+91 (22) 6270 4900 Interest paid on capital borrowed for the acquisition, construction, repair, renewal or reconstruction of property is entitled to a deduction. This allows you to deduct an amount equivalent to the total interest payable on the housing loan from your taxable income within the same financial year. It is now a substantial amount although it started off with the Income Tax department offering Rs.. 15,000 as the maximum amount eligible for deduction in the case of self-occupied property. This was raised to Rs. 30,000, then to Rs. 75,000 and then reached Rs. 1 lakh. At present, it stands at Rs. 1.5 lakh.
For you this means, that should you borrow money to acquire, construct, repair, renew or reconstruct property on or after April 1, 1999, you get a deduction of up to Rs. 1.5 lakh. The criteria being: the property has to be acquired or constructed by March 31, 2003 and be self-occupied.
When put in figures, this is quite an amount. Assume a taxable income of Rs. 4 lakh, placing the assessee in the highest tax bracket along with an interest payment during the first financial year to be Rs. 1.60 lakh.
Your taxable income then stands reduced to Rs. 2.5 lakh (Rs. 4 lakh-Rs. 1.5 lakh being the maximum limit). Your total tax would then amount to Rs. 49,980 (tax of Rs. 49,000 + surcharge of Rs. 980). Therefore, you would have saved Rs. 45,900 (tax @30% on Rs. 1.5 lakh plus 2% surcharge as the investor is in the highest tax bracket).
