I took a home loan in 2021. I will get possession of my flat in 2024 (tentatively). I am paying regular EMI since 2021, inclusive of Principal & Interest both, but have not been claiming any rebate in my Income Tax Return as I have yet to get possession of the flat. If I repay the full outstanding amount of my home loan now in 2023, can I claim a rebate on interest paid till today after getting possession in 2024, as I will have the home loan fully paid even before getting possession?
Under income tax laws, the tax benefits in respect of home loans under Section 24b (for interest) and under Section 80C (for principal repayment) can only be claimed from the year in which the possession of the house is obtained. In respect of interest paid for the years prior to the year of possession, the taxpayer can claim 1/5 of the aggregate of such interest in the next five years beginning from the year of possession along with the interest payable for the current year. However, a similar benefit is not available in respect of principal repayment made prior to the year of possession.
This interest can be claimed under Section 24(b) even if the home loan is repaid prior to the year of taking possession. There is however provision for reversal of tax benefits claimed under section 80C in respect of home loan repayment 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 prior to the year of possession in five years beginning from the year of possession. Please note you will not be able to claim any deduction in respect of the principal amount repaid prior to getting the possession.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his Twitter handle.
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Updated: 22 Jun 2023, 08:04 AM IST