Income Tax Deduction for Housing Finance
By S.K. Agarwal
Q. Who can claim deduction for interest on housing loan ?
A. A person may claim deduction from income (under the head “house property”) for interest payable in India on housing loan, if such loan is taken for acquiring, constructing, reconstructing, repairing or renovating a property. However, if the property is used for business carried on by the assessee, he may claim deduction for such interest from income under the head “business or profession”. In both cases, property would include residential as well as commercial property.
Q. Is it necessary that the loan should be taken only from housing finance companies ?
A. No, it is not necessary that the loan should be taken only from housing finance companies. One may take loan from any company or person, even from family members.
Q. Can the loan be taken for renovation or repairs of the house ? Can interest be allowed for purchasing an open plot of land ?
A. Loan can be taken for renovation or repairs of the property. But if taken for purchasing an open plot of land, interest may be allowed only if construction of property is started on it, such interest to be deducted after the construction is completed. But if open plot is purchased in the name of an existing business, interest may be allowed under the head “business income” in the respective year even if construction is not commenced.
Q. Is it possible to take a fresh loan taken at lower rate to repay the earlier loan taken at higher rate of interest ?
A. Yes, a fresh loan taken to repay earlier loan which was taken for acquiring, constructing etc, of the property is eligible for deduction of interest as discussed above.
Q. How much amount is allowed ?
A. If the property is either let out or used for assessee’s own business, then the entire amount of interest is deductible. But if the property is used by the assessee for his own residence or for the residence of his family, then the deduction of interest is subject to a ceiling limit. This limit was Rs. 10,000/- for assessment years 1995-96 and 1996-97 and Rs. 15,000/- for A.Y. 19997-98 and 1998-99. From A.Y. 1999-2000, the limit has been raised to Rs. 30,000/-. These new limits apply for not only new loans but also the existing loans taken earlier and new as well as old properties. The ceiling limit for deduction of interest is raised to Rs. 75,000/- by the Finance Act, 1999, with effect from 1st April 2000 applicable to the current financial year (A.Y. 2000-2001). But this new limit is applicable in only such cases “where the property is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed before the 1st day of April 2001”. Another point to remember is that while computing income under the head “house property”, interest is deducted only after completion of construction of the Property. As regards the interest pertaining to earlier period i.e. for the period of construction, it is allowed in five years commencing from the year in which construction of the property is completed. However, in case of self occupied property, this interest is also subject to the ceiling limit as
mentioned above.
Q. Can the interest paid by set off against the other income ?
A. Yes, if because of the payment of interest, there is loss under the head “house property”, such loss can be set off against the other income of the assessee for that year.
Q. In case of salary, can the employer consider this interest payment for TDS ?
A. If a person having salary income takes housing loan for self-occupied house, payment of interest on such loan can be taken into account by the employer for deduction of tax from salary.
