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Deduction in interest on housing loan

SACHIN AROLKAR, Goa Carbon Ltd (MANAGER FINANCE & ACCOUNTS) (61 Points)

10 February 2014

Dear Sir,

It is said that, The interest payable during the construction work would be deductible in five equal annual installments commencing from the year in which the house has been completed.The interest during pre- construction period upto 31.03.2013 paid is Rs.1,80,018/-.

My house has been completed during the financial year 2013-14. and \interest on housing loan during the year 2013-14 is is Rs.2,15,576.

Please clearify, whether I am eligible for deduction upto maximum of Rs.1.50 lacs interest paid on self occuipied property + 1/5th of Rs.1,80,018/- is total of Rs.1.50+ 0.36 lacs = 1.86 lacs for the financial year 2013-14.

With kind regards,

SACHIN AROLKAR

982212680

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3 Replies

Rohit Gupta (Audit Executive) (271 Points)
Replied 10 February 2014

Dear Sachin,

As per Section 24(b) of Income Tax Act, 1961 Income chargeable under the head "Income from house property" shall be computed after making deduction of any interest payable on borrowed capital where the property has been acquired, constructed, repaired, renewed or reconstructed with the amount of such borrowed capital.

Provided that the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees.

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

Home Loan interest paid is allowable under Section 24(b) and it is clearly written that the deduction under this section cannot exceed Rs. 1,50,000/-. In the explanation it is written that the interest paid in last 3 years is also allowable in 5 equal installments which is again can be claimed in this Section only. So the total deduction of only Rs. 1,50,000 is allowable including the previous period interest.

In my advice don't add this prior period interest in the calculation of interest claimed u/s 24(b) but u can add this interest at the time of sale of such house while calculating Cost of Acquisition. Your tax liability will get automatically decreased at the time of Sale of such house.

Regards

Rohit Gupta

RHT1203 @ GMAIL.COM

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Rahul jain (LEARNING & TEACHING) (435 Points)
Replied 10 February 2014

there is another section inserted for claiming interest on housing laon. sec.80EE.

plz read that sec. also......

Rohit Gupta (Audit Executive) (271 Points)
Replied 10 February 2014

Dear Rahul,

The Section 80EE cannot be applied in this case. Because he is talking about prior period interest and the benefit can be only taken in Section 80EE if loan is taken during FY 2013-14.

For your refrence I am giving you the relevant extract of Section 80EE. Just read the sub clause 3 of this Section.

Deduction in respect of interest on loan taken for residential house property.

80EE. (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.

(2) The deduction under sub-section (1) shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on the 1st day of April, 2015.

(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—

(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2013 and ending on the 31st day of March, 2014;

(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;

(iii) the value of the residential house property does not exceed forty lakh rupees;

(iv) the assessee does not own any residential house property on the date of sanction of the loan.

Regards

Rohit Gupta

RHT1203 @ GMAIL.COM