Deduction for interest on housing loan

Income Tax :
Deduction for interest on housing loan
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. 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.

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5 thoughts on “Deduction for interest on housing loan

  1. Sir, I am an Bank employee and I had taken Housing Loan for construction on Ground floor before 31.03.99 for which yearly interest comes to nearly 15000/- and installments Rs. 22000/-. Again I borrowed capital for extension of my house on first floor and completed the same during 2009 for which yearly interest is 32000/- and installments Rs. 70000/- Please let me know how much deduction by way of interest for the purpose of calculation of Income tax will be and how much amount of principal amount will be towards investment.

  2. My question is that suppose construction of house is completed in the month of Jan can we claim deduction on interest for period April to March in the same financial year?

  3. Sir, I have bought a small house 5 years back and was claiming Housing Loan deductions on it. Recently I purchased a bigger house, so planning to sell my small house and move into the bigger house. Since for this new house also I have taken the loan which is more then the earlier one.
    So my question is can I simply start showing Interest and Prinicipal for the new house instead or is there any tax treatment to be done?

  4. Sir, I own 2 houses, but still stay in rented property because both the houses are far from my office. Can I still avail housing Loan beneift for the Housing Loan taken for 1 house as well clain HRA?

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