What amount I can deduct as home loan in the financial year 2007-2008?

[Prabhakar]

I am paying my home loan. From April 1, 2007 to March 31, 2008, I paid a sum of Rs. 3,45,550/- How much is deductible?

[rajanpras]

If your loan is taken after April 1, 1999, you are eligible for the 1.5 lakh rebate on home loan interest paid; the Principal has rebate, but only u/s 80C within the total Rs. 1,00,000 limit. This is valid only if you are using for your own purpose of residence.

[MyTaxes_Expert]

Home Loan Deduction Explained
Your home loan (borrowed capital) payment consists of two parts-- payment of principal (home equity) and payment of interest on the loan. The interst portion is deductible (under section 24(b)) up to Rs. 1.5 lacs in a tax year for acquiring or constructing a property. The deduction is available only when the construction is complete or you have procession of the property.

If the capital is borrowed for reconstruction, repairs or renewals of a house property, then the maximum deductible amount of interest is Rs. 30,000 (instead of Rs. 1,50,000).

Pre-construction period. Interest of pre-construction period is deductible in five equal installments. The first installment is deductible in the year in which construction of property is completed or property acquired.

Deduction for Principal Paid. The principal may be deductible under section 80C, which has a limit of Rs. 1 lacs. If you do not have any other savings/investments allowable under 80C, then you can deduct Rs. 1 lac of principal payment amount. If you already have some investments/savings under 80C (say Rs. 60,000), then you can deduct only Rs. 40,000 of the principal payment.

The main points of section 24(b) Interest on Borrowed Capital are:
a. The deduction is available on accrual basis and not on actual payment basis, which means that deduction is available on yearly basis even if the interest is not actually paid during the year.
b. Interest on unpaid interest or on delayed payment is not deductible.
c. The brokerage or commission on arranging the loan is not deductible.
d. The deduction is available only when the construction on the property is completed or house property is acquired. That is deduction can not be taken during pre-construction period.

Chargeability (section 22)
The owner of a house property (consisting of any building or land appurtenant thereto) is taxed on the income in the form of its annual value under the head "Income from house property".

The legal owner of a house property is the one who is chargable to tax in respect to property income. "Who is owner?" is defined by section 27.

Taking deduction on ITR form.
If you claiming home loan interest deduction, then you can not use ITR-1. Home loan interest is claimed as deduction on Income from House Property so you need to file ITR-2. On ITR-2, you must complete schedule HP, Income From House Property.

[amitg1303]

Please address my query listed below
we can claim tax exemption on Pre-EMI(i.e. Interest paid during Construction or before possession) in 5 equal installments for next 5 yr but exemption limit will be 1.5 Lakhs per year or more?

[MyTaxes_Expert]

Interest of pre-construction period is deductible in five equal installments. The first installment is deductible in the year in which construction of property is completed or property acquired. The deduction limit under section 24(b) is 1.5 lac.