Interest on Housing Loan
Interest paid or payable on borrowed capital for the purchase, construction, repair, or renovation of a house property is deductible under section 24(b) from the income taxable under the head “Income from House Property.” The quantum of deduction depends on the use of the property (let-out, self-occupied, or deemed let-out).
Quantum of Deduction
- Let-Out or Deemed Let-Out Properties: Full deduction for interest paid or payable, even if it exceeds the property’s annual value.
- Self-Occupied Properties: Deduction is limited to:
- Rs. 30,000: For loans taken for repair, renovation, or if conditions for a higher limit are not met.
- Rs. 2,00,000: For loans taken on or after April 1, 1999, for purchase or construction, if the property is completed within 5 years of borrowing.
Pre-Construction Period Interest
- Interest for the period before acquisition or construction completion is deductible in 5 annual instalments starting from the year of completion.
- The pre-construction period ends on March 31 preceding the year of property acquisition/construction completion or the repayment of loan whichever is earlier.
Other Provisions
- No interest deduction under the default tax regime: Under the default tax regime of section 115BAC , the interest deduction under section 24(b) for a self-occupied house property is not allowed.
- Deduction on Accrual Basis: Interest is deductible on an accrual basis. Thus, deduction can be claimed even if it is unpaid during the year.
- Interest on Re-Finance: Deduction applies to interest on loans taken to repay original housing loans. [Circular No. 28, Dated 20-08-1969]
- Interest Payable Abroad: Deduction is allowed only if the tax on such interest is deducted at source and paid to the Indian Government.
- Interest on House Building Advance: Interest on house building advance taken by Government employees under House Building Advance Rules, is allowed to be deducted on accrual basis. [Circular No. 363, Dated 24-06-1983]
- No deduction for ancillary expenses: Deduction is not allowed for penal interest, ancillary expenses like processing fees, brokerage, or commission.