Interest on borrowed fund for self-occupied property

Interest on borrowed capital for self-occupied property
The maximum amount of interest permissible in cases of  self-occupied property is Rs 200000 wef Ay 2015-16 (Rs.1,50,000 up to AY 2014-15) (in respect of funds borrowed on or after 01.04.1999).
Please note that there is no upper (maximum) limit for interest on house loan claim for let out house property of deemed to be let out house property.
If person have more than one house then only one house may be treated as self-occupied.
Where a person has occupied more than one house for residential purposes, only one house, as chosen by him will be treated as ‘self-occupied’ and all other houses will be deemed to be let out .In regard to one house treated as used for own residential purposes throughout the year, Section 23 (2) (a) prescribes that annual value of such house shall be taken to be nil, if the conditions mentioned below are satisfied:
•the property (or part thereof) is not actually let during whole (or any part) of the previous year; and
• no other benefit is derived therefrom .
Unoccupied House property
Unoccupied property is property which cannot be occupied by the owner because of his employment/business/profession carried out at any other place he stays in a rented premise in such other place. Taxation of income from unoccupied property is same as the Self occupied property.
Interest upto Rs.2,00,000 is deductible if the following conditions are satisfied:-
•Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property;
•the acquisition/construction should be completed within 3 years from the end of the financial year in which capital was borrowed; and the person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as refinance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.

In the above context the following further aspects have to be kept in view:
1.If capital is borrowed not for construction/purchase of house property (e.g. if capital is borrowed for addition, repairs or renewals of a house property), then the maximum deduction on account of interest is Rs.30,000 and not Rs 200000 (Rs.1,50,000 up to ay 2014-15).
2.There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential unit could have commenced before April 1,1999 but, as long as its construction/ acquisition is completed within 3 years, the higher deduction of Rs 200000 wef Ay 2015-16 (Rs.1,50,000 up to ay 2014-15) would be available.
3.Also, there is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by the loan taken on or after April 1, 1999. It may be so in part.However, the higher deduction upto Rs 200000 wef Ay 2015-16 (Rs.1,50,000 up to ay 2014-15) can be taken for the loan which has been taken and utilized for construction/acquisition after April 1, 1999. The loan taken prior to April 1, 1999 will carry deduction of interest upto Rs. 30,000 only (CBDT’s circular No. 779,dated September 14, 1999).
Rs 200000 wef Ay 2015-16 (Rs.1,50,000 up to ay 2014-15) maximum deduction will not be available in the following situations:
1.if capital is borrowed before April 1, 1999 for purchase,construction, reconstruction, repairs or renewals of a house property;
2.if capital is borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property;
3.if capital is borrowed on or after April 1, 1999 but construction is not completed within 3 years from the end of the year in which capital was borrowed. In the above situations only deduction upto Rs. 30,000 can be claimed.

Example :If house loan is taken on 01.04.2011 then house must be completed within three years from the end of financial year in which loan is taken .In this case loan is taken in Fy 2011-12,so three years completed by 31.03.2015 .So to claim higher deduction of interest of Rs 200000/- you should complete your house before 31.03.2015.

The above point is important in current situation as most of persons are buying Flats ,which take more than three years to complete ,so you must careful while taking such flats through house loan .

Comments

  1. Government imposes tax on house property as income from house property may not implicit the rent or income received or generated by the property. The maximum deduction allowed on interest payment of home loan for self occupied property is Rs.2 lacs. The 5 years are calculated from the end of financial year in which the loan was borrowed. The important point to be noted is that rental properties and self occupied house property also fall in the sources of income from house property.

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