Interest on mortgage loan against the property

This query is : Resolved

Prashant (Querist)
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25 July 2018 I have property "A" which is let out. For buying property "B", I took a loan against mortgaged and the Property "A" was mortgaged to acquire Property "B". Can I claim the interest paid on loan against property u/s 24
I am offering the rent income of Property A as let out

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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26 July 2018 In this case, interest cannot be deducted from the rental income of property A.

Prashant

Prashant (Querist)
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26 July 2018 Can I claim the interest against property B

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 In the scenario where you have taken a loan against a property (Property A) to purchase another property (Property B), here’s how you can treat the interest on that loan under Section 24 of the Income Tax Act:

### **Interest on Loan Against Mortgaged Property:**

**1. **Interest Deduction Under Section 24:**

- **Property A:** Since Property A is a let-out property, the rental income from Property A will be taxable under the head "Income from House Property". You can claim a deduction of up to ₹2 lakh per annum on the interest paid on the housing loan under Section 24(b) for the property you are using for rental income.

- **Property B:** The interest on the loan taken against Property A to purchase Property B can only be claimed under Section 24(b) if Property B is also used for the purpose of earning income.

### **Deduction Eligibility:**

- **If Property B is Let-Out or Self-Occupied:** If Property B is let out or used for self-occupation, you can claim the interest on the loan taken against Property A under Section 24(b) against the rental income of Property B or against the income from self-occupied property, respectively.

- **If Property B is Not Yet Let-Out:** If Property B is not let out or is not generating rental income, the interest on the loan taken against Property A cannot be claimed under Section 24(b) because the loan was used for the purchase of Property B, and Property B is not yet generating income.

### **General Rules for Claiming Interest:**

1. **Loan Against Property:** The interest on the loan taken against Property A (which is a let-out property) can only be claimed against the income generated by Property B if Property B is used for income generation.

2. **Self-Occupied Property:** If Property B is self-occupied, the maximum deduction allowed for the interest on the loan under Section 24(b) is ₹2 lakh per annum, provided that Property B is treated as self-occupied.

3. **Proof of Usage:** Ensure that you maintain proper documentation and proof regarding the utilization of the loan and the property usage.

### **Summary:**

- **Interest Deduction on Property B:** Can be claimed under Section 24(b) if Property B is used for income generation (let-out or self-occupied).

- **Interest on Loan Taken Against Property A:** You can claim the interest if Property B is used for earning income or is self-occupied.

Ensure to consult a tax professional for precise advice tailored to your situation and to maintain compliance with all tax regulations.