Your House and Interest Related Tax Deductions
The benefits of interest for house loan allowed under present income tax laws is dependent on usage of the money borrowed, here we will explore the provisions of the same in this article.
For claiming the interest benefit, first and foremost thing you should keep in mind is that the benefit is available in respect of house owned by you which is ready for occupation. Thus you cannot claim this benefit in case either the house is not owned by you or during the period when it is under construction. However any interest paid, during the period when the construction was going on can be claimed in five equal installments beginning from the year in which the construction is completed. The benefit of interest is available on accrual basis and it is not necessary that you should have actually paid the interest by issuing a cheque.
Most people have a notion that interest on loan can only be claimed if the loan has been taken for the purpose of either buying a house or for the purpose of construction on the plot owned by you, which is not true. Even the interest on money borrowed for the purpose of repair, renovation or reconstruction of house is also eligible for deduction. However if you have borrowed money against your property for the purpose which is not covered above, you will not get any deduction under the head Income from house property. However the same can be claimed under other heads if the money borrowed against your property has been used in some business or for making some investments, implying a direct linkage is not established.
So what are the sources from where you can borrow besides banks, HFCs and NBFCs? Borrowing from friends and relatives too entitle you for this benefit. This way we see that for claiming the deduction, it is not the source of money which is important, but the purpose is and you should be in position to prove the end use of the money for claiming this tax benefit. You can even claim the interest paid on personal loan taken for making down payment as the banks will not fund you more than 80% of the cost of the house.
However in case the money is borrowed on or after 1st April, 1999 for the purpose of buying the house in which you are staying, you have to obtain a certificate from the person who has lent you the money specifying the amount of interest payable on this loan. So except for the loan taken from the period beginning from 1st April 1999 for the property occupied by you, the law does not require you to even obtain a certificate from the lender but you will have to conclusively establish the linkage between the amount borrowed and the end usage.
Now you would like to know the quantum of deduction available for interest which mainly depends on the usage of the property and timing of the loan. For the properties which are let out, the entire amount of interest is allowable. In respect of properties which are occupied by you or your relatives, implying it is self-occupied, the normal amount of deduction available is Rs. 30,000. However you can claim an enhanced deduction of Rs. 150000 if loan has been taken for purchase or construction of a house on or after 1st April 1999 and the purchase or construction of the property is completed within a period of three years from the end of financial year in which the loan was taken.
For loan taken for repairs, renovation or reconstruction of the house occupied by you, the limit of deduction is still Rs. 30,000 but there is no limit in respect of interest on loan for repairs, renovation or reconstruction of house which is let out. In case of more than one property occupied by you or your relatives, the law allows you to choose one house as self-occupied and all the other houses shall be treated as let out and the deduction will be available to you accordingly.
I hope now you know fully about the interest benefits in respect of house owned by you, so if you have been depriving yourself for any such deduction till now, make the first move!