Tax Benefit on Housing Loan Interest – Is it Rs 30,000 or Rs 200,000?
What is the maximum deduction available for the interest payment on a housing loan for a self-occupied house property (as of FY 2014-15)?
Section 24 of the Income Tax Act provides for deductions on income from house property for the purpose of tax calculation. According to Section 24, where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital shall be a deduction subject to the following conditions (for a self-occupied property).
The maximum deduction shall be Rs 2 lakh if –
a. the property is acquired or constructed with capital borrowed on or after 01-April-1999, and
b. such acquisition or construction is completed within three years from the end of the financial year in which the capital was borrowed.
If the above conditions are not satisfied, the maximum deduction shall be restricted to Rs 30,000.
The maximum deduction shall be Rs 30,000 if –
a. the property is acquired or constructed with capital borrowed before 01-April-1999.
or
b. if the capital is borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property. Please note that this condition refers to reconstruction and repair and not construction or acquisition of the house property.
or
b. the property is acquired or constructed with capital borrowed on or after 01-April-1999 and such acquisition or construction is not completed within three years from the end of the financial year in which capital was borrowed.
A word on the year of loan borrowal.
In order to avail the maximum benefit of Rs 2 lakh, the assessee should have borrowed the housing loan on or after 01-Apr-1999 and the construction/acquisition should have been completed within 3 years from the end of the financial year in which the loan was borrowed.
However, the law does not explicitly state which year should be considered as the year of loan borrowal if the loan is taken across installments spread over more than one financial year.
For example, if the first installment of a housing loan is taken on 01-Apr-2008 and the last installment of the loan is taken on 31-Mar-2013, and the construction of the house property is completed in the financial year 2014-15, can the assessee claim the maximum deduction of Rs 2 lakh in FY 2014-15 if this is a self-occupied property?
The construction of the property is completed well within 3 years from the financial year in which the last installment falls. However, if the date of the first installment is considered as the loan disbursement date, the property cannot be construed to have been constructed within 3 years. So, how does one determine the year of loan borrowal?
Since the loan can be said to have been fully disbursed only after the last installment, one could consider the year of the last installment as the loan disbursal year for the purpose of tax calculation.
What if there are multiple loans for the same house property?
There are instances when there could be more than one housing loan taken for construction/acquisition of a property. In such cases, the law is silent on how the deduction on account of interest should be arrived at.
For example, let us assume that an assessee takes a housing loan and starts construction. Halfway during construction, the assessee takes another loan to complete construction. Let us also assume that the construction is completed after 3 years from the end of the financial year in which the first loan was borrowed while from the perspective of the second loan, the construction is completed within 3 years.
In the above case, there are two possibilities with regard to the deduction:
1. If the first loan is considered, the maximum deduction available shall be Rs 30,000.
2. If the second loan is considered, the maximum deduction available shall be Rs 2 lakh.
There is no clarity in law on which of the above loans should be considered for deduction when the assessee calculates the income from house property. We wonder if the assessee can make the choice as per her discretion.
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Hi Gautham – This information about applicable income tax exemption 30K or 2L is really helpful. Builder in india are rarely able to complete the project in 3 years and people who take loan for under construction property get confused whether they are eligible for 30K only due to 3 years completion clause or they can still claim 2L or more (in case of let out property). I wanted to verify if i am understanding it correctly what you are saying here taking up my case.
Bought under construction property in Dec 2010.
Agreement to Sell – March 2011.
Loan approved – March 2011.
First disbursal – May 2011
Last disbursal – March 2015.
Possession / Registration – March 2015.
I want to understand in my case which of the below duration will be considered for “within three years from the end of the financial year in which capital was borrowed” as quoted by IncomeTax department.
1. Duration b/w Loan approval date and registration date : which is 4 years (FY2011-12, 2012-13, 2013-14, 2014-15) excluding the financial year when loan was approved.
2. Duration b/w first disbursal and registration date : which is 3 years excluding the financial year 2011-12 when the first disbursal took place.
3. Duration b/w last disbursal and registration date : which is 1 year only.
Appreciate your advice in this matter.
Thanks,
Nitin.
In order to avail the maximum benefit of Rs 2 lakh, the assessee should have borrowed the housing loan on or after 01-Apr-1999 and the construction/acquisition should have been completed within 3 years from the end of the financial year in which the loan was borrowed.
However, the law does not explicitly state which year should be considered as the year of loan borrowal if the loan is taken across installments spread over more than one financial year.
