Income Tax 2025

Appearance

Deduction in respect of interest on loan taken for certain house property. ​

131(1) ​

An assessee, being an individual not eligible to claim deduction under section 130, shall be allowed a deduction on interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property, subject to a maximum limit of one lakh and fifty thousand rupees in a tax year and on fulfilment of conditions specified in sub-section (2), for the tax year beginning on the 1st April, 2019 and subsequent tax years.

131(2) ​

The deduction under sub-section (1) shall be subject to the following conditions:—

  • (a) the loan has been sanctioned by the financial institution during the period beginning on the 1st April, 2019 and ending with the 31st March, 2022;
  • (b) the stamp duty value of residential house property does not exceed forty-five lakh rupees; and
  • (c) the assessee does not own any residential house property on the date of sanction of loan.

131(3) ​

Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other tax year.

131(4) ​

In this section, “financial institution” shall have the meaning assigned to it in section 130(5)(a).

Explanation

Section Summary: ​

Section 131 provides a tax deduction for individuals on the interest paid on loans taken for the acquisition of a residential house property. This deduction is available only to individuals who are not eligible to claim deductions under Section 130. The maximum deduction allowed is ₹1.5 lakh per tax year, and it applies to loans sanctioned between April 1, 2019, and March 31, 2022. The property must meet specific conditions, such as a stamp duty value not exceeding ₹45 lakh, and the individual must not own any other residential property at the time the loan is sanctioned.

Key Changes: ​

  1. New Deduction for Specific Loans: This section introduces a new deduction for interest on home loans taken for acquiring a residential property, capped at ₹1.5 lakh per year.
  2. Eligibility Window: The loan must be sanctioned between April 1, 2019, and March 31, 2022.
  3. Property Value Limit: The stamp duty value of the property must not exceed ₹45 lakh.
  4. Ownership Condition: The taxpayer must not own any other residential property at the time of loan sanction.

Practical Implications: ​

  1. For First-Time Homebuyers: This section benefits first-time homebuyers who meet the specified conditions, providing them with a tax deduction on home loan interest.
  2. Tax Savings: Eligible taxpayers can reduce their taxable income by up to ₹1.5 lakh per year, leading to lower tax liability.
  3. Exclusivity of Deduction: If a taxpayer claims this deduction, they cannot claim the same interest under any other section of the Income Tax Act for the same or any other tax year.

Critical Concepts: ​

  1. Financial Institution: As defined in Section 130(5)(a), this includes banks, housing finance companies, and other recognized institutions.
  2. Stamp Duty Value: This is the value of the property as assessed by the government for stamp duty purposes, which may differ from the market value.
  3. Exclusivity Clause: The deduction under Section 131 cannot be claimed alongside any other deduction for the same interest payment.

Compliance Steps: ​

  1. Loan Sanction Proof: Maintain documentation proving the loan was sanctioned between April 1, 2019, and March 31, 2022.
  2. Property Valuation: Ensure the stamp duty value of the property does not exceed ₹45 lakh.
  3. Ownership Declaration: Provide proof that no other residential property was owned at the time of loan sanction.
  4. Interest Certificate: Obtain an interest certificate from the financial institution to claim the deduction.

Examples: ​

  • Scenario 1: Mr. A, a first-time homebuyer, takes a home loan of ₹40 lakh in 2020 for a property with a stamp duty value of ₹42 lakh. He pays ₹2 lakh in interest during the tax year. He can claim a deduction of ₹1.5 lakh under Section 131.
  • Scenario 2: Ms. B, who already owns a residential property, takes a home loan in 2021 for a second property. She is not eligible for this deduction because she owns another residential property at the time of loan sanction.

This section is designed to encourage first-time homebuyers and provide tax relief for affordable housing purchases.