HOUSE BUILDING ADVANCE
For example, an official obtaining a loan of Rs. 50,000/- on 01-10-1990, will be charged interest at 7.5% while the same official will have to pay interest at 9% if he obtains a loan of Rs. 50,500/-.
Interest is calculated on the balance of HBA outstanding on the last day of the month i.e. on the IBB just like calculation of interest on advance for purchase of conveyance, etc.
This amount can be shown as per below :
Gross Salary Income Rs. ............../-
Less Exemption u/s10 i.e. Rent Paid Rs. ............../-
Less Standard Deduction Rs. ............../-
Less Exemption u/s 24 (b) i.e. Interest on HBA Rs. ............../-
Less Exemption under Chapter VIA Rs. .............../-
Net Taxable Income Rs. ............../-
If any individual has drawn House Building Loan from any other financial institution, at the end of the year he should obtain a certificate from that financial institution showing repayment of loan details. In that repayment of Principal sum and Interest portion should be clearly mentioned. Accordingly income tax rebate can be taken on principal sum and interest sum.
This can be shown along with GPF Contribution/L.I.C. Premium/P.L.I. Premium etc. of which maximum rebate admissible is Rs. 70,000/-.
Repayment of HBA of Rs. 20,000/- as principal sum is exempted under section 88 if HBA has been sanctioned on or after 01/04/1999.
Exemption is admissible up to maximum of Rs. 10,000/- u/s 88 as recovery of principal amount, if HBA has been sanctioned on or before 31/03/1999.
Example of Calculation of Interest on H.B.A. :
A Government servant drawing a basic pay of Rs. 5,000/- was sanctioned an advance of Rs. 2,00,000/- which was paid in two instalments on March 2003 and August 2003. The advance to be repaid in 100 installments of Rs. 2,000/- each. Rate of interest 9.5% per annum. Recovery of the advance commenced from the pay of October 2003. Provisional interest calculation for the year 2004-05 is given below.
* (Cumulative Total for the period 01/03/04 to 28/02/05 = Total of IBB of 03/2004
Rs. 1,88,000/- to IBB of 02/2005 Rs. 1,66,000/-)
Calculation of Notional Interest :
Cumulative I.B.B. from 01/03/04 to 28/02/2005 Rs. 21,24,000/-
21,24,000 x 9.5
---------------------- = Rs. 16,815/- Interest .
Therefore in above case individual can show Rs. 16,815/- as interest portion (accrued). Out of recovery of Rs. 24,000/- Rs. 20,000/- can be shown as exemption u/s 80(c) whereas Accrued Interest on HBA Rs. 16,815/- can be shown as exempt u/s 24(b).