About Tax Deduction on Home Loan
To attract people for investment in housing property, Income Tax act offers various kinds of incentives. You can get tax deductions on Home Loan Interest that you pay according to the section 24 of the Income Tax Act.
The interest is allowed on due basis. Always pay interest on borrowed capital and not on notional capital. To claim for the deduction, the borrower should get a certificate of interest payable from the borrower.
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The different types of home-loans required for the interest deduction includes home loan for property acquisition, property construction and home loan for property repair. If you pay interest on a new loan that you lend to pay your existing loan, then that interest is also applicable for tax sops. But, if you take another loan, which is your third loan in order to pay your second loan, then tax refund is not allowed on your interest payments.
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Deduction is allowed on a maximum amount of Rs. 1.5 lakhs on a loan taken for construction or acquisition on or after 1st April, 1999, according to the Income tax act. But, if money is borrowed before April 1st, 1999, the deduction amount is restricted to Rs.30, 000 only.
It is the duty of the lender to provide certification to the borrower that, the interest is payable for the loan advanced, in case of home acquisition or construction. Moreover, the reason for which the borrower lends loan, whether it is for acquisition or construction of the home, the borrower must completes the work within 3 years from the end of financial year. Here financial year is the year in which the borrower lends money from the lender.
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The interest that you pay on home loans allows to be deducted from the total annual property value of your home. Total annual home value is calculated when you deduct municipal taxes paid from the gross annual home property’s value.
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