IT Exemptions: House Building Loan Repayment, Interest on Housing Loan

Income Tax Housing Loan Principal and Interest ExemptionClaiming Exemption for House Building Loan Repayment and Interest on Housing Loan in Income Tax. Let us know the Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property Section 24(b). Exemption for Repayment of House Building Loan from Income tax. This deduction will also be allowable under Sec 80(EE) in respect of re-payment of loans borrowed by an assessee for the purpose of purchase or construction of a residential house property, the income from which is chargeable to tax under the head "Income from house property"

Exemption on Interest on House Building Loan (Housing Loan Interest)

Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property Section 24(b):
Section 24(b) of the Act allows deduction from income from houses property on interest on borrowed capital as under:-
(i) the deduction is allowed only in case of house property which is owned and is in the occupation of the employee for his own residence. However, if it is actually not occupied by the employee in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him. The quantum of deduction allowed as per table below:
Purpose of borrowing capitalDate of borrowing CapitalMaximum Deduction allowable
Repair or renewal or reconstruction of the houseAny timeRs. 30,000/-
Acquisition or construction of the houseBefore 01.04.1999Rs. 30,000/-
Acquisition or construction of the house On or after 01.04.1999Rs. 1,50,000/-
(upto AY 2014-15)
Rs. 2,00,000/-
(w. e. f. AY 2015-16)
In case of Serial No. 3 above
  1. (a) The acquisition or construction of the house should be completed within3 years from the end of the FY in which the capital was borrowed. Hence it is necessary for the DDO to have the completion certificate of the house property against which deduction is claimed either from the builder or through self-declaration from the employee.
  2. (b) Further any prior period interest for the FYs upto the FY in which the property was acquired or constructed (as reduced by any part of interest allowed as deduction under any other section of the Act) shall be deducted in equal installments for the FY in question and subsequent four FYs.
  3. (c) The employee has to furnish before the DDO a certificate from the person to whom any interest is payable on the borrowed capital specifying the amount of interest payable. In case a new loan is taken to repay the earlier loan, then the certificate should also show the details of Principal and Interest of the loan so repaid.
Read What does the Section 24 (Deductions from income from house property)of Income Tax Rules Says:
24. 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. 
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 installments 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.]

Exemption for House Building Advance (Loan) Principal Amount in Income Tax Rules

As per Section 80EE the following are the conditions for claiming expemtions from Income Tax on House Building Advance Principal Repayment

Vide Finance Act 2013, an individual is allowed a deduction upto a limit of Rs 1,00,000 being paid as interest on a loan taken from a Financial Institution, sanctioned during the period 01-04-2013 to 31-03-2014 (loan not to exceed Rs 25 lakhs) for acquisition of a residential house whose value does not exceed Rs 40 lakhs. However the deduction is available if the assessee does not own any residential house property on the date of sanction of the loan.
If in case of above loan the interest claimed during AY 2014-15 is less than Rs. 1,00,000/- then the balance amount is allowed in AY 2015-16.
  1. Any sums paid by an assessee for the purpose of purchase or construction of a residential house property, the income from which is chargeable to tax under the head "Income from house property" (or which would, if it has not been used for assessee's own residence, have been chargeable to tax under that head) where such payments are made towards or by way of any instalment or part payment of the amount due under any selffinancing or other scheme of any Development Authority, Housing Board etc.
  2. The deduction will also be allowable in respect of re-payment of loans borrowed by an assessee from the Government, or any bank or Life Insurance Corporation, or National Housing Bank, or certain other categories of institutions engaged in the business of providing long term finance for construction or purchase of houses in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company, or a public sector company, or a university established by law, or a college affiliated to such university, or a local authority, or a cooperative society, or an authority, or a board, or a corporation, or any other body established under a Central or State Act.
  3. The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of any addition or alteration to, or, renovation or repair of the house property which is carried out after the issue of the completion certificate by competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Act will also not be included in payments towards the cost of purchase or construction of a house property.
  4. Where the house property in respect of which deduction has been allowed under these provisions is transferred by the tax-payer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he receives back, by way of refund or otherwise, any sum specified in section 80C(2)(xviii), no deduction under these provisions shall be allowed in respect of such sums paid in such previous year in which the transfer is made and the aggregate amount of deductions of income so allowed in the earlier years shall be added to the total income of the assessee of such previous year and shall be liable to tax accordingly.
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