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Interest on housing loan is allowable as deduction on accrual basis not on paid basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. Deduction can be claimed for two or more housing loans.

Section 24b - Deduction of Interest on Housing Loan Section 24b of the income tax act provides deduction in respect of interest on housing loan.

Important points


1) Interest on housing loan is allowable as deduction on accrual basis not on paid basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. Deduction can be claimed for two or more housing loans.

2)Interest includes service fees, brokerage, commission, prepayment charges etc.

3)Interest/penalty on unpaid interest shall not be allowed as deduction.

4)Deduction shall be allowed irrespective of the nature of loan whether it is housing loan or personal loan from any person/institution.

5) If a person instead of raising a loan from a third party pays sale price to the seller in installments along with interest than such interest is also allowable.

6) Interest on borrowed money which is payable outside India shall not be allowed as deduction u/s 24(b), unless the tax on the same has been paid or deducted at source and in respect of which there is no person in India, who may be treated as an agent of the recipient for such purpose.

7) For claiming deduction under this section, assessee must be the owner or deemed owner of the house property and loan shall be in the assessee name.

Maximum Limit of deduction u/s 24b

These limits of deduction is applicable assessee wise and not property wise. Therefore if an assessee owns two or more house property then the total deduction for that assessee remain same.

1) In Let Out Property/Deemed to be Let Out – No maximum limit

2) Self Occupied House (SOP) – Rs. 2,00,000.

In the following cases the above limit of Rs 2,00,000 for SOP shall be reduced to Rs. 30,000

– Loan borrowed before 01-04-1999 for any purpose related to house property.– Loan borrowed after 01-04-1999 for any purpose other than construction or acquisition.– If construction/acquisition is not completed within 3 years from the end of the financial year in which capital was borrowed.

Interest for pre construction/acquisition period

Interest for pre construction/acquisition period is allowable in 5 equal installment beginning from the year of completion of house property. This deduction is not allowable if the loan is utilized for repairs, renewal or reconstruction.

Pre Construction/Acquisition period starts from the date of borrowing and ends on the last day of preceding Financial Year in which the construction is completed.

Deduction in case of Co-borrower

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.

The limit of deduction in case of Self occupied property applies individually to each co-borrower . In other words, each co-borrower can claim deduction upto Rs. 2 lakh/Rs. 30,000. No limit is applicable to let out property.

Difference between Section 24b and Section 80C

Interest on home loan is allowed under section 24b while principal on home loan is allowed under section 80C. A comparison between section 24 and 80C is given here under:-

 Particulars

Section 24b

Section 80C

Tax Deduction allowed only for

 Interest

Principal

Basis of Tax Deduction

Accrual Basis

Cash Basis

Amount of Deduction

Self occupied property : Rs. 2,00,000 (From assessment year 2015-16)
Other than Self occupied property : No limit

Rs. 1,50,000  (From assessment year 2015-16)

Purpose of loan

 Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property.

 Purchase / Construction of a new House Property

 Eligibility for claiming Tax deduction

 Purchase/ Construction should be completed within 3 years

NIL

Restriction on Sale of Property

 NIL

Tax Deduction claimed would be reversed if Property sold within 5 years from the end of financial year in which such property is acquired by him.

Deduction during construction period

Interest paid during the construction/acquisition period shall be allowed in 5 equal installment from the last day of preceding Financial Year in which the construction is completed

No deduction is available for the principal repayment during the construction/acquisition period.