Interest on borrowed funds taken for purchase or construction of House

Interest on borrowed capital is deductible (of the current year and pre-construction period):

(A) – In case of Self-Occupied Property – To a maximum limit of Rs. 150,000, if the following three conditions are satisfied:

• Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property;
• The acquisition or construction should be completed within 3 years from the end of financial year in which the capital was borrowed;
• The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.

Further, if capital is borrowed for any other purpose (that is, if the borrowed for reconstruction, repairs or renewals of a house property), then the maximum amount of deduction on account of interest is Rs. 30,000 and not Rs. 150,000

Further, if the above three conditions are not satisfied, then the interest on borrowed capital is deductible up to maximum of Rs. 30,000.

(B) In case of Let out Property, no such restriction has been prescribed for the interest on the borrowed funds.

We at have the expertise in handling individual taxation; please feel free to contact us, if you have any query regarding any tax issues.

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