IT - Foreclosure charges paid to bank on housing loan - Eligible for deduction
IF you take a bank loan for buying a house and if you want to repay the bank before the agreed period, you will have to pay a foreclosure charge. For the loan you have to pay interest and for repaying the loan, you have to pay some other charges. While the Income Tax Department allows a deduction of the interest paid on the housing loan, they don't allow a deduction on the foreclosure charges.
The Mumbai Bench of the ITAT, recently held that the foreclosure charges are also like interest and are deductible.
The Tribunal observed, "It is obvious that these prepayment charges have live and direct link with the obtaining of loan which was availed for acquisition of property. It is beyond our comprehension as to how the amount paid as interest for the loan taken is allowable as deduction but the amount paid as prepayment charges of the very same loan is not deductible. In our considered opinion the payment of such ‘prepayment charges' cannot be considered as de hors the loan obtained for acquisition or construction or repair etc. of the property on which interest is deductible u/s 24(b) of the Act. Both the direct interest and prepayment charges are species of the term ‘interest'. We, therefore, set aside the impugned order on this issue and order for the grant of deduction."
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