For example, if the first installment of a housing loan is taken on 01-Apr-2008 and the last installment of the loan is taken on 31-Mar-2013, and the construction of the house property is completed in the financial year 2014-15, can the assessee claim the maximum deduction of Rs 2 lakh in FY 2014-15 if this is a self-occupied property?
The construction of the property is completed well within 3 years from the financial year in which the last installment falls. However, if the date of the first installment is considered as the loan disbursement date, the property cannot be construed to have been constructed within 3 years. So, how does one determine the year of loan borrowal?
Since the loan can be said to have been fully disbursed only after the last installment, one could consider the year of the last installment as the loan disbursal year for the purpose of tax calculation.
1. Duration b/w Loan approval date and registration date : which is 4 years (FY2011-12, 2012-13, 2013-14, 2014-15) excluding the financial year when loan was approved.
Ans: since the period between the last disbursal date and the possession is less than 3 years, you should be able to claim maximum tax benefit.
2. Duration b/w first disbursal and registration date : which is 3 years excluding the financial year 2011-12 when the first disbursal took place.
Ans: Please see the previous answer.
3. Duration b/w last disbursal and registration date : which is 1 year only.
Ans: Please see the previous answer.
Sir, One of my friend availed housing loan during 2010 from LIC Housing Finance, for construction of a new house and completed the house in 2012.
He is paying around Rs.100000 as interest and Rs.20000 as principal.
Subsequently he availed loan for extention of his house i.e. first floor of the exising house and interest payable comes to Rs.60,000.
Please state the maximum amount of interest he can avail as deduction under section 24. If any case law is there please quote the same
If the property is self-occupied, house owner can claim a maximum of Rs 2 lakh after taking into account the interest from both loans.
If the second home is taken on loan, the interest is non-taxable. Its annual value, even if it is non-occupied, has to be added in the taxable income. Does this addition of annual value ( even if it remains non-occupied ) will continue forever or will it stop once the loan is paid back completely.
The annual value (section 23) has no relation to the deduction (section 24) on account of loan interest. Irrespective of whether the loan exists, the annual value has to be determined.
There is a house property which is expected to be completed by March 2016. Due to some anomaly, there was a delay in its construction and it has been more than 3 years since it began. Also, the loan was taken before the construction began. The loan has not yet been completely disbursed. It still remains payable. The loan is being repaid by way of EMIs. My query is as to how am I supposed to treat the pre-construction interest on this housing loan? The provision says that the property should have been completed within 3 years of taking the loan. The property is owned jointly by 2 people and the same is most likely to be taken as a deemed-to-be let-out property. Please guide me as to how am I supposed to take deduction u/s 24 for the interest paid during the period in which the property was under construction.
If the property is a let-out property, the 3-year rule does not apply. For a let out property, there is no ceiling on the interest benefit.
With regard to the pre-construction interest, the total interest pertaining to the pre-construction period should be divided by 5 and each installment can be considered for tax benefit in a future year (from the year you start claiming the benefit). Hence, the total pre-construction interest can be used for tax benefit across 5 years.
I want to know whether 3 year clause for the purpose of income tax rebate for under construction house after getting possession is applicable.
I am unable to understand your question. Can you please rephrase it?
Hello,
I have taken a loan against the purchase of a CMDA approved land for construction of a house. The construction is going to begin shortly. I would like to have the below clarifications:
1. Shall I claim the interest amount paid to bank as part of IT benefits?
2. If Yes, how much can I show as part of interest paid at the maximum for IT?
3. If No, any suggestions for availing the tax rebate of such loans?
Regards,
Ravi
No tax benefit is available until the construction is completed. You can claim tax benefit for the principal amount repaid and interest paid only from the year the construction is completed.
Hi Gautam,
My loan was sanctioned in sept-2012 and it is till date (feb-2016)not fully disbursed , possession of flat will likely happen in june-2016. If will I be entitled for availing 2lac interest exemption ?
Thanks
Ali Sajjad
If the possession happens in June 2016, you will not be entitled to any tax benefit on housing loan in the financial year 2015-16.
In case of Joint Home Loan but not co owned,
Suppose property owned by Spouse Mrs. A but not owned by Mr.A is financed through Bank Loan in which they are co Borrower.
So What shall be the status of Tax Benefits?
Whether Benefits will be allowed to both of them or Mrs A only can claim it as she is the only owner in property.
I am talking about Interest u/s 24B.
Plz answer with Case Law if available.
Thanks in anticipation
Yes, Mrs A alone can claim the benefit since she is the property owner.