A lot of my friends and colleagues are confused about the benefits available u/s 24 (Deduction from House property income) as there are some conditions related to the availability of benefits for home loan taken for the purchase of property viz.
- who is entitled to claim the benefit of interest paid on a home loan
- limit on claiming the benefit of interest paid on a home loan
- can interest paid on loan taken for buying a commercial property is allowed
- can interest on under-construction property be claimed
- what is pre-construction interest
- What are the documents required for claiming the benefit of interest home loan.
- Is it compulsory to take a loan from a bank?
so let’s try to find out the answers to all these questions one by one
- Section 24(b) of the Income Tax Act, 1961 deals with provisions relating to interest paid on loan taken for buying, construction, repairing, reconstruction or repairing of property. In the section, the word used is a property only and not house property meaning thereby that interest on commercial property is also allowed. The owner of the property who has taken a loan for the purposes mentioned above is entitled to claim the benefit of interest paid on the loan.
- There is a limit of Rs. 2.00 Lacs on interest paid on home loan taken for self-occupied house property. This deduction is per assessee/per person i.e. in case of joint owners Rs. 2.00 Lacs per joint owners. This limit of Rs. 2.00 Lacs get reduced to Rs. 30000/- per person in case of loan taken in following two circumstances: –
before 01.04.1999 for any purpose or
loan was taken after 01.04.1999 for a purpose other than construction/acquisition. Till Assessment Year 2017-18 there was no limit on interest paid on let out property but from AY 2018-19 onwards loss under the head house property has been restricted to Rs. 2.00 Lacs.So for Self-occupied or let out in both cases loss from house property cannot exceed Rs. 2.00 Lacs meaning in simple terms that the maximum amount of interest allowed in case of self-occupied house property is Rs. 2.00 Lacs but in case of let out property it can go up to 70% Gross Rent Received plus Rs. 2.00 Lacs and the same can be understood by the following example:-
Gross Rent Received 600000.00 Less: – Standard Deduction @ 30% 180000.00 Net Annual Value 420000.00 So Maximum Amount of Interest Allowed will be Rs.420000+200000=Rs. 620000/- because if deduct this Rs. 620000.00 From the net annual value then the loss from house property will come to Rs. 200000.00 (which is the maximum allowed as per new provisions from AY 2018-19 onwards.
- As explained in point no. 1 above the interest paid on loan taken for buying/constructing a commercial property is also allowed as in section 24(b) the word property has been used and not the word house property.
- interest on loan taken for buying/constructing a property is allowed after the construction of the property is completed. Interest on housing loan from the start of construction till the construction is completed can be claimed in five equal installments from the year in which construction is completed. This benefit is in addition to the regular interest but total loss from house property cannot exceed Rs. 2.00 Lacs from AY 2018-19 onwards. The amount of loss that cannot be adjusted in the same financial year can be carried forward for the next assessment year.
- The concept of pre-construction has been explained in point no. 4.
- To claim the benefit of interest on loan taken for acquiring/constructing the property the certificate of interest paid is required.
- No, There is no need to take a loan from the bank only. It can be taken from anybody, even from your friend. Interest paid on loan taken from the friend is also allowed provided the certificate of interest paid is presented as proof of payment. But the benefit available u/s 80C towards principal repayment is not available if the loan is not taken the bank/Financial institution.
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