As per section 24b of Income Tax Act, 1961 Interest on borrowed capital (known as Home Loan) is allowed as deduction if such loans are taken for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. However there are particular limits prescribed by the law to claim these deductions depending upon whether the loan has been taken for the purpose of purchase, construction, repair, renewal or reconstruction etc.

During Budget 2014-15, it has been announced effective from FY 2014-15, home loan borrowers paying interest towards self-occupied house property u/s 24b are eligible to claim deduction upto to Rs. 2,00,000 per years.

The maximum amount of interest permissible in cases of  self-occupied property is Rs. 1,50,000 Rs. 2,00,000 (in respect of funds borrowed on or after 01.04.1999). If capital is borrowed for any other purpose (e.g. if capital is borrowed for reconstruction, repairs or renewals of a house property), then the maximum deduction on account of interest is Rs. 30,000 (and not Rs. 2,00,000).

As per CBDT’s circular No. 779, dated September 14, 1999, the loan taken prior to April 1, 1999 will carry deduction of interest upto Rs. 30,000 only.

There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential unit could have commenced before April 1,1999 but, as long as its construction/ acquisition is completed within 3 years, the higher deduction of Rs.1,50,000 Rs. 2,00,000 would be available. Also, there is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by the loan taken on or after April 1, 1999. It may be so in part. However, the higher deduction upto Rs. 1,50,000 Rs. 2,00,000 can be taken for the loan which has been taken and utilized for construction/acquisition after April 1, 1999.

Thus Interest upto Rs. 1,50,000 Rs. 2,00,000 is deductible if the following conditions are satisfied:

  1. Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property;
  2. The acquisition/construction should be completed within 3 years from the end of the financial year in which capital was borrowed; and the person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as refinance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.

Remember; if capital is borrowed on or after April 1, 1999 but construction is not completed within 3 years from the end of the year in which capital was borrowed. Then in such situations only deduction upto Rs. 30,000 can be claimed. However the ceiling limit of Rs. 1,50,000 Rs. 2,00,000/Rs. 30,000 is only in case if the property which is self occupied. While in case of Let out property there is no limit on the amount of deduction of interest.

Know the conditions for deduction allowed for Interest on Home Loan for Self-Occupied House Property

5 thoughts on “Know the conditions for deduction allowed for Interest on Home Loan for Self-Occupied House Property

  • August 21, 2014 at 2:29 PM
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    We are Govt. Employees and booked a vacant plot on my name and my wife’s name(50:5o share)during the year 2009 forwhich we received SBI home loan Rs 12,00,000.00 on 8.10.2009. We applied for a plan permit and got the approval on 26.12.2011. We started our house construction in the same purchased plot and in the mid of construction, we applied for a home loan for a value of Rs 20,00,000.00.The first installment of home loan of Rs 15,00,000.00 was issued on 10.08.2013 and final installment of loan was issued during the month of April, 2014. The house construction was completed on 3.8.2014. We remitted the following details of Interest to SBI.
    A) For a loan of Rs 12,00,000.00 (Date of Issue: 8.10.2009)
    i) Pre-construction period interest
    8.10.2009 to 31.3.2010 = Rs 45032
    01.04.2010 to 31.3.2011 = Rs 91157
    01.04.2011 to 31.3.2012 = Rs 90475
    01.04.2013 to 31.3.2014 = Rs 96164
    —————
    Total Amt of Interest = Rs 4,08,732
    —————-
    ii) Post construction period interest
    Projected interest (01.4.2014 to 31.3.2015) = Rs 89,734
    B) For a loan of Rs 20,00,000.00 (Date of Issue: 10.8.2013)
    i) Pre-construction period interest:
    (10.8.2013 to 31.3.2014) = Rs 1,10,564.00
    ii) Post construction period interest
    Projected interest (01.4.2014 to 31.3.2015) =Rs 1,94,900.00

    Eventhough the house was not completed within three years from the date of issue of first loan( i.e. 8.10.2009), whether
    (i) I am eligible for Tax rebate on the interest of Rs ((50%*4,08,732)/5) +(50%*89,734.00) on the Rs 12,00,000 loan and
    (ii) the pre-construction and post -construction interest on the second loan of Rs 20,00,000.00(issued on 10.8.2013) for a value of Rs ((50%*1,10,564)/5) +(50%*1,94,900.00) loan can be fully claimed.
    Assume our house is self occupied. Under such scenario,
    Our Queries are:
    1) What exemption can we claim individually and under which all section {Sec 80 / Sec 24} and what amount?
    2) As the final disbursement of loan falls during the month of April 2014,Is there a rule that construction MUST be competed in THREE Years, to claim full tax benefits from the date of first installment of loan? i.e (8.10.2009)
    3) In order to avail full tax exemption of Rs 2,00,000.00, whether the constructed house is to be self occupied or to be let out.? If the house is to be let out, whether we can claim full tax exemption of Rs 2,oo,ooo.00 individually.
    4) The construction is started after the first loan and the second home loan is also availed, how the completion date of construction is calculated? i.e from the date of first loan or from the date of 2nd loan or from the end of the financial year of the issue of second loan ?
    Kindly advice and clarify.

    Reply
  • August 21, 2014 at 2:43 PM
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    KINDLY THAT THE DATE OF COMPLETION OF HOUSE IS 8TH MARCH,2014. SORRY FOR THE WRONG ENTRY AS 3.8.2014

    Reply
    • August 21, 2014 at 7:58 PM
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      Hi Renganathan,

      Answers as below;
      1. It is self occupied, you both can claim Interest u/s 24b upto Rs. 2,00,000 (including 1/5th pre-contruction interest share) and 80C for principal repayment uto Rs. 1,50,000 each
      2. House should have completed in three years, but there are some cases where benefits has been allowed. I am not referring that you can do, but hope is there.
      3. Rs. 2,00,000 limit is given for self occupied house property
      4. If answer 2 favors, then this doesn’t apply

      Reply
  • December 24, 2014 at 11:49 AM
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    I have two queries.
    1) Does the construction completion condition also apply to let out properties? As I understand, there is no limit on interest deduction and no condition of completing the construction within 3 years if the property is let out.

    2) What is the definition of completion of construction? Does it mean 1) Obtaining OC for a said building by the builder 2) Owner taking possession of the flat (with or without OC) 3) Letter from the builder stating that the construction is complete.

    Reply
    • December 26, 2014 at 11:51 AM
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      Hi Allwyn,

      1. Under let-out property, no upper cap limit to claim interest deduction is applied
      2. As per my experience, anyone will be valid.

      Reply

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