Understanding Interest on Home Loan Interest Payment

Hello and welcome to Part 8 of the Income Tax education series brought to you by H&R Block, the global leader in filing Income Tax Returns. Today we will understand how home loan interest repayment can benefit your tax savings.

When you take a housing loan you need to pay a huge amount as interest on home loan. This interest repayment component is eligible for a deduction from your taxable income. You can claim this deduction for an owned house property. The deduction amount for self-occupied house property is Rs.200,000 and can be either claimed by a single owner or joint owners up to Rs. 200,000 each. In case you have rented out your house property then you can get an unlimited deduction without any limit of Rs. 200,000. E.g. Nitish takes a home loan of Rs.35,00,000 and the annual interest repayment @10.25% goes up to Rs.2,32,000.Nitish can claim an interest deduction of Rs.200,000 if the house is self-occupied and the entire amount of Rs2,32,000 if the property is let out or vacant.
However if Nitish has booked a house property under construction then the deduction limit will be Rs.200,000 only if the construction gets completed in 3 years else the deduction can be claimed only up to Rs.30,000. Suppose Nitish books the house in the year September 2015 and the construction of the house property gets completed in the year December 2019 then the period of 3 years has already lapsed and now he can claim interest amount of only Rs.30,000 as a deduction.

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