Note. If the whole or any part of pre-acquisition / construction period interest is claimed as deduction under any other provision of the Act then that much interest shall not be allowed as deduction under the head house property.
Other Important Points
(i) Basis of allowability. Interest on housing loan is allowed as deduction on accrual basis. Thus, interest accured/outstanding at end of the previous year is also allowed as deduction for that previous year. Even if an assessee maintains books of accounts on cash basis, the interest on housing loan shall be allowed as deduction on accrual basis.
(ii) Loan taken to repay the original loan. Interest on new loan taken to repay the original housing loan is also allowed as deduction.
(iii) Interest on delayed payment of interest. It is not allowed as a deduction.
(iv) Who may be lender? Housing loan may be taken from any lender, i.e., the lender may be a bank or any financial institution, or any company, or any friend or relative of the assessee or any other person.
(v) Interest payable outside India (Section 25). If interest on loan is payable outside India then deduction shall be allowed only if tax is deducted at source out of such interest. In other words, if interest is paid without deduction of tax at source then it shall not be allowed as deduction. However, the requirement of TDS is not necessary if there is any person in India who may be treated as an agent of the lender u/s 163 (who is outside India) in respect of such interest.
(vi) Applicability of Maximum limit. In case of self-occupied house property, the maximum limit of interest is in respect of both pre-acquisition period interest and post-acquisition period interest.
(vii) Loan taken to repay outstanding interest on old housing loan. Interest on such new loan is not allowed as deduction.
(viii) Interest on loan shall be allowed on deduction out of the Net annual value of the house for which the loan has been taken. Thus, interest on loan taken for house A shall not be allowed as deduction out of net annual value of house B.
(ix) Interest on money borrowed for the payment of municipal tax etc. is not allowed as deduction.