To fulfill the desire of owning a house, you either need to borrow money from friends and family members, opt for a home loan or use your savings. Most people choose the option of home loan or borrow from friends and family. In some cases, people eventually rent out the house bought. In this case, the income from rent is taxable under the Income Tax Act. If the buyer opts to stay the house, it is called a self-occupied property and can help you save on tax. A self-occupied property is the property which is occupied by a taxpayer throughout the year for his residence. 

Here’s how income is computed from self-occupied property:

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According to IT-department, "Income from house property" in the case of a self occupied property will be either Nil (if there is no interest on housing loan) or negative (i.e., loss) to the extent of interest on housing loan. But, if you have taken housing loan, then under section 24(b) of IT Act, you can claim deductions. However, the amount must not exceed Rs 2 lakh or Rs 30,000. 

If you have satisfied the following conditions, then limit in respect of interest on borrowed capital will be Rs 2 lakh. 

1. Capital is borrowed on or after 1-4-1999.

2. Capital is borrowed for the purpose of acquisition or construction (i.e., not for repair, renewal, reconstruction).

3. Acquisition or construction is completed within 5 years from the end of the financial year in which the capital was borrowed.

4. The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property.

If the above mentioned conditions are not fulfilled then, deduction limit will be reduced from Rs 2 lakh to Rs 30,000. Similarly, if you have taken loan from friends and relatives for purchase, construction, repaid, renewal or reconstruction, then you can also claim the above mentioned deductions. However, it needs to be noted that, if you have taken loan for personal or other purposes then the interest on such loan cannot be claimed as deduction.