Income Tax Return Filing for AY2024-25: The deadline to file income tax returns for the financial year 2023-24 is July 31. This time of the year, taxpayers grapple with many questions regarding their eligibility for income tax deductions and exemptions with regard to certain expenses and investments.
One such query many home loan borrowers are facing is whether or not they can claim tax deduction on the interest portion of their housing loan before they take possession of their home?
Home loan tax treatment
You can avail of tax benefits on home loans under various Sections of the Income Tax Act. Under Section 80C, you can take a maximum deduction benefit of Rs 1,50,000 on the repayment of home loan principal amount. This deduction benefit is available even for the under-construction property.
There is a provision under Section 24 that allows an income tax deduction on home loan interest payments.
Section 24: Deductions from income from house property.
24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—
(a) a sum equal to 30% 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
It means in case of Let out property 30% Standard Deduction is allowed from Rent income and Deduction of Interest on borrowed capital is Allowed without Any Limit
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Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction or, as the case may be, the aggregate of the amount of deduction shall not exceed Rs.30000
It means if property is Self occupied before 1 April 1999 then limit of deduction of Interest on borrowed capital is Rs.30000
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 five years from the end of the financial year in which capital was borrowed, the amount of deduction or, as the case may be, the aggregate of the amounts of deduction under this clause shall not exceed Rs.200000
It means if property is Self occupied after 1 April 1999 then limit of deduction of Interest on borrowed capital is Rs.200000
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 instalments for the said previous year and for each of the four immediately succeeding previous years:
It means if Property was possesed after some years and Home loan was taken earlier then interest paid in this duration will be allowed for deduction after possession in 5 equal installments
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:
Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.
Can you claim an income tax deduction on home loan interest before possession?
The answer is ‘No’. The income tax laws do not permit availing the deduction benefit on the interest portion of the home loan before your builder gives you possession of the house or flat.
What does Section 24B say about the home loan deduction benefit on interest for under-construction property?
The income tax laws categorically say that a home loan borrower can claim a deduction benefit of up to Rs 1.5 lakh on principal repayment under Section 80C from the very first year of their home loan. That means a loan taken for under-construction property is also eligible for deduction benefit under Section 80C. But when it comes to interest repayment, the tax laws don’t allow claiming deduction benefits until the construction phase is over and the buyer gets possession of the property.
The deduction on interest payments can be claimed for the pre-completion phase in five equal instalments over the next five years after the construction is over. However, the limit for deduction benefit on interest payment under Section 80B is capped at Rs 2 lakh for a financial year.
Occupancy certificate needed to claim deduction benefit on interest portion of home loan
Under Section 24B, you will be allowed to claim your deduction on interest outgo of the housing loan for the current year as well for the pre-completion phase. You need to have the occupancy or possession letter with you to show proof of completion of the home to claim a deduction benefit of Rs 2 lakh per year as provisioned under Section 24B of the Income Tax Act.
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