Home Loan interest double tax deduction benefit removed in budget 2023

Published: February 8, 2023 at 6:00 am

Budge 2023 has proposed to remove the double tax deduction benefit associated with home loan interest.

We all know that the interest component of a home loan can be claimed as a deduction up to a maximum of Rs. two lakhs under section 24. When the property is sold, the entire interest component, whether claimed as a tax benefit under section 24 or not, could be added as an acquisition cost and deducted from the realised capital gains under section 48.

Budget 2023 has now plugged this double tax exemption loophole. From 1st April 2023 onwards, the home loan interest can only be once. We either claim it under section 24 every year while servicing the loan, or we can claim it under section 48 while selling the property. We can no longer do both.

Will this affect the real estate industry? Since section 24 is intact, it is unlikely to impact proper buying.

This is the extract from the budget 2023 memorandum:


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“Prevention of double deduction claimed on interest on borrowed capital for
acquiring, renewing or reconstructing a property.”

“1. Under the existing provisions of the Act, the amount of any interest payable on borrowed capital for acquiring, renewing or reconstructing a property is allowed as a deduction under the head “Income from house property” under section 24 of the Act.”

“2. Section 48 of the Act, inter alia, provides that the income chargeable under the head “Capital gains” shall be computed by deducting the cost of acquisition of the asset and the cost of any improvement thereto from the full value of the consideration received or accruing as a result of the transfer of the capital asset.”

“3. It has been observed that some assessees have been claiming double deduction of
interest paid on borrowed capital for acquiring, renewing or reconstructing a property.
Firstly, it is claimed in the form of a deduction from income from house property under
section 24, and in some cases, the deduction is also being claimed under other provisions of Chapter VIA of the Act. Secondly, while computing capital gains on transfer of such property, this same interest also forms a part of the cost of acquisition or cost of improvement under section 48 of the Act.”

“4. In order to prevent this double deduction, it is proposed to insert a proviso after clause (ii) of section 48 so as to provide that the cost of acquisition or the cost of improvement shall not include the amount of interest claimed under section 24 or Chapter VIA.”

“5. This amendment is proposed to take effect from the 1st day of April, 2024 and shall
accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years.”

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