Under the Income Tax Act, interest paid on a home loan is deductible from your total income, provided the conditions specified are complied with. The deductions are available while computing your income under the Head 'Income from House Property'. The deduction on interest paid is available even if the house is not rented out, and is either vacant or self-occupied. The loan can be for construction, acquisition, repair or reconstruction of property.

   The main condition is that you should acquire property on borrowed money, and the interest should be payable on the borrowed capital. Interest paid on a home loan is allowed as a deduction on accrual basis i.e. on due basis. It need not have been actually paid during the year.

   The deduction on home loan interest paid can be claimed subject to an upper limit of Rs 1.5 lakhs in a financial year. The interest on a loan taken for repair or reconstruction also qualifies for this deduction.

   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 account of interest up to a maximum limit of Rs 1.5 lakhs is available if the loan has been taken on or after 1.4.1999 to construct or acquiring a house, and the construction or acquisition of the house has been completed within three years from the end of the financial year in which the amount was borrowed.

   There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the house could have commenced before 1.4.1999 but, as long as it is completed within three years, from the end of the financial year in which capital was borrowed the higher deduction would be available on capital borrowed after 1.4.1999.

   The higher deduction is not allowed on interest on capital borrowed for repair or renovation of an existing house. To claim the higher deduction you should furnish a certificate from the bank to whom the interest is payable on the capital borrowed, specifying the amount of interest payable and the purpose for which loan was taken.

   It is to be noted that there is no stipulation regarding the construction or acquisition of the residential unit being entirely financed by capital borrowed on or after 1.4.1999. The loan taken prior to 1.4.1999 will carry a deduction of interest up to Rs 30,000 only. However, in any case the total amount of deduction of interest on borrowed capital will not exceed Rs 1.5 lakhs in a year.

   In case a property has been acquired or constructed with borrowed capital, the interest payable on the amount borrowed for the period prior to the previous year in which the property was acquired or constructed is also eligible for deduction. The interest is deductible in five equal instalments commencing from the previous year in which the house has been acquired or constructed. The first installment is deductible in the year in which the construction of the property is completed or acquired. The balance four instalments are deductible in the four subsequent years.