To make owning a house affordable, the government provides tax benefits on home loans. Section 80C of the Income Tax Act allows individuals and HUFs to claim deductions for repayment of home loan taken from banks or housing finance companies. It is also available for loans taken from government-run firms or public limited company who are your employer. Deductions are available up to Rs 1.50 lakhs in a year for repayment of home loan along with other eligible items like LIP, PPF, EPF, NSC, ELSS etc. The deduction is available for residential house construction as well.
However, if the house acquired with a home loan is sold within five years from the end of the year in which the loan was taken, no benefit is provided during the year in which the house is sold. All the benefits claimed under Section 80 C earlier are also reversed in the year in which the house is sold.
For payment of interest
For self occupied property, Section 24 (b) allows a deduction of Rs 2 lakhs every year with respect to interest paid on money borrowed for purchase, construction, renovation or even repair of a house property if the construction is completed within five years from the end of the year in which the money is borrowed. If the house is not completed within five years, the amount of deduction available comes down to Rs 30,000 a year.
The interest for let-out property or a property which includes more than one self occupied property can be fully claimed. However, the loss under the head “income from house property” for all the house properties taken together can only be set off against your other income to the extent of Rs 2 lakhs and unabsorbed loss if any can be carried forward and set off against house property income for eight subsequent years.
To be eligible for deduction under Section 24(b), it is not necessary to borrow from specified institutions. You can claim the deduction for money borrowed from friends and relative as long as you are able to establish the link between the money borrowed and its usage. Moreover, this deduction can be claimed by all the tax payer and not necessarily only individual and HUF. You can claim this deduction even for a commercial property. The deduction can only be claimed from the year in which possession of the property is taken and the interest for the prior period can be claimed in five equal instalments beginning from the year in which the possession is taken along with regular interest within the limits specified above. There is no provision for reversal of interest benefit claimed if the property is sold within five years but the claim for prior period interest will be lost for the balance number of years.
The author is a CA, CS and CFPCM