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Deduction of interest for house property income. - MakaanIQ.com

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Deduction of interest for house property income.

February 19, 2012 22:40 IST

As the prices of properties have sky rocketed in the last few years, it has become almost impossible for an average person to buy a decent house without borrowing money. In order to help taxpayers in realizing the dream of owning a house, the income tax Act allows you to claim interest on loans taken for a house. The deduction is available in respect of interest on loans taken for the purchase or construction of a house or renovation of your house property. Let us discuss these provisions. Number of properties eligible for such deduction There are no restrictions with regard to the number of properties for which you can claim tax benefits in respect of the interest. The income Tax Laws classifies house properties in two categories for the purpose of allowance of interest on such loans - Self-occupied and let out properties. However in case you occupy more than one house yourself for residence of your parents or other relatives in respect of which you do not receive any monetary compensation, you have to make a choice. Out of such properties you have to choose any one property as self-occupied. The other properties are then treated as let out and you have to offer notional rent for tax, though you might not have received any income from such property. Limits upto which the claim is allowable: In respect of the property occupied by you or treated as self-occupied above, there is an overall limit of interest for which you can claim the deduction. This limit of deduction is Rs. 30,000 in normal circumstances and goes upto Rs. 1,50,000/- in case the loan has been taken after 1st April, 1999. This higher deduction comes with caveat. First construction of the property should be completed or possession of the property be taken within three years from the end of the year in which such money is borrowed. Moreover you have to obtain certificate/s from the lender mentioning amount of the interest and the fact that the loan was a home loan. These certificates need to be produced before the assessing office in case your return of income is selected for detailed scrutiny, as presently you are not allowed to attach any document with the return of Income. However in case of property other than the self-occupied property there is no limit upto which you can claim the interest. Even interest paid in respect of personal loans taken for making down payments or for repairs of the property can be claimed without certificate from the lender as there is no requirement to obtain any certificate from the lender in respect of properties let out or deemed to have been let out. When can you start claiming this deduction. Though you are entitled to claim deduction in respect of home loan taken for the purpose of constructing your own house or for the purpose of booking an under construction house, the deduction can start only from the financial year in which you take possession of the property or complete the construction. However aggregate interest paid on the money borrowed while the property was being constructed will be allowed in five equal installments. First of such installment can be claimed from the year in which the construction of the property is completed or possession is taken. Requirement as to holding period of the property. In respect of claims made towards repayment of home loan taken from specified institutions you are required to hold the property for a period of five years from the end of the financial year in which you had taken possession, failing which all the benefits allowed to you earlier under Section 80 C is taxed in the year of sale. However there is no such requirement of minimum holding period in respect of interest allowance. So you can sell the property any time without forfeiting the tax benefits availed earlier. However in case of interest paid during construction, in case you sell the property before completion of the five years from the year in which you took the possession, you will loose your right to claim the deduction in respect of unexpired period of five years Other points to be considered A general perception in the mind of a layman is that the tax benefits in respect of home loan interest are available only if the home loan is taken from banks or specified financial institutions. In reality this is not so. You can borrow the money from anybody including your relatives and claim the benefits of interest claim against your house property income. Please note that even interest paid on the second home loan to repay the first home loan is also allowable as deduction under income tax act. From the above discussion it becomes clear that the provision of deduction of interest from income is a great relief to the tax payers as it helps them in reducing the tax liability and at the same time helps you in creating an asset which is subsidized by the government in the form of deduction for interest payment. Apnapaisa is a price & features comparison engine for loans & investments. He can be reached at www.facebook.com/apnapaisa

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