Unlimited Interest Deduction in Housing Loan and HRA

Unlimited Interest Deduction in Housing Loan and HRA

While buying a property majority of times you have heard that there is deduction up to INR 2,00,000/- is available in Income Tax on Interest Paid for Housing loan however not many know that you can claim unlimited amount as interest deduction.

When an Home loan has been taken for purchase, construction, repairs relating to house property for which it has taken, the limit of deduction would depend on the basis how such house has been treated i.e. Self-Occupied or Let out property.

It is however important to note when any loan has been taken, there would be two components

Interest Component

Component

 

Particulars

Interest Component

Principal Component

Self-Occupied Property (SOP)

CASE -1

CASE -2

Let out Property (LOP)

CASE -3

CASE -4

 

Let’s look at each of these cases independently…….

Case-1

When an home loan has been taken for Self-Occupied Property (SOP), interest component accruing out it can be claimed as deduction under the head “income from House Property”&also deduction can claimed under Chapter VIA Deductions i.e. Section 80EE which talks about Interest on House loans.

The deduction limit under “income from House Property” would be as mentioned below:

Particulars

Amount

Amount as per the Format-1

XXX

Maximum Limit (2,00,000 or Rs 30,000 based on Fulfilment of certain conditions)

XXX

Whichever is lower

XXX

 

FORMAT-1

Particulars

Amount

Previous Year Interest (say Financial Year 2015-16)

XXX

Add: (20% * Pre-completion period interest)

XXX

Total Deduction available under Section 24(b)

XXX

Pre-completion period means the period starts from the date of borrowing and ends on the last day of preceding Financial Year in which the construction is completed.

Let’s take an example to understand much better……….

Loan Borrowed for construction purpose

Rs 10,00,000

Interest Rate

 10% p.a

Date of Borrowing of Loan

 01.09.2006

Date of completion of construction

 31.01.2009

Date of Repayments

 

31.12.2007

3,00,000

30.06.2008

2,00,000

01.03.2010

1,00,000

31.07.2012

2,00,000

28.02.2013

1,00,000

Financial Year Relevant for us

2012-13

 

Previous Year interest:

Outstanding Interest for FYR 2012-13

(4,00,000* 4/12*12%) + (2,00,000&7/12*12%) + (1,00,000*1/12*12%) = Rs 31,000

Pre-completion period interest:

Period of Construction ( 01.09.2006 to 31.01.09) – 19 months

Since in pre-completion period interest we take last date of preceding Financial year before to actual completion of construction i.e. 31.03.2008.

20% * ( 10,00,000*12%*15/12)+ (7,00,000* 12%*3/12)                                   = Rs 36,200

Particulars

Amount

Previous Year Interest (say Financial Year 2015-16)

31,000

Add: (20% * Pre-completion period interest)

36,200

Total Deduction available under Section 24(b)

67,200

                                                               

Conditions of availing maximum limit of Rs 2,00,000 or Rs 30,000

Ø      Loan should be borrowed on or after 01.4.1999

Ø      Loan should have borrowed for purchase, construction, repairs, repayment of earlier loan taken relating to house property.

Ø      Such Purchase/ Construction must get completed within 3yrs from the last date of year in which the loan has been borrowed. Say, if borrowed a loan on 05th Sept, 2015. For the purpose of counting 3 yrs, we should take 31st March 2016 as the start date.  The limit of 3 yrs has been raised to 5 yrs in Budget 2016-17.

So, it advisable to take the loan in the beginning of year to avail more loan time….

 If all the above conditions are meet the maximum limit is Rs 2,00,000 else, Rs 30,000.

Under Section 80EE, Speaks about the interest on home loan only for 1st time home buyers. The deduction available would be Rs 50,000 in addition to Section 24(b) Rs 2,00,000 or 30,000.

However, the following conditions have to be meet to get the deduction:

1.       This deduction would be allowed only if the value of the property purchased is less than Rs. 50 Lakhs and the value of loan taken is less than Rs. 35 Lakhs.

2.       The loan should be sanctioned between 1st April 2016 and 31st March 2017.

3.       The benefit of this deduction would be available till the time the repayment of the loan continues.

4.       This Deduction would be available from Financial Year 2016-17 onward

 CASE-2& 4

Under Section 80C, Principal repayment of home loan can be availed uptoRs 1,50,000. However, there is no restriction whether such house has to be SOP or LOP.

 CASE-3

However, if a property is a Let out property

    Ø  Under Section 80EE, the limit remains the same of Rs 50,000.

    Ø  Under Section 24(b), there would be no limit unlike the self-occupied property (SOP).

        Ø  But however, In case a property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession carried on at any other place, he has to reside at that other place not belonging to him, then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.


Particulars

Quantum of Deduction

Self-Occupied

Let Out

Section 24

2,00,000 / 30,000

No Limit

Section 80EE

1,50,000

1,50,000

Section 80C

50,000

50,000