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Vishal (Service)     04 January 2014

Tax rebate on home loan interest - possession after 3 years

Dear Experts,

Kindly consider below scenario:

  • I took a housing loan in year 2009 for under construction flat in Noida (full advance payment).
  • I am based in Hyderabad due to Job.
  • Paid EMIs from Aug-2009 to Jan-2014.
  • Will Take possession next month (Feb-2014) after paying remaining 5% of total payment.

Query:

  1. Can I claim tax rebate of 1.5 lakhs for FY 2013-14 + 20% of aggregated Interest for previous years?
  2. From the forums, I could only get info like I can't if the possession is delayed over 3 years and property is self-occupied. What options are available to me here so as to claim 1.5 lakhs?
  3. As I'm based in another city (rented accomodation), If my Noida Flat can be shown as rented-out and tax rebate of 1.5 lakhs be claimed?
  4. Any other information which you feel can help with tax saving as the impact would be hard on me.

Kindly advice.



 6 Replies

Pradeep Gupta

Pradeep Gupta (Accounts Manager)     04 January 2014

Originally posted by : Vishal
Dear Experts,

Kindly consider below scenario:


I took a housing loan in year 2009 for under construction flat in Noida (full advance payment).
I am based in Hyderabad due to Job.
Paid EMIs from Aug-2009 to Jan-2014.
Will Take possession next month (Feb-2014) after paying remaining 5% of total payment.


Query:


Can I claim tax rebate of 1.5 lakhs for FY 2013-14 + 20% of aggregated Interest for previous years?
From the forums, I could only get info like I can't if the possession is delayed over 3 years and property is self-occupied. What options are available to me here so as to claim 1.5 lakhs?
As I'm based in another city (rented accomodation), If my Noida Flat can be shown as rented-out and tax rebate of 1.5 lakhs be claimed?
Any other information which you feel can help with tax saving as the impact would be hard on me.


Kindly advice.

Sec. 24 deals with deduction for Interest on housing loan.

Following points need to be considered in your case:-

  • If loan has been taken on or after 1st April 2009 for the purpose of Purchase/Acquisition or Construction, then deduction will be allowed in full irrespective of the date of completion of construction as follows:-
  1. If House is for Self Occupied:  Maximum Deduction Rs.150,000/- (Provided Purchase/acquisition or construction should be completed within 3 years from the end of the FY in which loan taken, if not then deduction will be allowed upto Rs.30,000/-).
  2. If House is for Let out: Maximum Deduction – No Limit.
  • If that house  is not self occupied by the owner because of employment, business/profession carried at any other place => then in such case deduction will be limited to Rs.150,000/-.
  • If Housing loan taken for pre-construction or under construction Home, then in such case
  1. All the Interest should be aggregated.
  2. And Tax deduction will be allowed in 5 equal installment starting from the year in which construction completed.
  3. Thus, Total deduction inclusive of 1/5 of pre-construction interest will be available but limited to Rs.150,000/-. Means it can’t exceed Rs.150,000/- both together.

 

Now considering the above facts, we can reach at the conclusion as follows:-

  1. Can I claim tax rebate of 1.5 lakhs for FY 2013-14 + 20% of aggregated Interest for previous years?

Ans: No, You can’t get deduction of Rs.1.5 Lakhs. It will be restricted to Rs.30,000/- since the construction not completed within 3 years.

  1. From the forums, I could only get info like I can't if the possession is delayed over 3 years and property is self-occupied. What options are available to me here so as to claim 1.5 lakhs?

Ans: See the First thing that construction has not been completed within 3 years, so you can’t get the higher deduction.

If you can arrange a certificate from the builders that house has been completed in FY 2012-13 and then it is possible.

  1. As I'm based in another city (rented accomodation), If my Noida Flat can be shown as rented-out and tax rebate of 1.5 lakhs be claimed?

Ans: If you will go through the provision of sec.24 which specifically says that If you are not residing in that house due to employment, business/profession carried at any other place then in such case the limit will be Rs.150,000/-. Since you have not fulfilled the criteria of completing the construction within 3 years, therefore it will be restricted to Rs.30,000/-.

If you were residing in Noida and this house property was let out and construction completed within 3 years then you could get the deduction of more than Rs.150,000/-, since there is no limit for deduction on interest on housing loan for let out house property.

  1. Any other information which you feel can help with tax saving as the impact would be hard on me.

Ans: Don’t show the house property as let out, otherwise you need to show the house property income and then you will get deduction of 30% of GAV and Interest on Loan. And If any surplus is remaining then you need to pay tax on them.

