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Budget 2023 : Preventing Double Deduction of Interest Expenses for Capital Assets

The Indian real estate sector has seen an increased interest from investors in recent years, but the Union Budget 2023 has now taken steps to prevent them from claiming double deduction on their investments.

Under the existing provisions of the Income Tax Act, the amount of any interest payable on borrowed capital for acquiring, renewing or reconstructing a property is allowed as a deduction under the head "Income from house property."

However, it has been observed that some assessees have been claiming double deductions on this interest. Firstly, it is claimed in the form of deduction from income from house property and in some cases, it is also being claimed under other provisions of Chapter VIA of the Act. Secondly, while computing capital gains on transfer of such property, this same interest also forms a part of cost of acquisition or cost of improvement under section 48 of the Act.

To prevent this double deduction, a new provision has been inserted after clause (ii) of section 48 of the Income Tax Act. This new proviso provides that the cost of acquisition or the cost of improvement shall not include the amount of interest claimed under section 24 or Chapter VIA.

The amendment is set to take effect from 1st April 2024 and will apply in relation to the assessment year 2024-25 and subsequent assessment years. The new provision will prevent investors from claiming double deductions and ensure that the tax system remains transparent and fair.

In conclusion, the Union Budget 2023 has taken a crucial step in preventing double deductions. Investors should keep in mind this new provision while making investments in the future and seek professional advice if necessary.

Key Take Away

From the blog article, it appears that now investors can claim deduction of the interest paid on the borrowed money invested into capital assets. This is a welcome change and positive for taxpayers as the same was not expressly written under the statute previously.

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