Applicable for financial year 2016-17 and 2017-18
Section 24 of the income tax act provides deduction in respect of home loan interest.
1) Interest on housing loan is allowable as deduction on accrual basis not on paid basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. 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)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 instalments 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, 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 is 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 – Rs. 2 lakh from Financial Year 2017-18. (There is no limit till F.Y 2016-17)
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 SOP 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 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 reduced to Rs 30,000 if the construction/acquisition completes after 31 March 2017.
Interest for pre construction/acquisition period
Interest for pre construction/acquisition period is allowable in 5 equal instalment 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.
Loan Taken on 01-05-2006 of Rs. 5,00,000
Construction End on 07-09-2012.
Pre Construction/Acquisition Period = 01-05-2006 to 31-03-2012
Pre Construction/Acquisition Interest = Rs 3,55,000 ( Rs 5,00,000*71 Months*1%)
Pre Construction/Acquisition Interest Deduction for Financial Year 2012-13 to 2016-17 assuming let out property or deemed to be let out = Rs 71,000 per year ( 3,55,000/5 )
Pre Construction/Acquisition Interest Deduction for Financial Year 2012-13 to 2016-17 assuming SOP = Rs 71,000 per year ( 355000/5 ) (as the construction is completed within 5 years from the end of the financial year in which capital was borrowed)
Interest from 01-04-2012 to 31-03-2013 shall be allowed as deduction in 2012-13 as current year’s interest. Interest from 01-04-2012 to 07-09-2012 shall not be considered as Pre Acquisition/Construction Period.
Note: – If a property is partly SOP and partly let out then also the limit of Rs 2,00,000/30,000 shall be available for SOP portion and there is no limit of deduction for let out portion even if the construction is completed after 3 years.
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 upto Rs. 2 lakh/Rs. 30,000. No limit is applicable to let out property.
Difference between Section 24b and Section 80C
Interest on home loan is allowed under section 24b while principal on home loan is allowed under section 80C. A comparison between section 24 and 80C is given here under:-
|Particulars||Section 24b||Section 80C|
|Tax Deduction allowed only for||Interest||Principal|
|Basis of Tax Deduction||Accrual Basis||Cash Basis|
|Amount of Deduction||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)|
|Purpose of loan||Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property.||Purchase / Construction of a new House Property|
|Eligibility for claiming Tax deduction||Purchase/ Construction should be completed within 3 years||NIL|
|Restriction on Sale of Property||NIL||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.|
|Deduction during construction period||Interest paid during the construction/acquisition period shall be allowed in 5 equal installment from the last day of preceding Financial Year in which the construction is completed||No deduction is available for the principal repayment during the construction/acquisition period.|
Interest Deduction with HRA
HRA under section 10(13A) and interest deduction can be availed simultaneously even if house property is in same city in which you resides on rented property.
Form 12BB is to be filed with employer if you want your employer to take deduction under this section into consideration and thus deduct lower TDS
Prepayment charges are also allowed as deduction as interest under section 24b. (M/s.Windermere Properties Pvt.Ltd. 2013) Read full case law at indiankanoon.com