Wednesday, February 22, 2012

INTEREST ON HOUSE LOAN- INCOME TAX ACT


on Wednesday, February 22, 2012

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 following aspects concerning claim for deduction of interest are to be kept in view:
  1.  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.
  2.  For claiming interest, it is not necessary that the lender should have a charge on the property for the principal amount or the interest amount. Means mortgage of House is not necessary.
  3.  In Shew Kissan Bhatter v. CIT (1973) 89 ITR 61 (SC) the Supreme Court has decided that interest payable for outstanding interest is not deductible.Interest on late deposit (interest on interest )not allowed.
  4. 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. 
  5. In terms of circular No. 28 dated 20th August 1969, if an assessee takes a fresh loan to pay back the earlier loan, the interest on the fresh loan would be deductible. 
  6. Interest on borrowing can be claimed as deduction only by the person who has acquired or constructed the property with borrowed fund. It is not available to the successor to the property (if the successor has not utilized borrowed funds for acquisition, etc). In other words, the relationship of borrower and lender must come into existence before it can be said that any amount or any other money is borrowed for the purpose of construction, acquisition, etc., of house property by one person from another and there must be real transaction of borrowing and lending in order to amount to any borrowing. 
  7. 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. The interest that accrues in terms of rule 6 of the House Building Advance Rules is on the balances outstanding on the last day of each month - Circular No. 363, dated June 24, 1983. 
  8.  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”. 
  9. Loan can be taken from any body,unlike section 80C where the specified institutions has been given .In section 24(b) no institution has been defined ,means interest payable even to friend /relative etc for House is also deductible under section 24(b)
  1. Interest On house Loan and Income tax 
  2. Interest on Pre-Construction period on house loan -calculation and deduction available in income tax.
  3. Interest In case of Self occupied House-Limit 150000/30000
  4. House Loan Repayment and Savings under section 80C
  5. House Loan and HRA both benefit available.
  6. House property income and House Loan 

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  1. i have bought a flat and paying ~ Rs 19000/: per month. for tax exemption which ITR form i have to fill. under which section i could claim for tax exemption.

    ReplyDelete
    Replies
    1. Interest is minus income under income from house property and principal repayment covered under 80C

      Delete
  2. I have invested in Commercial Property. I have taken Loan on that as commercial Loan.

    I am doing Job and Paying Loan for Commercial Property.

    Can I take benefit on Tax in interest paid for Laon?

    is Commercial property Loan interest can be exempted for tax?

    Kindly Suggest. if any other possible way for this.

    ReplyDelete
  3. Hi,
    I have taken a home loan which is over now. I wish to take a second home loan. What are the tax implications in this case.

    will i have to show the rental income form one of this property.

    And suppose i have finished all the home loans on both the property, will i have to show the same till lifetime ( or only till i claim the home loan benefit)

    Thanks

    ReplyDelete
    Replies
    1. If you have two house ,on can be treated as self occupied and other will be treated as deemed to be rented .this rule is applicable irrespective to the fact whether you have availed house loan on that house or not.

      Delete
  4. Hi Sir,

    Need your insights on this.

    I have bought 2 independent houses in same site using the a single housing loan and I'm staying in one of the houses and the other has been let out. What are the income tax benefits that i can avail in india. i.e. the interest on self occupied ( 1,50,000) and interest on let out property etc.

    Also, I have borrowed an amount from one of my friend at a nominal interest for this pruchase, could you tell us on the documents required to declare and claim the exception on the interest paid.

    Regards,

    Kumar

    ReplyDelete
    Replies
    1. you can avail interest on house loan
      self occupied portion maximum 150000/- and
      let out house : without any limit
      interest on loan from friend is also available for deduction subject to above limits.

      Further you can avail house loan(other than Bank) repayment up to 100000 u/s 80C.

      To claim interest /principal you have to take copy of account or certificate of house loan repayment/interest certificate from Bank/Friend

      Delete
  5. Thanks a lot for your swift update sir.

    I have got the provisional certificate from housing loan provider. Do we have any standard format for declaring the interest paid to friend, so that i can get it signed from him.

    ReplyDelete
  6. Greetings,

    I was not aware of this provision in the income tax exception !

    Could you clarify if the money/loan borrowed from wife also comes under this, provided i get the interest certificate from her.

    Thanks,

    Sunil

    ReplyDelete
    Replies
    1. yes ,you can claim deduction of interest on loan from wife also.but no deduction on principal repayment

      Delete
  7. Sir,

    Did you know what is the rate of interest will be paid by a construction company, if buyer paid more than Rs. 750000-00 before possession. (Period is from 2006 to 2012). Please help, because i was read somewhere that the interest rate is 12% on advance for home to builder or construction company. Please help.

    ReplyDelete
  8. Sir,
    I availed a housing loan from HDFC and i am yet to get the possession of the flat. Can i claim the tax deduction for the interest and principal ?. Pls advice

    ReplyDelete
    Replies
    1. No ,you can not.You can claim interest /principal benefit this year(fy 2012-13) only if you get the house before 31.03.2013

      Delete
  9. i have taken a housing loan in 2010 and was getting exemption from incometax payment. the house is constructed on the property of my husband and loan is taken as joint account. now some says that i cant claim that bcas the house is not constructed in my property. is there any rule related to this? pls help me.

    ReplyDelete
    Replies
    1. yes , you can not claim as the house is not on your name .

      technically ,interest on house loan is a negative income from house and house income is to be added in owner's income and you are not the owner ,so you can not claim

      Delete
  10. I have a flat in Gurgaon on which Home Loan is running. This flat is occupied by my Parents. Me and my wife both are staying in Rohini, New Delhi due to my wife's job in Rohini.
    Is am eligilble for both HRA Exemption and Interest on Home Loan?
    Please suggest.

    ReplyDelete
  11. In e return in which column we have to fill House Building Interest and Education Loan interest that is in Deduction where to fill the amount

    ReplyDelete
    Replies
    1. Interest on house loan show under "Income from house property" with minus sign .Next column after income from salary .select self occupied in house (if not let out)

      For interest on house loan use section 80E under deduction heading

      Delete
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    ReplyDelete