The income tax laws provide various benefits in respect of house property be it for home loan or for claiming exemption for capital gains by investing in a residential house. If one is not aware of these timelines, one may just miss the tax benefits available under the tax laws. Let us discuss.

Eligibility to claim deduction for home loan/money borrowed

You are entitled to claim deduction, upto 1.50 lakh under Section 80 C in a year, in respect of principal repayment of home loan, taken from specified institutions or entities, Likewise you are also entitled to claim deduction in respect of interest paid for money borrowed for a house under Section 24(b). Both these deductions, of principal repayment and interest, are available only when the property is in your possession and habitable.  So unless construction of the house is completed and you have obtained the you will not be able to claim this tax benefits even if you have already started repayment of your home loan by way of EMI.

Income tax Timelines related with house property

However, in respect of interest paid during construction period, you can claim aggregate of such interest paid in five equal installments beginning from the year in which you get the possession within the specified limits discussed below. So it is important for you to watch the progress of the construction to ensure that the tax benefits for home loan are not lost.

Completion of construction within specified time limit to claim the interest paid

You are allowed to claim deduction for interest paid in respect of money borrowed to purchase/construct/repair/renovate your house property. The quantum of deduction available varies depending on whether the house property is self-occupied or let out. You can claim deduction for full interest in case the property is let out but in respect of self-occupied house property the deduction is restricted to Two lakh rupees in a year provided the construction of the house is completed within a period of five years from the end of the year in which the money is borrowed in case of self-constructed or an under construction property booked. In case you fail to complete the construction within five years, your eligibility to claim interest on money borrowed comes down drastically to thirty thousand rupees in a year. It is interesting to note that this restriction does not apply in case the house is let out.

Please note that a person is entitled to have maximum of only two house property is self-occupied and beyond that the additional property/ies are deemed to have been let out and you are required to offer the notional rent for tax. One is allowed to claim maximum of thirty thousand or two lakhs rupees for all the self-occupied properties taken together.

Though one is allowed to claim deduction in respect of multiple house properties, there is restriction of two lakhs rupees of loss under the head “Income from house property” which one can set off against other incomes during the year and the balance loss not so adjusted is allowed to be carried forward for set off against income from house property in eight subsequent years.

For claiming exemption of capital gains

You can claim exemption for long term capital gains if you invest in a residential house property within specified time period under Section 54 and Section 54 F. Section 54 applies in respect of long term capital gains on sale of a residential house whereas section 54 F applies in respect of long term capital gains on sale of any capital assets other than a residential house. For Section 54 you have to invest only the long term capital gains computed but for Section 54F you have to invest the net consideration received.

In both the cases you have to purchase a house within two years from the date of sale of the asset. In case you have acquired a residential house within one year before sale of the asset, you can claim these deductions. However, in case you either get your house constructed by yourself or your book an under construction residential house you get an extended period of three years.

However, in case you fail to purchase/construct the residential house within specified time period, you lose the exemption claim earlier and the amount of long term capital gains claimed exempt earlier becomes taxable in the year in which the period of three years from the date of sale of the asset expires.  You may still be able to claim the deduction if you have invested the required amount and not got the possession but the matter may go in for litigation.

In case you sell or transfer the residential house on which you have claimed the exemption either under Section 54 or 54F within a period of three years, the long term capital gains claimed exempt earlier becomes taxable as short term capital gain in the year in which you sell or transfer the house.

Reversal of tax benefits in respect of home loan on sale of the house before five years

In case you have availed tax benefit under Section 80C in respect of repayment of home loan, the tax benefits claimed get reversed if you sell the house within five years from end of the year in which the home loan was taken. So be careful when you plan to sell the house taken with home loan as you may have to pay tax by missing the deadline by a few months.

From the above discussion it becomes clear that for claiming and retaining various tax benefits one has to be aware of various timelines under the income tax laws. If you are not careful about these deadlines of law, you may lose on some of the income tax benefits. 


Balwant Jain is a tax and investment expert and can be reached on and @jainbalwant on twitter.

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February 2024