Some deductions allowed on capital borrowed to finance the construction or purchase of a house

Under the Income Tax Act, for the purpose of computing income or loss under the head 'Income from House Property', for a self-occupied house, a deduction of Rs 30,000 is allowed on interest on borrowed capital. However, a deduction on interest up to a maximum limit of Rs 1.5 lakhs is available if the loan has been taken on or after April 1, 1999 to construct or acquire a house. The construction or acquisition should have been completed within three years from the end of the financial year in which the capital was borrowed. The higher deduction is not allowed on interest on capital borrowed for repairs or renovation of a house. To claim the higher deduction you should furnish a certificate from the bank to which the interest is paid, specifying the amount paid for the purpose of construction or acquisition of the house.

Apart from the deduction of interest on housing loans, the Income Tax Act also permits deduction under Section 80C to assessees. This deduction is allowed on contributions made for specified purposes. An assessee is entitled to a deduction from the total income on the aggregate of these specified contributions. The deduction is allowed only to individuals and Hindu Undivided Families. Other categories of assessees are not entitled to this benefit. Any sum paid during the previous year by an assessee for the purchase or construction of a house (the income from which is chargeable to tax under the head 'Income from house property') is eligible for the deduction.

These expenses are eligible for this rebate:

Any payment due against a self-financing or development authority scheme, or to a housing board engaged in the construction and sale of houses on ownership basis.

Amount due to any company of which the assessee is a shareholder or to any cooperative society of which the assessee is a member, towards the cost of a house allotted to him.

Repayment of an amount borrowed from the Central/State Government, a bank, a cooperative bank, the Life Insurance Corporation, National Housing Bank or any public company with the main objective of finance for construction or purchase of a house. It also includes the assessee's employer, where the employer is a public company.

The amount includes stamp duty, registration fee and other expenses in connection with the transfer of the house to the assessee. No other payments are eligible for deduction.

These related payments are not eligible for this rebate:

Any amount paid by a shareholder of a company or a member of a cooperative society to become a shareholder or member. Amounts spent on addition, alteration, renovation or repair, which are carried out after the house has either been occupied by the assessee or any other person it has been letout to. In case the assessee transfers the house before the expiry of five years from the end of the financial year in which possession was obtained by him, no deductions are allowed. Further, the aggregate amount of the deductions allowed in the prior years will be deemed to be taxpayable by the assessee in the relevant previous years. The maximum deduction under the Section is limited to Rs 1 lakh