Turning housing loan interest into cost of acquisition during property sale

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Subscribe to enjoy similar stories. With housing loan interest rates remaining reasonable over the years, many taxpayers have turned to loans to fund their residential property purchases. Tax laws, however, limit the deduction of housing loan interest for self-occupied properties to ₹2 lakh annually.

For rented properties, the entire interest is deductible against rental income. This raises the question: is the interest paid in excess of ₹2 lakh a complete loss for taxpayers, or can it be claimed against taxable income in another way? Read this | A guide to capital gains tax on property sales: Navigating pre- and post-2001 rules Several tribunal decisions have taken the view that such excess interest, which could not be claimed as a deduction under house property income, may be treated as part of the cost of acquisition when calculating capital gains on the sale of the property. In one instance, a tribunal even held that interest already claimed as a deduction under house property income could again be considered as part of the cost of acquisition for capital gains.

However, there have also been contrary rulings stating that such interest cannot be included in the cost of acquisition. From April 2023, the law has been amended to clarify that any interest claimed as a deduction under house property income or under sections 80C or 80EEA cannot be included in the cost of acquisition of the property. This amendment effectively prevents double deductions.