Make the most of tax benefits on interest payments

The benefits towards interest payments for house loan allowed under present income tax laws is dependent on how the money borrowed is used. Here we explore the provisions of the law. For claiming interest benefit, the first and foremost point you should remember is that the benefit is available for the house owned by you, which is ready for occupation. You cannot claim this benefit if you do not own the house, or during the period in which it is under construction. Any interest paid during the period when construction was going on can be claimed in five equal instalments beginning from the year in which the construction has been completed. This benefit is available on accrual basis and it is not necessary for you to have actually made the payment towards interest via cheque. There is a notion that interest benefit on home loan can only be claimed if the loan has been taken for the purpose of buying a house or for construction on a plot owned by oneself. This is not true. Interest payments on loans taken for the purpose of repair, renovation or reconstruction is also eligible for deduction. If you have taken a loan against your property for purposes not covered in what has been stated earlier, you cannot claim deduction under the head “Income from house property”. This deduction, however, can be claimed under other heads in the income tax laws if the money has been used for other investments. Besides borrowing from banks and institutions even loans taken from friends and relatives are eligible for this benefit. You can even claim benefits on interest paid towards personal loans taken for making down payment. Therefore, it is not the source of the funds that is important, but the purpose to which the money has been put to use. However in case the money is borrowed on or after 1st April, 1999 for the purpose of buying the house in which you are staying, you have to obtain a certificate from the person who has lent you the money specifying the amount of interest payable on this loan. So except for the loan taken from the period beginning from 1st April 1999 for the property occupied by you, the law does not require you to even obtain a certificate from the lender but you will have to conclusively establish the linkage between the amount borrowed and the end usage. Now we look at the deduction available towards interest payments, which mainly depends on the usage of the property and the timing of the loan. For the properties that are let out, the entire amount paid as interest is allowed. In respect of properties which are occupied by you or your relatives, implying it is self-occupied, the normal amount of deduction available is Rs 30,000. You can, however, claim an enhanced deduction of Rs. 1.5 lakh if loan has been taken for purchase or construction of a house on or after April 1, 1999, and that the purchase or construction of the property is completed within a period of three years from the end of the financial year in which the loan was taken. For loan taken for repairs, renovation or reconstruction of a self-occupied house, the limit is still Rs 30,000 but there is no limit in respect of interest on loan for repairs, renovation or reconstruction of a house that is let out. In case of more than one property occupied by you or your relatives, the law allows you to choose one house as self-occupied and all the other houses shall be treated as let out and the deduction will be available to you accordingly. (Author is CFO, Apnapaisa.com)

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