Friday, December 13, 2013


Incentives are offered under the Income tax Act on the investment in housing properties. Incentives come by way of deduction of payment of interest on the borrowed amount to buy or construct the house. Provisions relating to such deductions are provided in Section 24 of the Income Tax Act. The interest paid on a housing loan can bededucted from out of the taxable income of an assessee according to thisSection. The interest is permitted both on an accrual basis or due basis even if it is not actually paid in the year of accounting. To claim the deduction the assessee has to present a certificate from the lender to whom the interest has to be paid on the borrowed capital pointing out the amount of interest paid or payable.

The money should havebeen borrowed for acquiring the property or for constructing the property orrepair of the property. Interest paid on a new loan taken to repay another existing loan is also permitted. The amount can be deducted in five equalinstallments starting from the previous year in which the house is acquired orbuilt.

The first installment has to be deducted in the year of completion of property construction or the property is acquired and the remaining four installments in the four following years. Deduction for the full year is allowed even if one day is left in theyear.

The maximum amount that can be deducted is Rs.1.5 lakhs. The money should have been borrowed on or following April 1, 1999 for acquiring it or for the construction. It isnecessary that such acquisition or construction should have been finishedwithin three years from the end of the financial year in which the capital wasborrowed. It has to be certified by the lender that the interest is payable for the loan advanced for acquiring or constructing the house.

The deduction amount is limited to Rs.30,000 if the money has been borrowed prior to April 1,1999. The date when the construction was started is not important. It is important onlythat the construction is completed within three years from the end of thefinancial year in which the money was borrowed. It is also not necessary that the whole cost be financed though loan. Any portion of the cost of the house can be financed through loan.

It is advisable for purposes of tax to borrow and build or purchase instead of using one’s own fund. The reason is that if one uses his own fund he will not get any tax deduction from his total income.

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