I am now paying off two home loans. One is for a house that is presently occupied by me and my family. The EMI is ₹7,500 a month for a ₹6.5 lakh loan that I availed of in 2012.
The second loan is for a house which is presently under construction, possession of which is expected in December 2016.
Satish Nayak
According to the provisions of Section 24 of the Income Tax Act, 1961 (‘the Act’), deduction for interest paid on the home loan can be claimed under the head “Income from house property” once the possession of the house property is taken.
Deduction for pre-construction interest, that is, interest prior to the financial year in which property is acquired, can be claimed in five equal instalments starting from the year in which construction was completed.
For self-occupied property, where the house was purchased or constructed within three years from the end of the financial year in which the capital was borrowed, a deduction for interest payable up to a maximum of ₹2 lakh can be claimed during the financial year.
In case the property is let out or deemed to be let out during the year, the interest actually payable during the year can be claimed as deduction from the annual rental value of the house property.
The deduction in the former case will be subject to a certificate from the lender, specifying the interest payable during the year on the capital borrowed.
In your case, the interest component in the EMI of ₹7,500 a month on loan for the house occupied by you for the year beginning April 1, 2015 to March 31, 2016, can be claimed in FY 2015-16.
This is on the assumption that this house was purchased/constructed within three years in which the loan to acquire the same was availed. For the interest paid on loan for the next house, it can be claimed in five equal instalments starting from the FY 2016-17 once possession is taken.
The pre-EMI interest can be claimed in five equal instalments, starting from FY 2016-17. Thereafter, interest payable shall be allowed as deduction from income from house property on yearly basis.
The Act also allows a deduction for any repayment of the amount borrowed (principal only) by the assessee for purchase or construction of a residential house property, the income from which is chargeable to tax under the head “Income from house property” which is only when the construction is completed and possession is taken.
This deduction is available in the overall limit of ₹1.5 lakh u/s 80C of the Act.
The writer is a practising chartered accountant. Send you queries to taxtalk@thehindu.co.in.