23 April 2012
Mr. X borrowed a loan from bank for the purchase of Residential Flat, he is paying the Principal Amount every month (EMI), but the Residential Flat is not yet in his possession. Will he still be eligible for the deduction u/s 80C for the repayment of Principal Amount even if the flat is not in his possession?
24 April 2012
According to the Income-tax Act, 1961, where the property has been acquired or constructed with borrowed capital, the interest payable on such capital for the period prior to the year in which the property has been acquired shall be allowed as deduction in five equal instalments beginning from the year in which the property is acquired. Thus, the interest included in the loan instalment paid by you during the construction period shall be eligible for deduction from the year in which the flat is acquired/construction is completed.
The principal amount of the loan repaid till date shall not be available as a deduction under section 80C till the time the construction of the flat gets completed. Once the flat is completed and the possession is handed over to you, you will be eligible to claim deduction for interest paid on the loan under section 24(b) and principal amount of loan under section 80C.