Purchasing a house is one of the major investment by anyone during his life time and recently Ministry of Finance is giving various tax relief for people to purchase a new house so as to support the diminishing real estate industry.
One such step was introduction of section 80EEA by Finance Bill, 2019 which provides for additional deduction of housing loan interest. However in this article we will focus on deduction of interest on housing loan available u/s 24(b) of the income tax act.
Section 24 talks about deduction from house property income and clause (b) of the said section covers deduction of interest paid. Let’s break this into two parts:
1. Deduction in case of self occupied property and
2. Deduction in case of let out property.
The deduction would depend on the situation of house property every year because there can be situation where one year a house property is self occupied and another year its let out.
Also the loan can be accepted from anyone, it’s not necessary that loan should be taken from a financial institution, you just need a certificate from that person 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.
In case of self occupied property:
(i) Loan taken for purpose of acquisition or construction of property:
In case of a self occupied property if a loan is taken for acquisition or construction after 01.04.1999 and such acquisition or construction is completed within 5 years from the end of financial year in which capital was borrowed. The amount of deduction would be Rs. 2 lakh.
If the construction is not completed within 5 years then such deduction might be restricted to 30,000.
Any interest paid before the property was acquired or constructed would be available in equal installments for the said previous year when the property was acquired or constructed and for each of the four immediately succeeding previous years.
(ii) Loan taken for any other purpose (for eg: renovation etc.):
In case of a self occupied property if a loan is taken for any other reason like renovation or repair etc. in that case the amount of deduction would be restricted to Rs. 30,000.
However, after Finance Bill, 2019 total amount of deduction for self occupied property during a year shall not exceed 2 lakh.
Before this amendment one could claim deduction of 2.3 lakh in respect of self occupied property. However now after the amendment by Finance Bill, 2020 one could only claim 2 lakh as deduction.
In case of let out property:
In case of let out property there is no such restriction as mentioned above and you will get entire deduction of any interest being payable on your home loan.
As far as set off of the loss from house property is concerned from any other head of income or carry forward of such loss is concerned the total amount that you can set off or carry forward will be restricted to Rs. 2 lakh which includes self occupied property and let out property as per section 71 and 71B.
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