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Tax deductions on home loans

Tax deductions on home loans

Tax Deduction on Home Loan Interest: Section 24

Homeowners can claim deduction of up to Rs.2 lakhs (Rs. 1,50,000 if you are filing returns for FY 2013-14) on their home loan interest if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2 lakh rebate.

conditions to claim the Rs.2 lakhs rebate.

  1. The home loan must be for purchase and construction of a new property.
  2. The loan must be taken on or after 1 April, 1999.
  3. The purchase or construction must be completed within 3 years from the end of the financial year in which the loan was taken.

When is the deduction limited to Rs.30,000?

If the loan has been taken for reconstruction, repairs or renewal, only Rs.30,000 shall be allowed as deduction.

Note: The deduction can only be claimed starting in the financial year in which the construction of the property is completed.

How do I claim tax deduction on a loan taken before the construction of the property is complete?

Deduction on home loan interest cannot be claimed when the house is under construction. It can be claimed only after the construction is finished. The period from borrowing money until construction of the house is completed is called pre-construction period.

Interest paid during this time can be claimed as tax deduction in five equal installments starting from the year in which the construction of the property is completed.

Tax deductions on home loans

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