This deduction is available to
assessees who have taken a loan to buy or build a house. You can now claim up to Rs 1.5
lakh in interest payments as a deduction from your income. However, if you’ve taken a
loan before April 1, 1999, the deduction will be restricted to Rs 30,000.
In addition, you get a tax rebate of 20 per
cent on principal repayments up to Rs 20,000. This means that if you repay a principal
amount of Rs 10,000 during a year, your tax liability is reduced by Rs 2,000.
Do insist on an interest certificate from the lending institution you are tapping for
a loan. This certificate is essential to claim the tax benefit on interest payments.
Importantly,
only loans taken from specified financial institutions that offer housing loans qualify
for rebate. Borrowing from a family member or a friend may fetch you a loan at a cheaper
rate of interest or no interest at all, but will not qualify for a rebate. The
deduction of upto Rs 1.5 lakh, however, does not carry any such restriction.
Interest paid during pre-construction/ pre-acquisition period:
If you repay any part or the whole of the amount of loan during the
pre-construction/ pre-acquisition period, the interest component in the instalments will
not be allowed as deduction before the construction/ acquisition is complete. However,
once the construction/acquisition is completed, the aggregate amount of interest paid
during the pre-acquisition/ pre-construction period will be allowed as deduction in five
equal instalments beginning from the assessment year relating to the financial year in
which the construction/ acquisition is completed.
However, the amount of interest paid during the financial year in which the
construction/ acquisition is completed will not be treated as pre-acquisition interest as
stated above. As such, this part of the interest paid will be allowed as deduction from
'income from house property' in full in the relevant assessment year, subject to the
maximum limit, as may be applicable in this regard.
The amount of principal repaid during the pre-construction/ pre-acquisition period is
not subject to such restriction, and will be allowed for the purpose of rebate under
section 88 as and when paid.
(Relevant section/rule: Section 24 & Section
88)
