Deduction of Interest on housing loan

[ASHISH DESAI]

an employee submits a declaration/receipts for rent payment for claiming HRA deduction u/s 10(13A) of the Act. he also submits a letter from the close relatives stating the interest charged by them on housing loans given by them to an employee. No nexus can be proved by the employee that whether this loan was actually utilised towards the purchase of house property. my querry is, is it the prime responsibility of an employer to ask for the nexus or a declaration from the employee that this loan is actually a hsg loan. can the employer give deduction of interest on hsg loan u/s 24(b). can this deduction given to an employee who avails personal loan from the banks & merely submits certificate re int payment. I have doubts about the possibility of giving this deduction. pl. discuss & clarify this situation.

[CAGOPALJI AGRAWAL]

It is the only responsibility of the employer to get a certificate from the person to whom interest has been paid certifying that the loan has been taken for purchase or construction of house and the amount of intt. You may also reach to same view by going through the recent CBDT circular no.1/2010 dated 11.01.2010. It is available at this portal itself.

[CA UMA KOTHARI]

A declaration of employee has to be and can be relied. Generally employer has to rely the same. However, such reliance slhould be bonafide and without any doubt or suspecion. When rent receipts are given, or declaration of interest paid is given by employees some circumstantial evidences can be enquired into. Now, it is not only about TDS but also about disallowability of expenses, which the employer has to consider. Recently a case was argued by a senior counsel before Tribunal for TDS matter of one of largest private sector professionaly managed company. The case was about exemption of LTA, the AO found that a large number of employees had undertaken vacation trip to a one and same but longest distant place to maximise amount fo exemption. The AO enquired some employees, some of them confessed that they had not really underteken trip but made declaration. Regarding rent it would be better if the employer check that the employee has paid rent in regualr course and ther are no suspecious circumstances. When in case of salary most of returns are accepted based on salary TDS certifiate and returns etc., the employer is in a fiducuary and very responsible manner and act in bonafide manner. Beyond that the employer need nto to go and can rely on declarations of employees. The case law of L & T, ITI are there, but one must learn from these judgments not on technical grounds but on factual ground realities also. There should be transperancy- considering this so far possible employee must be ready with usual supporing doucments, otherwise, in case of doubt, the employee may be charged with fraud committed by him while giving false declaration and avoidance of tax.

AI Summary

Employer reliance on employee declarations for housing loan interest affects deduction eligibility and TDS responsibility in payroll. Employers may accept employee declarations or lender certificates as evidence that a loan was taken for house purchase or construction and that interest was paid, provided such reliance is bona fide; where circumstantial evidence or irregularities arise employers should make reasonable enquiries and may require further supporting documents before allowing housing loan interest deduction, due to overlapping TDS obligations and risk of disallowance or fraudulent declarations.