So let it be as self occupied, as the annual value will be NIL and you will get deduction of Rs.30,000/-, consequentially there will be loss from house property, which you can set off from Salary Income.

1 Like
Vishal

Vishal (Service)     04 January 2014

Thank you for your reply. I sincerely appreciate  the time and effort you put helping others.

One more request. Kindly provide little more details on "consequentially there will be loss from house property, which you can set off from Salary Income."

Sorry for sounding naive but please help with some example calculation here as per your convenient time.

Pradeep Gupta

Pradeep Gupta (Accounts Manager)     04 January 2014

Example:

Suppose your total taxable Salary Income Rs.600,000/-.

Apart from that You are having one residential house in Noida, which is not let out. You have taken Housing loan for that property and for which you are paying EMI consisting interest and principal amouting to Rs. 100,000/ and Rs.150,000/- respectively.

Solution:-

Income from Salary:-

Total Taxable Salary =                             Rs.600,000/-

Income from House Property:-

Annual Value of Property = Rs. NIL

Less:-Deduction U/s 24:

Standard Deduction        = Rs.NIL

Interest On Loan             = Rs.30,000          Rs.(30,000)

(Since construction not completed within 

3 years, Rs.150,000 will not be allowed)

Total Income =                                         Rs.570,000/-

Deduction under Chapter VI:-

U/s 80 C (Principal Amount limited to

Rs.100,000/-)                                              Rs.100,000/-

Total Taxable Income:                              Rs.470,000/-

Tax on Rs.470,000/-

First 200,000/-                                                 NIL

From 200,001 to 470,000                              Rs.27,000/-

Edu Ces @ 2%                                              Rs.540

SHEC @ 1%                                                   Rs.270

Total Tax                                                      Rs.27,810/-

 

I hope it will clarify your doubt. :-)

Door Drishti

Door Drishti (NA)     15 January 2014

Thanks for detailed reply. I have a query on your below statement.
(Provided Purchase/acquisition or construction should be completed within 3 years from the end of the FY in which loan taken, if not then deduction will be allowed upto Rs.30,000/-).
 
My loan was sanctioned in Mar'11. First part of loan was disbursed in Apr'11 and my loan pre emi also started from May'11. The possession will happen in Jul'14. Can i claim 1.5 lacs interest deduction on home loan?
bascially which year will be considered as year for taking loan?
 
Does it matter if loan was for under construction property and loan will be disbursed till Jul'14 i.e. last payment to be done at the time of possession.
Himant Srivastava

Himant Srivastava   19 October 2015

Hi

I have a doubt. If the possession is delayed by more than 3 years, so max exemption I can get is Rs 30,000 u/s 24.

But if I re-fiance my home-loan by some other bank and my home loan will have a fresh start.

So can I claim the exemption of Rs 1,50,000 after re-financing it? 

Anamika Verma

Anamika Verma   06 April 2016

Hi, 

I think following given information will help you.

Q. Can I claim tax rebate of 1.5 lakhs for FY 2013-14 + 20% of aggregated Interest for previous years?

A. Yes, you can claim a tax deduction on the interest part upto Rs. 1.5 lakhs once your construction is completed within a time span of 3 years. You can’t claim deductions on a house that is still under construction. If your construction is not completed within 3 years, you can only avail a tax deduction upto Rs. 30,000.

Q. From the forums, I could only get info like I can't if the possession is delayed over 3 years and property is self-occupied. What options are available to me here so as to claim 1.5 lakhs?

A. Try to show that your construction was completed before 3 years. Otherwise, you have to be satisfied with the tax deduction of Rs. 30,000 only.

Q. As I'm based in another city (rented accomodation), If my Noida Flat can be shown as rented-out and tax rebate of 1.5 lakhs be claimed?

A. The fact is that you can show your second home as a rented house, if you have two home loans for two separate houses. But in your case, you are residing in some other city but that is not your own house. That is a rented accommodation. So, it is not possible to show your Noida flat as rented-out property.

However, you can claim tax deduction both on the interest part and on the principal part that is upto Rs. 2 lakhs, if your first house is self-occupied house and the second one is a rented one.

Q. Any other information which you feel can help with tax saving as the impact would be hard on me.

A. To claim tax benefit on home loan interest rate, you’ll have to wait till the year your house is completed. However, you can still avail of pre-construction interest deductions in that year as well.

Simply calculate the total amount that was paid as interest during the construction and include that in your tax returns for that year.

However, this will be clubbed with the rest of your interest deductions, so both your pre-construction and current interest deductions cannot exceed a combined total of Rs.2 lakh.

 


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