Home Loan - Necessary to take possession for Tax benefit ?

Question

I have taken a Home Loan for an under construction property and have been paying EMI with interest and principal payments since April 2006. Since i am yet to take possession of the House, can i claim the tax benefit on the interest and principal components in this Financial Year?

Answer 1

This is specified in Sec 24 of the Income Tax Act. Hopefully following will be useful to you --
1) Tax benefit on Interest on capital borrowed is deductible upto Rs.1.5 lakh if you take possesion / complete construction within 3 financial years of borrowing. Else, only Rs.30K is deductable. taking possesion / completion is the basic criteria for this.

2) However, you can claim deduction on the principal amount repaid without taking possesion. This limit is probably Rs.1 lakh per year.

You need to ask a tax consultant on this who will be the right source to guide you. The good thing is that taking a housing loan reduces your tax burden,a nd so your effective emi is much lesser.

Answer 2

No , you can not claim interets but Principal amount can be claimed now under Section 80C of the I T Act which is now upto Rs 1,00,000.

But when you get the Completeion certificate from that F.Y.
You compute all interest paid upto that month and devide by four . From that F.Y onwards to three years , you can additioanlly claim dedcition of Interest as deduction from house property income which in your case , if you reside , shall be NIL.
The Explanation attached to Section 23 of the I T Act has this provison "Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years."

So there you are , divide by four of all you interest accumulated upto the month of completion , be happy to claim additional interets upto Rs1,50,000.

Answer 3

The benefit of deduction starts only after U take possession.In fact most of the banks start EMi after possession for such benefit.