildings without a completion certificate. 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 adds.

 
In the absence of this certificate, services provided by the local authority such as water, sewerage etc are charged higher. So, residents in such buildings end up paying more taxes.
 
Among the reasons for delay in issuing these certificates could be a query raised by the local authority and not answered by the developer. Or, violations such as construction of the building not conforming to the plans submitted for approval. Or, incomplete submission of documents by the developer.
 
In some cases, a dispute between local authorities (such as the Brihanmumbai Municipal Corporation (BMC) and Maharashtra Housing and Development Authority in case of Mumbai) could be one reason why a completion certificate is not issued, says Arvind Rao, a Mumbai-based chartered accountant. The building might have received ‘no objection’ certificates from other agencies such as 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 a rule. In the normal circumstances, completion certificate is a must. But, if it is not available for reasons beyond the control of the tax-payer, this ruling could be a precedent, at least for Mumbai tax-payers,” he adds.

Tax exemption on home loan

• Up to Rs 2 lakh exemption on interest component under Section 24
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• Up to Rs 1.5 lakh exemption on principal component under Section 80C
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• Entire interest component in case of second home under Section 24