CAIIB RB Unit 22 - Housing Finance and Tax Planning

In respect of Loan taken for Purchase/Construction of a Residential Unit, the borrower can avail benefit of payment of interest as well as repayment of principal.

Interest on housing loan can be claimed as a deduction from income from property, salary, business/ profession, capital gains, or any other source upto a maximum of Rs. 1,50.000 under section 24(b) of the Income-tax Act, 1961 every year subject to fulfilment of the following conditions.

1. Loan has been taken on or after 1st April 1999.
2. Loan is for purchase or construction of a residential property or as re-finance (takeover) of the principal amount outstanding under a loan taken earlier for purchase or construction of a residential property. However, in case of loan for construction, the construction should get completed within 3 Years of raising the Loan. Deduction can be claimed only from the financial year when the purchase/construction is completed.

If any of the first 2 Conditions mentioned above is not satisfied, i.e., loan was taken before 1st April 1999 &/or loan is for repairs/renovation/reconstruction, deduction of only upto a maximum of Rs. 30000 every year can be claimed.

In case the Loan is for repairs/renovation/reconstruction, deduction on account of interest on that loan can be claimed only if the property is self-occupied or if the owner is not able to occupy the property only because of his employment/business/profession at another place, where he/she resides in a building not owned by him/her or his/her spouse/close blood relatives.

The deductions are permissible only in respect of one property of the borrower, i.e., if he/she has raised loans for multiple properties, interest can be claimed as a deduction only in respect of one property, depending upon the borrower's choice.

As regards principal repayment, it can be claimed as a deduction from the gross total Income only by an Individual/HUF borrower under section 80C of the Income Tax Act, 1961.