ITR Filing 2024: Without this document, you can’t claim income tax deduction on home loan interest
ITR Filing 2024: Without this document, you can’t claim income tax deduction on home loan interest (Representational Image: Freepik)
Income Tax Return Filing for AY2024-25: The deadline to file income tax returns for the financial year 2023-24 is July 31. This time of the year, taxpayers grapple with many questions regarding their eligibility for income tax deductions and exemptions with regard to certain expenses and investments. One such query many home loan borrowers are facing is whether or not they can claim tax deduction on the interest portion of their housing loan before they take possession of their home.
Home loan tax treatment
You can avail of tax benefits on home loans under various Sections of the Income Tax Act. Under Section 80C, you can take a maximum deduction benefit of Rs 1,50,000 on the repayment of home loan principal amount. This deduction benefit is available even for the under-construction property.
There is a provision under Section 24B that allows an income tax deduction of Rs 2 lakh on home loan interest payments and there is also an additional Rs 50,000 deduction benefit on the interest amount paid under Section 80EE over and above the Rs 2 lakh limit under Section 24B. There are certain conditions laid down by the income tax department to allow borrowers to take advantage of this additional tax deduction of Rs 50,000. One of the conditions is that you should be a first-time home buyer and the cost of the home should be under Rs 50 lakh.
Can you claim an income tax deduction on home loan interest before possession?
The answer is ‘No’. The income tax laws do not permit availing the deduction benefit on the interest portion of the home loan before your builder gives you possession of the house or flat.
What does Section 24B say about the home loan deduction benefit on interest for under-construction property?
The income tax laws categorically say that a home loan borrower can claim a deduction benefit of up to Rs 1.5 lakh on principal repayment under Section 80C from the very first year of their home loan. That means a loan taken for under-construction property is also eligible for deduction benefit under Section 80C. But when it comes to interest repayment, the tax laws don’t allow claiming deduction benefits until the construction phase is over and the buyer gets possession of the property.
The deduction on interest payments can be claimed for the pre-completion phase in five equal instalments over the next five years after the construction is over. However, the limit for deduction benefit on interest payment under Section 80B is capped at Rs 2 lakh for a financial year.
Occupancy certificate needed to claim deduction benefit on interest portion of home loan
Under Section 24B, you will be allowed to claim your deduction on interest outgo of the housing loan for the current year as well for the pre-completion phase. You need to have the occupancy or possession letter with you to show proof of completion of the home to claim a deduction benefit of Rs 2 lakh per year as provisioned under Section 24B of the Income Tax Act.