Section 24 of the income tax act provides deduction in respect of home loan interest.
Important points
1) Interest on housing loan is allowable as the deduction on accrual basis not on paid basis (even if account books are kept on the cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. The deduction can be claimed for two or more housing loans.
2)Interest includes service fees, brokerage, commission, prepayment charges etc.
3)Interest/penalty on unpaid interest shall not be allowed as deduction.
4)The deduction shall be allowed irrespective of the nature of loan whether it is housing loan or personal loan from any person/institution.
5) If a person instead of raising a loan from a third party pays sale price to the seller in installments along with interest than such interest is also allowable.
6) Interest on borrowed money which is payable outside India shall not be allowed as deduction under section 24(b), unless the tax on the same has been paid or deducted at source and in respect of which there is no person in India, who may be treated as an agent of the recipient for such purpose.
7) For claiming deduction under this section, the assessee must be the owner or deemed owner of the house property and loan shall be in the assessee name.
Maximum Limit of deduction under section 24b
These limits of deduction are applicable assessee wise and not property wise. Therefore if an assessee owns two or more house property then the total deduction for that assessee remain same.
1) In Let Out Property/Deemed to be Let Out – No maximum limit
2) Self Occupied House (SOP) – Rs. 2,00,000. (1,50,000 for A.y 2014-15 and before)
In the following cases, the above limit of Rs 2,00,000 for Self Occupied Home shall be reduced to Rs. 30,000
– Loan borrowed before 01-04-1999 for any purpose related to house property.
– Loan borrowed after 01-04-1999 for any purpose other than construction or acquisition.
– If construction/acquisition is not completed within 5 years from the end of the financial year (3 years till the financial year 2015-16) in which capital was borrowed. For example, a loan is obtained for construction/acquisition on 28 Oct 2011 then the deduction limit should reduce to Rs 30,000 if the construction/acquisition completes after 31 March 2017.
– Loan borrowed after 01-04-1999 for any purpose other than construction or acquisition.
– If construction/acquisition is not completed within 5 years from the end of the financial year (3 years till the financial year 2015-16) in which capital was borrowed. For example, a loan is obtained for construction/acquisition on 28 Oct 2011 then the deduction limit should reduce to Rs 30,000 if the construction/acquisition completes after 31 March 2017.
Download Automated Master of Form 16 for F.Y.2015-16 & A.Y.2016-17 [This Excel-based software can prepare at a time 50 employees Form 16 Part A&B for F.Y.2015-16]
Interest for pre-construction/acquisition period
Interest for pre-construction/acquisition period is allowable in 5 equal installments beginning from the year of completion of house property. This deduction is not allowable if the loan is utilized for repairs, renewal or reconstruction.
Pre-Construction/Acquisition period starts from the date of borrowing and ends on the last day of preceding Financial Year in which the construction is completed. For example, if house property is completed on 21st March 2012 then the deduction is allowed from Financial Year 2011-2012 to 2015-16.
Deduction in case of Co-borrower
If the home loan is taken on joint names then the deduction is allowed to each co-borrower in proportion to his share in the loan. For taking such deduction it is necessary that such co-borrower must also be co-owner of that property. If the assessee is a co-owner but is repaying the full loan himself, then he can claim the deduction of full interest paid by him.
The limit of deduction in case of Self occupied property applies individually to each co-borrower . In other words, each co-borrower can claim deduction up to Rs. 2 lakh/Rs. 30,000. No limit is applicable to let out property.
The limit of deduction in case of Self occupied property applies individually to each co-borrower . In other words, each co-borrower can claim deduction up to Rs. 2 lakh/Rs. 30,000. No limit is applicable to let out property.
Difference between Section 24B and Section 80C
Interest on the home loan is allowed under section 24b while principal on the home loan is allowed under section 80C. A comparison between section 24 and 80C is given here under:-
Particulars
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Section 24b
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Section 80C
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Tax Deduction allowed only for
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Interest
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Principal
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Basis of Tax Deduction
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Accrual Basis
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Cash Basis
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The amount of Deduction
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Self occupied property : Rs. 2,00,000 (From assessment year 2015-16)
Other than Self occupied property : No limit |
Rs. 1,50,000 (From assessment year 2015-16)
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Purpose of loan
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Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property.
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Purchase / Construction of a new House Property
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Eligibility for claiming Tax deduction
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Purchase/ Construction should be completed within 3 years
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NIL
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Restriction on Sale of Property
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NIL
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Tax Deduction claimed would be reversed if Property sold within 5 years from the end of financial year in which such property is acquired by him.
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Deduction during construction period
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Interest paid during the construction/acquisition period shall be allowed in 5 equal installments from the last day of preceding Financial Year in which the construction is completed
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No deduction is available for the principal repayment during the construction/acquisition period.
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