DEDUCTION OF INTEREST ON HOUSING LOAN

[S.C. WADHWA]

Mr. A gave ₹ 5 lacs to a builder for purchase of flat in delhi and took a loan of ₹ 10 lacs. Finance Co. gave ₹ 10 lacs directly to builder for purchase of flat on behalf of Mr. A. Thus, total cost of flat purchased by r. A is ₹ 10 lacs.

The flat contruction was completed after three years i.e. three years after giving ₹ 15 lacs. During these three years, builder paid interest to Finance Co. During the financial year 2012-13, Mr. A obtained possession of flat and paid interest of ₹ 300000/-.

Mr. A had now two flats one in delhi and 2nd in haryana.

Query is

How much deduction will be available on account of interest and in which manner.

[MAHENDRABHAI DESAI]

Dear Mr. Wadhwa,

Pl. read explanation for section 24 of Income Tax, where in it is mentioned that house should be completed within three years of taking loan, and interest for the period before taking possession shall be allowed in five equal installments, one in the year in which possession was obtained and rest for four succeeding year.

You need certificate from finance co. stating interest paid for each year.

One flat of your choice, with higher value will be treated as self occupied property, and second one if not used for business or give on rent, then notional rent will be added to income and from which you can claim deduction.

AI Summary

Deduction for housing loan interest: pre-possession interest allowed in equal installments from possession, subject to completion rules.
Interest on a housing loan is deductible where construction is completed within the prescribed period; pre-possession interest is allowable in equal annual installments beginning in the year of possession and supported by a certificate from the lender showing interest paid each year. One residential property may be treated as self-occupied while a second unlet residence is treated as deemed let-out for income computation.