Limits & Conditions for Claiming Deduction of Interest on Borrowed Capital includes loan take from banks, financial institutions or from private sources on house property for computation of Income from House Property under Section 24(b) of Income Tax Act,1961
Section 24(b) of the Income Tax Act allows deduction from income from houses property on interest on borrowed capital as under:-
- Deduction is allowed only if the house property is owned by the assesses and is in occupation of the assesses for his own residence. However if the assessee is not able to occupy the house due to reason of his place of employment being else where and there he stays at a place not owned by him, then he can be allowed the deduction.
- Interest on borrowed capital is allowable as deduction on accrual basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. The interest is deductible on ‘payable’ basis i.e. on accrual basis. Hence it should be claimed on yearly basis even if no payment has been made during the year.
- If Taxpayer delays in payments of installment of home loan and bank charges penal interest then such penal interest is not allowed as deduction under section 24.
- Maximum deduction for Interest is Rs 200,000/- from 1.04.2015 i.e. for FY 1.04.014-31.3.2015 before that it was Rs 1.50 lakhs.
- In case of house is given on rental than person claim actual interest paid against rental income as deduction and there is no maximum limit for deduction claim, so person can claim any amount which is paid as interest on loan.
- In case property is co-owned than the joint owners can claim the deduction for principle & Interest in the proportion of their ownership and if repayment is done by co-owners in different proportion then they can claim deduction in the proportion of repayment.
- Taxpayer can claim maximum deduction of Rs 100,000/- under section 80C of Income Tax for payment of principle amount on home loan to banks
- Taxpayer cannot claim deduction for any brokerage or commission paid for arranging loan either as a one time arrangement or on periodical basis till the loan continues.
- In case of Central Government employees, interest on house building advance taken under the House Building Advance Rules (Ministry of Works and Housing) would be deductible on the basis of accrual of interest which would start running from the date of drawal of advance.
- Any interest chargeable under the Act, payable out of India on which tax has not been paid or deducted at source, and in respect of which there is no person in India who may be treated as an agent, is not deductible, by virtue of Section 25, in computing income chargeable under the head “Income from house property”.
- The quantum of deduction allowed is:
|Sl No.||Purpose of Borrowing capital||Date of Borrowing capital||Maximum Deduction allowable Interest|
|1||Repair or renewal o reconstruction of the house||Any time||Rs. 30000/-|
|2||Acquisition or construction of the house||Before 01-04-1999||Rs. 30000/-|
|3||Acquisition or construction of the house||On or after 01-04-1999||Rs. 150000/-|
|4||Acquisition or construction of the house||On or after 01-04-2014||Rs. 200000/-|
- If the house is acquired or constructed on or after 01-04-1999, then the house should be acquired or constructed within 3 years from the end of the FY in which the capital was borrowed.
- Further any prior period interest for the FY’s upto the FY in which the property was constructed or acquired shall be deducted in five equal installments.
- The assesses has to furnish a certificate from the person to whom interest is payable on the borrowed capital specifying the amount of interest payable.
Reference: Section 24(b) Deductions from income from house property.
Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—
(a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:
Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :
Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed], the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees, with effect from 1st April 2015 one lakh fifty thousand rupees increased to Rs Two lakhs rupees.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:
Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.