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Deduction of Interest on Housing Loan – Sec 24b

Applicable for financial year 2015-16 and 2016-17
U.C Date : 10 Mar 2015

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 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 – 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 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.

Also Read – Extra Deduction of Rs. 50,000 on Home Loan Interest under Section 80EE

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.

Example
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

Case Laws

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

Bare Act for Sec 24b

Bare Act for Sec 24b

where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed [within three years (five years from the assessment year 2017-18) from the end of the financial year in which capital was borrowed], the amount of deduction under this clause shall not exceed two lakh rupees.( one lakh fifty thousand for A.Y 2014-15 and before)

Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:]

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.

interest on housing loan

293 comments

  1. Sir,

    I paid full HBA with interest without break through my monthly salary. Due to my oversight I had not insured the flat for three years during loan period. What will be penalty I want to Pay. HBA Rs.225000/- at Interest rate 11%.

  2. HI,

    Can a non-salaried person claim housing loan tax benifit?

    Regards,
    Ravi

    • Prateek Agarwal

      Both salaried and non salaried persons are allowed to take benefits of housing loan tax benefit.

  3. Hi,
    I booked a flat in Dec 2012 and the first instalment of loan was disbursed in Feb 2013. The project has been delayed and it is unlikely that I would get possession in this financial year and in all likelihood I may get possession only in 2017-18.
    I have a house in the same city where I am staying now as SOP. There are two options after I get possession of the new flat. One is to shift there and make it as SOP. The other is to let it out and continue in my existing house as SOP. Can you please let me know the way the interest paid during pre construction period would get applied in both cases. Will it be limited only to 30K if I treat the new one as SOP.
    regards,

    Paul

    • Prateek Agarwal

      Yes the interest will be limited at rs. 30,000. If You get the possession till Dec 2017 then the limit is rs. 2 lakhs. In case of let out property there is no limit.

  4. Sir,

    I have a query. Kindly give an advice.

    I have constructed a house with two floors by taking a Home Loan from a bank in 2014. The construction has been completed in 2015. I am occupying in one floor and the other floor is let out.

    The deduction of Rs. 2 lakhs under Sec. 24 is available for self occupied property. What will be my claim of deduction of my house with two floors (one floor is let out) for FY 2016-17. Can I claim deduction of more than Rs. 2 lakhs?

    • Prateek Agarwal

      You should divide the interest by 2 (considering that both floors has same construction area).
      Half of interest is considered for the let out floor and allowed in full. And other half of interest is considered for self occupied floor and interest is allowed upto rs. 2 lakhs.

  5. Bipin Kishor Mundu

    I am 78 yrs old pensioner and I have a house constructed by taking a loan from bank in the year 2005. I am the borrower and my son is the co-borrower. I have leased the house to by son’s company for his residence purpose and getting the lease rent. My income is not much therefore I am not claiming benefit of interest on borrowed capital under Sec. 24 in my IT return. My son is claiming the benefit.

    My query is
    1. Is it necessary to claim benefit under section 24 (b) in my IT return?
    2. Just to determine my annual income, can I consider computation of Income from House property formula defined under sec 24 of IT Act including interest on borrowed capital ?

  6. Hello sir,

    Should we show Interest + Principal amount repayment as negative figure in Income from house property for SOP case.

    • Prateek Agarwal

      Only interest is allowed as deduction under section 24b. Therefore only interest portion is to be shown as negative figure in income from house property. Principal portion is allowed as per section 80C and therefore should be inserted there.

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