As per section 24 (b) of the Income Tax Act, an assessee can get deduction for property that has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital.
Further, deduction under the section is permitted if the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose.
The words in the section above refer to two important terms, property and person to whom interest is payable on borrowed capital.
Let us examine the meaning of each of these words:
Property: The term property means building. Land is not included in the definition of property. Hence, loan taken for acquisition of land will not be eligible for deduction under section on income from House Property.
Person to whom interest is payable: A person can include individuals in addition to banks and financial institutions. Therefore, the loan for construction or acquisition of property need not be taken only from a bank. A loan from an individual will also be eligible so long as the lender provides the certificate specifying interest payable.
Accordingly, an assessee can get tax deduction on a personal loan taken for purchasing a plot only if the house is constructed on that plot and to the quantum of money for construction of house – the amount for acquisition of land will not be eligible.
Exemption cannot be availed only if the plot is purchased.
The loan taken merely for purchase of a plot is not eligible for tax benefit neither under Section 24(b) nor under Section 80C.