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:
- Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property;
- 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.