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 firstname.lastname@example.org)
(Republished With Amendments)