Considering the tide of COVID 19 on the Indian Economy, RBI on 27th March announced Moratorium for term loans inclusive of Home loans etc for a period of six months starting from March 1, 2020 to August 31, 2020 (Extended vide Press Conference dated May 22, 2020).
The Moratorium Period has been spread over two financial years viz. : 2019-20 and 2020-21.
It may however be noted that Moratorium Period was provided as an Option for Loan Holder and this article is meant for Persons who opt for this option for Loan over such House Property.
Let us understand how choosing Option of Moratorium Period is going to effect the Tax Benefits.
Background :
The Principal portion of the EMI paid for the year is allowed as deduction under Section 80C. The maximum amount that can be claimed is up to Rs 1.5 lakh. But to claim this deduction, the house property should not be sold within 5 years of possession.
This tax deduction under Section 80C is available on "Payment Basis" irrespective of the year for which the payment has been made.
However, tax benefit of home loan under this section for repayment of principal part of the home loan is allowed only after the construction is complete and the completion certificate has been awarded. No deduction would be allowed under this section for repayment of principal for those years during which the property was under construction.
Section 80C(5) also states that in case the assessee transfers the house property on which he has claimed tax deduction under Section 80C before the expiry of 5 years from the end of the Financial Year in which the possession has been obtained by him, then no deduction and tax benefit on Home Loan shall be allowed under Section 80C. The aggregate amount of tax deduction already claimed in respect of previous years shall be deemed to be the Income of the Assessee of such year in which the property has been sold and the Assessee shall be liable to pay tax on such income.
Impact :
As stated above, it is implicitly clear that one needs to make a Payment of Principal Component in order to Claim the Deduction under Section 80C.
If the loan is not repaid, no deduction for principal can be claimed under section 80C.
When Moratorium is allowed there is no repayment of loan. Once the loan or principal remains unpaid, no deduction can be claimed for the principal amount under Section 80C.
Hence, a person opting EMI moratorium cannot claim deduction under section 80C for the principal amount.
Further, it should be noted that the moratorium is allowed from March 2020. Hence, the EMI paid from April 2019 to February 2020 is eligible for tax benefits. Hence, the principal amount comprised in the EMI paid for these 11 months is eligible for deduction under section 80C. If the moratorium is opted, only the principal amount of March 2020 will be ineligible for the deduction.
It should be noted that the EMI moratorium was announced on 27th March 2020. Hence, EMI due on or before this date might have been deducted on the due date and after opting moratorium, the deducted EMI for March 2020 is refunded in April 2020.
However, one cannot claim a deduction for the principal amount for March 2020 if a moratorium for that month is opted even if the refund is given in April 2020 which falls in the next financial year.
The views expressed by the author is based on his understanding of law and the prevailing circumstances. Taxpayers are requested to use the views judiciously and author shall not be liable for any gain/loss which might arise by referring his article.
This Article was authored by Tushant a passionate blogger by .
Co-founded Tax Ninja with the aim to serve knowledge digitally.
He's on a valiant quest to share his knowledge of Income Tax and GST.
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