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CA SUNNY MAKKAR (Professional) (66 Points)

16 February 2010

hii....

i have paid 84072 as principal and 194072 as interest for home loan taken.

for principal i had claim deduction in 80c. but for interest how much deduction is available , construction is not completed yet,.......

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4 Replies

Amir (Learner) (4016 Points)
Replied 16 February 2010

Dear Sunny,

Till the time construction gets complete u CANNOTclaim 80C for repayment of principal..(so this is a dead expenditure)

Interest of pre construction period can be claimed in 5 equal annual installments begning with the year of completion of construction..

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Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 16 February 2010

Home loan interest and tax deduction

The Income Tax Act offers incentives to encourage people to invest in a house. The incentives are available by way of a deduction on interest

payments on the amount borrowed to purchase or construction the house. Section 24 of the Income Tax Act contains provisions relating to deductions on income from a house. Under this Section, the interest paid on a housing loan is eligible for deduction. The interest is allowed as a deduction on an accrual basis, i.e., on due basis, even if it is not actually paid in cash during the year.

The interest should be payable on borrowed capital and not on notional capital. The money should have been borrowed for the purposes of acquisition of property, construction of property , or repair of property. Interest paid on a fresh loan taken to repay another existing loan is also allowed.

In order to claim the deduction , the assessee should furnish a certificate from the lender to whom the interest is payable on the capital borrowed, specifying the amount of interest payable.

In case the property has been acquired or constructed with borrowed capital, the interest payable on the capital borrowed for the period prior to the previous year in which the property has been acquired or constructed is also eligible for deduction. The amount is deductible in five equal instalments commencing from the previous year in which the house is acquired or constructed . The first instalment is deductible in the year in which the construction of the property is completed or the property is acquired, and the balance four instalments in the four subsequent years.

This is irrespective of the number of months that have elapsed during the financial year. Even if one day is left during the year, deduction for the full year is allowed.

The maximum amount of deduction eligible is Rs 1.5 lakhs. The money should have been borrowed on or after April 1, 1999 for the acquisition or construction . Such acquisition or construction should have been completed within three years from the end of the financial year in which the capital was borrowed. The lender needs to certify that the interest is payable for the loan advanced for acquisition or construction of the house.

The deduction amount is restricted to Rs 30,000 in case the money has been borrowed before April 1, 1999.

The date of commencement of construction is of no consequence . What is important is the construction should be completed within three years from the end of the financial year in which the money has been borrowed.

Further, it is not required that the entire cost should be financed through a loan. Any part of the cost of the house can be financed through the loan. For tax planning purposes, it is advisable to borrow and build or purchase rather than use your own resources because in case you use your own resources no tax incentives are available.

regards,

ratan