ITR filing: You can claim interest paid before possession even if you pay off home loan before possession
I took a home loan in 2021. I will get possession of my flat in 2024 (temporarily). I have been paying IEA regularly since 2021, including both Principal and Interest, but I am not claiming any rebate in my Income Tax Return as I have not yet acquired possession of the flat. If I repay the full amount of the outstanding home loan now in 2023, can I claim rebate on interest paid till today after taking possession in 2024, as the home loan will be fully paid even before I take possession?
Under income tax laws, the tax benefits in respect of home loans under Section 24b (for interest) and under Section 80C (for repayment of principal) can be claimed only from the year in which possession of the house is acquired. In respect of interest paid for the years prior to the year of possession, the taxpayer can claim 1/5 of the aggregate of that interest in the following five years starting from the year of possession together with the interest payable for the current year. However, a similar benefit is not available for principal repayments made before the year of possession.
This interest can be claimed under Section 24(b) even if the home loan is repaid before the year of possession. However, there is a provision to reverse tax benefits claimed under section 80C in respect of repayment of home loan if the residential house is sold within five years from the end of the year in which the home loan is taken. So you will be able to claim 1/5 of the interest paid before the year of possession in five years from the year of possession. Please note that you will not be able to claim any deduction in respect of repayment of the principal before you take possession.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and his Twitter handle @jainbalwant.
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Updated: 22 June 2023, 08:04 AM IST
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