In the recent Finance Act, 2014, the deduction limit for housing loan has been enhanced to Rs. 2,00,000 , to motivate individuals to invest more in house property. This is relevant for Financial year 2014-15 . Let us take a look at various details pertaining to it.
IF LOAN IS TAKEN FOR RENTED HOUSE:- INTEREST ON HOUSING LOAN DEDUCTION
SEC.24(B) permits deduction for interest on borrowed capital . The principles are as under –
- Purpose of loan: the loan shall be borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction of the house property.
- Accrual basis: the interest will be allowed as a deduction on accrual basis, even though it is not paid during the financial year.
- Certificate : the assessee should furnish a certificate from the person from whom the amount is borrowed, specifying the amount of interest.
- Inadmissible items: a) Interest outside india without TDS : interest payable outside india witout deduction of tax at source and in respect of which no person in india is treated as an agent u/s 163 shall not be allowable expenditure (sec. 25). b) Interest on interest : interest on unpaid interest shall not be allowed as a deduction.[shewkisan bhatter 89 ITR 61 (sc)] c) Brokerage : any brokerage or commission paid for acquiring the loan not be allowed as a deduction.
- Interest on fresh loan to repay existing loan: interest on any fresh loan taken to repay the existing loan shall be allowed as a deduction [circular 28/ 20.8.69]
- Prior period interest : interest includes prior period interest also. Prior period interest shall be allowed in 5 equal installments commencing from the financial year in which the property was acquired or construction was completed. Note : prior period interest means the interest from the date of borrowal of the loan upto the end of the financial year immediately preceding the financial year in which acquisition was made or construction was completed .
- Date of completion not relevant : interest to the year of completion construction or acquisition of house property , shall be allowed in the same previous year , irrespective of the date of completion.
- Deduction for principal and interest repayment:
|Principal||Specified person u/s 80C||Allowed as a deduction u/s 80C|
|Any other person||Not allowed as a deduction u/s 80C|
|interest||Any person||Allowed as a deduction u/s 24(b)|
|Assessee paid the purchase price in installments. The unpaid purchase price shall be treated as amount borrowed for acquiring property & interest thereon shall be eligible for deduction||Sunil kumar Sharma (P&H) 122 taxman 159|
|Interest payable on unpaid purchase price qualifies for deduction in computation of income from house property||RP Goenka & JP Goenka ITR 123 (cal.)|
IF LOAN IS TAKEN FOR SELF OCCUPIED HOUSE:- INTEREST ON HOUSING LOAN DEDUCTION
Let us understand the taxability aspects of self occupied house property to have thorough understanding of the deduction for interest on borrowed capital for self occupied property.
Self occupied property or self occupied property kept vacant
- Scope– This covers (a) Self occupied house property, or (b) Self occupied property kept vacant by the assessee due to employment or carrying on profession in any other place, and the assessee occupies any premises not owned by him in the other place.
- Benefit of exemption: the benefit of exemption of one self occupied house is available only to an individual /HUF. No deduction for municipal taxes is allowed in respect of such house property.
- Conditions: the following computation shall be made only if the conditions given below are satisfied –
- The property was not let out for any part of the previous year.
- No other benefit is derived from the property.
|Annual value u/s 23(2)||Nil|
|Less: deductions u/s 24a. Interest on housing loan upto a maximum of Rs 2,00,000 :Conditions:
· Loan taken for acquisition or construction of house property,
· On or after 01.04.1999
·Acquisition or construction should be completed within 3 year from the end of the financial year in which capital was borrowed
|b.Interest on housing loan upto maximum of Rs 30,000 :Situations : · If any of the above condition in (a) is not satisfied or
·If loan is taken for repair , renovation or reconstruction at any point of time.
|INCOME FROM HOUSE PROPERTY||( xxxx)|