Interest on borrowed capital is allowed as a deduction while computing income under the head 'Income from House Property'. The relev...
Interest on borrowed capital is allowed as a deduction while computing income under the head 'Income from House Property'. The relevant provisions are contained under Section 24 of the Income tax Act.
For a self-occupied house, a normal deduction of Rs 30,000 is allowed towards interest on borrowed capital. However, a deduction on account of interest up to a maximum limit of Rs 1.5 lakhs is available in case a loan has been taken on or after April 1, 1999. The loan must have been taken for constructing or acquiring a house.
In addition to this, the construction or acquisition of the residential unit out of such loan should have been completed within three years from the end of the financial year in which capital has been borrowed. Such higher deduction is not allowed in respect of interest on capital borrowed for the purposes of repairs or renovation of an existing house. In order to claim the higher deduction in respect of interest upto Rs 1.5 lakhs, the employee should furnish a certificate from the bank to which the interest is payable on the capital borrowed, specifying the amount of interest payable by the employee.
The essential conditions necessary for availing higher deduction of interest of Rs 1.5 lakhs is the amount of capital must have been borrowed on or after April 1, 1999. Moreover, the acquisition or construction of the house must have been completed within three years from the end of the financial year in which capital was borrowed.
In case a property has been acquired or constructed with borrowed capital, the interest payable on the amount borrowed in 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 instalments commencing from the previous year in which the house has been acquired or constructed. The first instalment is deductible in the year in which the construction of the property is completed or acquired, and the balance four instalments in the four subsequent years.
The interest is allowed as a deduction on accrual basis i.e. on due basis, even if it has not actually been paid during the year. The essential condition is that the assessee should borrow the money. The interest should be payable on the borrowed capital. The money can be borrowed for construction, acquisition, repair or reconstruction of property.
It should also be noted that there is no stipulation regarding construction or acquisition of the residential unit being entirely financed by capital borrowed on or after April 1, 1999. The loan taken prior to this date will carry deduction of interest up to Rs 30,000 only. However, in any case, the total amount of deduction of interest on borrowed capital will not exceed Rs 1.5 lakhs in a year.
There is no stipulation regarding the date of commencement of construction. Consequently, construction of the house could have commenced before April 1, 1999 but, as long as its construction/acquisition is completed within three years, from the end of the financial year in which capital was borrowed, the higher deduction would be available in respect of the capital borrowed after April 1, 1999.
Courtesy: Timesofindia.
For a self-occupied house, a normal deduction of Rs 30,000 is allowed towards interest on borrowed capital. However, a deduction on account of interest up to a maximum limit of Rs 1.5 lakhs is available in case a loan has been taken on or after April 1, 1999. The loan must have been taken for constructing or acquiring a house.
In addition to this, the construction or acquisition of the residential unit out of such loan should have been completed within three years from the end of the financial year in which capital has been borrowed. Such higher deduction is not allowed in respect of interest on capital borrowed for the purposes of repairs or renovation of an existing house. In order to claim the higher deduction in respect of interest upto Rs 1.5 lakhs, the employee should furnish a certificate from the bank to which the interest is payable on the capital borrowed, specifying the amount of interest payable by the employee.
The essential conditions necessary for availing higher deduction of interest of Rs 1.5 lakhs is the amount of capital must have been borrowed on or after April 1, 1999. Moreover, the acquisition or construction of the house must have been completed within three years from the end of the financial year in which capital was borrowed.
In case a property has been acquired or constructed with borrowed capital, the interest payable on the amount borrowed in 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 instalments commencing from the previous year in which the house has been acquired or constructed. The first instalment is deductible in the year in which the construction of the property is completed or acquired, and the balance four instalments in the four subsequent years.
The interest is allowed as a deduction on accrual basis i.e. on due basis, even if it has not actually been paid during the year. The essential condition is that the assessee should borrow the money. The interest should be payable on the borrowed capital. The money can be borrowed for construction, acquisition, repair or reconstruction of property.
It should also be noted that there is no stipulation regarding construction or acquisition of the residential unit being entirely financed by capital borrowed on or after April 1, 1999. The loan taken prior to this date will carry deduction of interest up to Rs 30,000 only. However, in any case, the total amount of deduction of interest on borrowed capital will not exceed Rs 1.5 lakhs in a year.
There is no stipulation regarding the date of commencement of construction. Consequently, construction of the house could have commenced before April 1, 1999 but, as long as its construction/acquisition is completed within three years, from the end of the financial year in which capital was borrowed, the higher deduction would be available in respect of the capital borrowed after April 1, 1999.
Courtesy: Timesofindia.
