Benefit of payment of interest on housing loans

Benefit of payment of interest on housing loans

A deduction under Section 24 is available in computing the income chargeable to tax under 

the head 'house property' of an individual in respect of any payment made by him towards 

interest on loan for any housing property. Benefit of interest can be claimed in respect of the 

loan taken for -

i. Purchase of residential property

ii. Construction/ reconstruction of house property

iii. Repair, renewal or reconstruction of the existing property

Tax benefit (for the payment of interest on housing loan) can be claimed for the interest paid 

on borrowed capital only from the financial year in which the property is acquired or 

constructed or reconstruction is completed.

The benefit is available subject to the following limits:

i. In case of a self-occupied property purchased on or after April 1, 1999 - An amount of Rs. 

  150,000 can be claimed as a deduction

ii. In case of a self-occupied property purchased before April 1, 1999 - An amount of Rs. 

   30,000 can be claimed as a deduction

iii. In case of a property which is let-out/ deemed to be let out - Actual amount of interest 

   paid will be reduced from the taxable rental income.

Pre-acquisition Interest

      With respect to the interest paid for the pre-acquisition or pre-construction period (ie before 

the individual gets acquisition of the property, or before completion of construction/ 

reconstruction), the interest deduction can be claimed equally over a period of five financial 

years starting from the financial year in which the property is acquired or constructed or 

reconstruction is completed.

Example: An individual 'X' takes housing loan from a bank for construction of a residential 

house property (to be used for self-occupation) at a fixed rate of interest. The details 

regarding this housing loan are below:

• Amount of Loan - Rs. 15,00,000
• 
  
• Date of borrowing - July 1, 2007
• 
  
• Tenure of Loan - 12 years
• 
  
• Date of completion of construction - January 31, 2010
• 
  
• Monthly installment to be paid - Rs. 30,000 (Principal - Rs.21,000 and Interest - Rs.9,000)

Since X will only complete construction of the house in January 31, 2010, he can claim the 

benefit of payment of principal of Rs 21,000 under Section 80C and interest of Rs 9,000 from 

the financial year 2009-2010 onwards.

Further, one fifth of the interest for the pre- construction period (ie amount paid during the 

financial year 2007-2008 and 2008-2009) will be claimed from the financial year 2009-2010 

onwards for the next five years.