Monday, 14 September 2015

Deduction against home loan interest

You can claim deductions against both the interest component of your home loan and HRA, if you are staying in a rented house and buy your own home. You can claim a deduction against the interest paid on a home loan taken for the purchase of a house. The principal amount in the repayment of a home loan can be added to the Section 80C limit of Rs 1.50 lakhs for tax saving. The interest component of a home loan is allowed as a deduction under Section 24 for up to Rs 2 lakhs in case of a self-occupied house. In case the house is in the names of your spouse and you (bought with a joint loan), each one can avail Rs 2 lakhs of the interest component as a deduction.

This limit is only for a self-occupied house. In case the property is rented out, you can deduct the entire interest paid on the home loan. The rent earned from the property is added to your income. If the rent received is lesser than the loan's interest, it will lower your overall tax liability.

In case a property has been acquired or constructed with borrowed capital, the interest payable on the amount borrowed for the period prior to the previous year in which the property has been acquired or constructed is also eligible for deduction. Such interest is deductible in five equal installments commencing from the previous year in which the house has been acquired or constructed. The first installment is deductible in the year in which the construction of the property is completed or the property acquired, and the balance four installments in the four subsequent years.

It is to be noted that the loan must have been taken to construct or acquire a house. In addition, the construction or acquisition of the residential unit with the loan should have been completed within three years from the end of the financial year in which the capital was borrowed. In order to claim the deduction you should furnish a certificate from the bank to whom the interest is payable on the capital borrowed, specifying the amount of interest payable.

The interest is allowed as a deduction on accrual basis on due basis even if it has not actually been paid during the year. The essential condition is that you should have borrowed the money, and the interest should be payable on the borrowed capital. The funds can be borrowed for the construction, acquisition, repair or reconstruction of a property.

In case of a joint loan, it is important to show the loan repayment by both co-borrowers as they can avail Rs 2 lakhs each against the interest paid as a deduction. Further, you can avail both the benefits home loan repayment and house rent allowance (HRA) if you are paying rent for the house you are staying in and have also taken a home loan to buy your own home.

Source: PropertyatNeoDevelopers.Wordpress.Com

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