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How to show Loan for Home Purchase & Loan for Repair

Dr. Jones (Director) (253 Points)

24 July 2010

Hi,

If a person has taken a home loan for Purchase of house in Year 1 &

in Year 2 he has taken loan for Repair of that same house, how should we show both interests for that same house in ITR?

Do we sum the interest of construction and repair & show it in one house property OR should we show it as seperate in ITR2?

Also, he and his wife are co-owner of that property. There is no where mention of ownership percentage. In such a case, can he claim ownership and in turn the interest for 65% of house property and remaining interest he can claim his wife's return?

Please suggest.

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6 Replies

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 24 July 2010

U can take aggregate amount of interest for deduction and no need to show seperate for repair and seperate for construction...

Secondly u cannot take any % for while claiming interest deduction. Section 26 governs the rule for co-owners, which should be applied only when share of co-owners is definite and ascertainable... Further, interest deduction would be available to person who has aquired or constructed house property by taking loan. Thus, even if co-owners, if loan taken by u only and repayment is made by u, whole amount would be available as deduction to u and not to u'r wife....

Raghav Toshniwal (student) (450 Points)
Replied 25 July 2010

Hello Dr. Jones, here is the solution in detail------------

As per Sec 24(b) of the Income Tax Act, 1961 , the simple rule of the deduction of interest is that whatever be the interest paid or due on loan borrowed for purchase, construction, repairs, renewal or reconstruction of house property is allowable as deduction. However, as far as self occupied house is concerned, the allowance of interest is limited to Rs 1,50,000 per owner. Also,You need not to show Interest on Loans taken for Construction & Repairs in separate ITR’s.

Secondly, the interest payable before you acquire home or start the construction work would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed.

In case of self- occupied property, housing loan tax benefit is allowed only for one such self – occupied property.

The documents of registration of the property is the main document which reveals the share each co-owners has in the property. But if it is not specifically mention therein, a 'tenancy-in-common' is said to exist. All the co-owners can use the entire property and every co-owner is deemed to be having an equal share (50 : 50) in the property.

But interest is deductible only if the same is borrowed by co-owners i.e even if one is joint owner but not a borrower of the loan is not allowed any deduction of interest. Only the person borrowing the loan is allowed deduction.

Upon death of one of the co-owners, the interest in the house does not pass to the other co-owners but to the person named in the will of the deceased, who will then become a tenant-in-common with the surviving co-owners.

Regards

RAGHAV

Dr. Jones (Director) (253 Points)
Replied 25 July 2010

Thanks ...but lets say if he has Rs. 1,50,000 interest for Purchase and Rs. 25,000 interest for Repairs, then if we add this, it will be more than Rs. 1,50,000 and in ITR, it does not allow us to enter more than Rs. 1,50,000 in interest.

What to do in that case?

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 25 July 2010

Dear John,

If the property is self occupied and not let out, u'r deduction for interest should restricted maximum to Rs.1,50,000 and should not allowed to get Rs.175,000. This interest comprising of interest on loan for purchase, construction, repairs and renovation of house taken all together. While computing amount of deduction allowable all the interest should be agregated and if agregate amount exceeds Rs.150,000, u will be allowed deduction of Rs.150,000 u/s 24(b)