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Deduction of Interest on Housing Loan – Section 24b

Applicable for the financial year 2018-19 and 2019-20

Introduction

Section 24b of income tax act allows deduction of interest on home loan from the taxable income. Such loan should be taken for purchase or construction or repair or reconstruction of house property.

Such deduction is allowed on accrual basis, not on paid basis. In other words, the interest payable for the year is allowed as deduction whether such interest is actually paid or not.

Deduction can be claimed for two or more housing loans. The deduction can also be claimed for two or more houses.

For claiming deduction under this section, person must be the owner of the house property and also loan should be in his name.

Inclusions/Exclusions in Interest

Interest includes service fees, brokerage, commission, prepayment charges etc.

Interest/penalty on unpaid interest shall not be allowed as deduction.

Type of Loan for which deduction allowed

The deduction shall be allowed irrespective of the nature of loan whether it is housing loan or personal loan from any person/institution. The loan should be used for the purpose of construction or purchase or repair/reconstruction of house.

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.

Maximum Limit of deduction

These limits of deduction are applicable assessee wise and not property wise. Therefore if a person owns two or more house property then the total deduction for that person remains the same.

1) In Let Out Property/Deemed to be Let Out – Rs. 2 lakh

2) Self Occupied House (SOP) – Rs. 2 Lakh

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 in which capital was borrowed. For example, a loan is obtained for construction/acquisition on 28 Oct 2019 then the deduction limit should be reduced to Rs 30,000 if the construction/acquisition completes after 31 March 2025.

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 five equal instalments 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 2019 then the deduction is allowed from Financial Year 2019-2020 to 2023-24.

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 a 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 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 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 hereunder:-

 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 instalments 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

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.

Income Tax Department’s Guide

About Prateek Agarwal

Prateek Agarwal is a Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He writes mainly about GST and Finance.

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