CA Aashish Ramchand
INTEREST ON BORROWED CAPITAL [SEC. 24 (b)] – Interest on borrowed capital [of current year and per-construction period] deductible subject to a maximum ceiling given below –
> Maximum ceiling if capital is borrowed on or after April 1, 1999 – If the following three conditions are satisfied, interest on borrowed capital is deductible up to Rs. 2,00,000 –
| Condition 1 | Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property. |
| Condition 2 | The acquisition or construction should be completed within 5 years (3 years upto A.Y 2016-17) from the end of financial year in which the capital was borrowed. |
| Condition 3 | The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for such acquisition or construction. |
The following points should be noted –
1. If capital is borrowed for any other purpose (e.g., if capital is borrowed for reconstruction, repairs or renewals of a house property), then the maximum amount of deduction on account of interest is Rs. 30,000 (and not Rs. 2,00,000).
2. There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential unit could have commenced before April 1, 1999 but, if the aforesaid three conditions are satisfied, the higher deduction of Rs. 2,00,000 would be available.
3. There is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by the loan taken on or after April 1, 1999. It may be so in part. However, the higher deduction of Rs. 2,00,000 towards interest can be claimed only in relation to that part of the loan which has been taken and utilized for construction/acquisition after April 1, 1999.The loan taken prior to April 1, 1999 will carry deduction of interest up to Rs. 30,000 only.
> Maximum ceiling in any other case – If the above three conditions are not satisfied, then interest on borrowed capital is deductible up to a maximum of Rs. 30,000. In other words, in the following two cases, interest on borrowed capital is deductible up to Rs. 30,000 –
| Case 1 | If capital is borrowed before April 1, 1999 for purchase, construction, reconstruction, repairs or renewals of a house property. |
| Case 2 | If capital is borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property. |
Let’s assume Mr. Stuart owns a house property and it is used by him throughout the previous year 2018-19 for his (and his family members) residence. He pays interest of Rs. 5,00,000 on borrowed capital. The loan for the construction of house property was taken as on 01.01.2018.
In this case the value of the property would be taken as NIL as it is a self occupied property. Interest paid on home loan would be deductible subject to the maximum allowable limit of Rs. 2,00,000 per annum. Hence loss under the head “Income from House Property” would be Rs. (2,00,000).
Please note with effect from financial year 2017-18 Govt has restricted the limit of set off of loss from house property against other heads of Income to Rs. 2 Lakh. Till financial year 2016-17 there was no restriction and assessee was allowed to set-off any loss from house property against other heads of Income. Please note the restriction is placed on set-off of losses and not on the amount of home loan interest that can be claimed as a deduction under Section 24 for a rented house property, the losses which could arise on account of such interest repayment can be set off only to the extent of Rs 2 lakhs. Such loss in excess of Rs. 2 Lakh can be carried forward for upto 8 Assessment Years succeeding the year of loss and can be set off against Income under the head House Property.
Interest paid on capital borrowed for a let out property or a deemed let out property is completely allowable not subject to any limit. Which means the interest paid or accrued in the previous year would be completely allowed to the assessee as a deduction under section 24 (b) of the Income Tax Act.
(Author is CA by profession & Co-Founder of Make My Returns (www.makemyreturns.com) & can be reached at connect@makemyreturns.com)
(Republished With Amendments)
Sir, suppose I had taken 2 loans one for repiars and another for purchase before 1/4/199, how much deduction will be allowed under section24(b)?
Hi Sir,
Just wanted to clerify that if we have a home loan and then we rent out teh property on say 1000 per month( 12000 per year, leave fair value/ mkt value for rent at this time ), and we pay interest of 30,000 per month (360,000 per year), so can WE DEDUCT total 3.6lacs from the taxable income as LOS ON HOUSE/PROPERTY .
example :
Assumption : we have FAIR rent/ market rent / municipal rent as 1000 per month .
we have annual value of house = 12000*.70% = 8400 (30% deducted on maintinance charge for house )
now as interest paid is 3,60,000/- per year, we have income from house/let out property as : 8400-3.6 lacs = -3,51,600/-(which is negative value )
so can we deduct this 3.516 lacs from total income of individual (salaried )
😉 pl comment
Can i avail the rebate under section 80c for the repayment of home loan Principal amount if the property is under construction and interest payable on such loan under deductible U/s 24(b).
Thanks
–
Dear Natarajan,
I have taken a loan from SBI in August 2011 for 30 lakhs for under construction flat at Bangalore. My flat is ready to be occupied, ia m doing registration next week.
My question –
Second condition (for interest on borrowed capital is deductible up to Rs. 1,50,000) says the construction should be completed in three years.
1) from when i need to consider three years? First disbursal of loan or actual construction of site?
2) My first disbursal was on 3rd Sept 2011 and my registration is scheduled for next week. Can i get this tax benefit?
Please guide me on this.
Thanks,
Rajiv
Dear Sir,
I am a salaried employee and has taken a housing loan about 35 lacks on march 12 2013, where as i am paying intrest about 365000 in this year, the property i brought at Hyderabad and i am staying at Mumbai, I has given my property to rent i am getting about 48000 rent in a year and paying a property tax of 3000(approx) in a year. i came to know i am eligible for HRA please let me know how much exception i will get for Housing loan intrest.
Hi Sir,
Can we avail the rebate under section 80c for the repayment of home loan Principal amount if the property is under construction.
Thanks
Bakshish Singh
I have one property in Jamnagar under my name (freehold property) and have recently invested in second under construction property in joint name with my wife. Pocession for the under construction property will be completed after 48 months and have taken loan from HDFC. Can you tell me income tax benefit that i can avail in my return for this new under construction property?
Hello Mr. Ramchand ,
Whether deduction under 80c for principal repayment is allowed , if the Loan is taken from source other tahn banking ?
Dear Mr. Natarajan,
To claim deduction under section 24(b) it is absolutely imperative that the capital be borrowed from a housing board or a co-operative society. The capital can also be borrowed from the government, or a bank, cooperative bank, LIC, National Housing Bank or the assessee’s employer, where such employer is a public company, public sector company, university or a co-operative society. Interest paid on loan borrowed from an individual does not qualify for deduction u/s 24(b). Hope this resolves your query.
Regards
Aashish Ramchand
Dear Sir,
Is it absolutely necessary to avail housing loan only from Banks to get tax benefits on interest paid OR housing loan can be availed from any individual
Thanking You,
V.Natarajan