Unclaimed home-loan interest? It may cut your capital-gains tax later
Here's a question many home-buyers never ask: if you opt for the new tax regime and can't claim the ₹2 lakh interest deduction on your self-occupied home, is that interest simply wasted? Not necessarily. There's a well-known — but contested — position that lets you carry that value forward to when you sell. Read this one carefully, because it's a grey area.
The idea
Under the new tax regime, a self-occupied house gets no deduction for home-loan interest. The argument is that interest you couldn't claim as a deduction under "Income from House Property" can instead be added to the cost of acquisition of the property when you compute capital gains on sale — a higher cost means a lower taxable capital gain.
An illustration
- You buy a house for ₹1 crore.
- Over the loan tenure you pay ₹50 lakh in interest, without ever claiming it as a deduction.
- When you sell, the argument is that your cost of acquisition should be taken as ₹1.5 crore — sharply reducing the capital gain, and the tax on it.
Important — this is not settled law
This is where you need to be careful:
- The position is supported by some Income Tax Appellate Tribunal (ITAT) rulings where the interest was not claimed under Section 24(b). It is not settled law.
- Contrary rulings also exist (some tribunals have held that interest lacks a direct nexus with acquisition and cannot be added), and the tax department frequently disputes such claims.
- The Finance Act, 2023 amended Section 48 to bar interest that has already been claimed as a deduction from being added to cost — so any double-counting is out.
- Whether it holds for you depends on your facts and the year of sale.
Takeaway: Interest you couldn't deduct isn't automatically wasted — but adding it to your cost of acquisition is a contested position, not a sure thing. Don't rely on it without professional advice.
Thinking of selling a property you bought on a loan? Talk to us first — we'll tell you exactly where you stand.
AI-assisted note, reviewed by Chartford Consultancy. This covers a contested tax position, not settled law — talk to us before you rely on it for your specific case.
