All about Interest on House Property
Section 24(b) of the Income Tax Act provides that in case of self occupied property ,deduction upto Rs.2,00,000 on payment of interest (if loan acquired after 1st April,1999) can be claimed by tax payer if the amount (loan) has been borrowed for acquisition, construction, repairing, renewal or reconstruction of house property .
However deduction would be limited to Rs.30,000 where the following conditions are not satisfied –
- The home loan must be for purchase and construction of a property;
- The loan must be taken on or after 1 April 1999;
- The purchase or construction must be completed within 5 years from the end of the financial year in which the loan was taken
Deduction in respect of interest towards preconstruction (moratorium) period
Where loan has been obtained before completion of construction,then deduction shall be allowed only on completion of said property.Where the loan has been taken for purchase or reconstruction of property then deduction equivalent to 1/5th of the amount starting from the year in which the construction of property is completed.
Example – Sunil Wadhwa has obtained loan for construction of his house property in FY 2017-18.He paid an interest of Rs. 1,35,000 prior to completion in FY 2017-18. The construction of his property was completed one year later in FY 2018-19.
The deduction equivalent to 1/5 of the total interest paid (i.e. Rs. 27,000 for each year) for the construction shall be available for 5 years starting from FY 2018-19.
However, the said limit has been provided only where the property is self occupied and not incase where it is let out or deemed to be let out. This means that the entire interest on let out or deemed let out property can be claimed as a deduction against the rental income from the property.
Is deduction only permitted for loan from Bank or NBFC
Deduction of interest shall be allowed irrespective of whether the nature of loan is in housing or personal loan from any person or financial institution. However, such loan should be for the purpose of construction or purchase or repair or reconstruction of the said 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. Interest includes service fees, brokerage, commission, prepayment charges etc. However, penalty or interest on penalty charges shall not be allowed.
Further, where a buyer enters into an arrangement with a seller to pay sales price in instalment along with interest due thereon , the seller becomes the lender in relation to the unpaid purchase price and the buyer becomes the borrower. In such cases, unpaid purchase price can be treated as capital borrowed for acquiring property and interest claimed shall be allowed as deduction under section 24.
Deduction in case of jointly owned properties
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.
Limit on loss that can be adjusted
Further ,under Section 71 and 71B, for any assessment year where there is loss under the head “Income from house property” then such loss can be setoff against any other head in the given assessment year, subject to such loss not exceeding two lakh rupees.
The tax payer would need to include details of unabsorbed loss in the income tax return to enable it to be carried forward.
However, the loss can only be adjusted from income from house property in subsequent years.
Documents required to file the claim
Interest certificate from the person to whom any interest is payable on the capital borrowed specifying the amount of interest payable. However, the interest certificate is not to be attached with the return.