Circular No. 28

213. Fresh loan raised to repay original loan taken for constructing/ buying property - Whether interest payable on second loan would also be admissible as a deduction under clause (vi) of sub-section (1)

What this is

Circular No. 28 was issued by the Central Board of Direct Taxes on 20 August 1969. Its subject is 213. Fresh loan raised to repay original loan taken for constructing/ buying property - Whether interest payable on second loan would also be admissible as a deduction under clause (vi) of sub-section (1).

What it does

Allows interest on a fresh loan taken to repay the original housing loan as a deduction under section 24(1)(vi). That clause allows interest on capital borrowed to acquire, construct, repair, renew or reconstruct the property. The Board decides that if the second borrowing has really been used merely to repay the original loan, and that is proved to the satisfaction of the Income-tax Officer, the interest on the second loan is equally deductible.

Why it was issued

A question was raised whether the deduction survives when the original borrowing is replaced by a fresh one, and the Board considered it.

Who it reaches

Owners of house property who refinance a housing loan
Lenders taking over an existing housing loan
Assessing Officers examining an interest claim on a substituted loan

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.24	s.22

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

213. Fresh loan raised to repay original loan taken for constructing/ buying property - Whether interest payable on second loan would also be admissible as a deduction under clause (vi) of sub-section (1)
1. Section 24(1)(vi ) provides that where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital shall be allowed as an admissible deduction in the computation of income from the said property.
2. A question has been raised whether in a case where a fresh loan has been raised to repay the original loan taken for the above purpose, the interest payable in respect of the second loan would also be admissible as a deduction under section 24(1)(vi).
3. The matter has been considered by the Board and it has been decided that if the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Income-tax Officer, the interest paid on the second loan would also be allowed as a deduction under section 24(1)(vi).
Circular : No. 28 [F. No. 8/8/69-IT(A-I)], dated 20-8-1969.

What to watch

The burden is on the assessee: the second borrowing must be proved to have been used merely to repay the original loan.
If part of the fresh loan is taken for other purposes, only the part that replaced the original borrowing carries the deduction on this reasoning.
The clause has since been renumbered and the deduction for house property interest is now differently structured with its own ceilings, so the principle here has to be applied within the current provision.

Where you meet it

In an assessment where interest on a takeover or refinance loan has been disallowed because the loan was not itself used to buy or build the property.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 24/2022 — Government of INDIA 7 December 2022
Circular No. 689 — Section 143(1)( a) l Prima Facie Adjustments 24 August 1994
Circular No. 538 — 430. Whether capital gain arising from transfer of a self-occupied residential house would be entitled to exemption 13 July 1989
Circular No. 363 — Section 24 l Deductions from Income from House Property 24 June 1983
Circular No. 104 — 478. Wife or minor child of individual incurs loss, which if it were income would be includible in income of that indivi 19 February 1973

← Circular No. 29 · Circular No. 27 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.