To understand the key tax benefits on a home loan, we are bifurcating the repayment techniques into four major elements-tax benefits on principal repaid, tax benefits on interest paid, deduction on pre-construction interest, and section 80EE income tax benefits. The next section will let you know the concept in detail.
Tax Benefits on Principal Repaid
Under section 80C of the Income Tax Act, the maximum deduction allowed for the repayment of the principal amount of a home loan is Rs. 1.5 lakh. Deduction under section 80C also includes investments done in the PPF Account, Equity Oriented Mutual funds, Tax Saving Fixed Deposits, National Savings Certificate, etc. subject to a maximum of Rs. 1.5 lakhs.
Besides this, there are stamp duty and registration charges that one can claim under the aforementioned section. However, the claim can only take place in the year in which the payment was made.
Nevertheless, there’s a condition under which this repayment of the principal amount of the housing loan is allowed. The deduction is only possible after the house gets entirely completed and there is a completion certificate for the same. The principal amount paid on any under-construction structure/property is not going to be a part of this section.
Tax Benefits on Interest Paid
Under section 24 of the Income Tax Act, one can avail of the deduction on a Home Loan for payment of Interest tax benefits. The self-occupied property allows the deduction with a maximum limit of Rs. 2 lakh if it takes completed within 5 years from the end of the Financial Year, otherwise, the maximum limit is Rs. 30,000.
Interest on housing loans paid for the let-out property is fully allowed in the relevant assessment year in which it is claimed.
From Assessment year 2018-19, the loss from house property head that will be allowed to be set off from other heads of income will be restricted to Rs 2,00,000 in a particular assessment year, and the rest amount shall be carried forward for set-off in subsequent years.
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Tax Deduction on Pre-construction Interest
You can also claim interest on a housing loan paid before the completion of the construction of the property. It is termed pre-construction interest. It is allowed in 5 equal instalments beginning from the financial year in which the construction is completed. The limit of 2 lacs will also apply for pre-construction interest in the case of self-occupied property. However, it is fully allowed in case we let our property.
Section 80EE Income Tax Benefit
Section 80EE proposes an additional deduction of Rs 50000 in respect of interest on housing loans to first-time house owners who own a house of Rs 50 lakh or less and have taken a home loan amount of less than or equal to Rs 35 lakh. The loan should be sanctioned between April 1, 2016, and March 31, 2017, to claim a deduction under this section. This deduction shall be in addition to the interest allowed under section 24(b) of the Income Tax Act, 1961.
Deductions Claimed by Individuals Under Section 80EEA
As mentioned under the newly inserted section 80EEA of the Income Tax Act, the government has extended the limit of deduction up to Rs. 1,50,000 applicable to the interest paid by any individual on the loan against residential property.
As per the policies, the deduction is available for individual residents only and for the property having a stamp value of less than Rs. 45 Lakhs.
Also, the loan needs to be sanctioned between 1 April 2019 to 31 March 2022, and the individual should not own any other residential property at the date of sanctioning the loan. Lastly, the person should not be eligible for claiming any deduction U/S 80EE.
Joint Home Loan Deduction
In case the home loan is taken jointly, then the loan borrowers are eligible to claim a deduction of up to 2 lakh each for the home loan interest and principal repayment u/s up to INR 1.5 lakh each in the tax return individually. They all must be co-owners of the property and further it helps in the larger tax claim benefits if in the family itself.
| Deductions | Section | Maximum Deduction (INR) | Conditions |
|---|---|---|---|
| Principal | 80c | 1.5 Lakh | No sale of property within 5 years |
| Interest | 24b | 2 Lakh | The loan has to be taken for construction and has to be completed within 5 years |
| Interest | 80EE | 50,000 Thousand | The loan amount must be under 35 lakhs , and the property value under 50 lakhs |
| Stamp Duty | 80C | 1.5 Lakh | Availed only in the year of expense |
| Interest | 80EEA | 1.5 Lakh | The stamp value of the property is under INR 45 lakh. Taxpayers are not eligible to claim a deduction under section 80EE |
However, in the new tax regime, deduction is not allowed under sections 24(b), 80C, 80EE and 80EEA.
I’ve taken an apartment in a different city and its vacant for the Financial Year 2017-2018. Should I file it under Income from House Property even though it was vacant?
If there is no income arises during the F.Y. and you not have taken any loan on such property, you not need to disclose the same in return for F.Y. 2017-18.
Hello,
Have taken a loan of Rs. 29 lacs in the year 2013-14 for the purchase of the ready new flat in Mumbai. Paid interest every year Rs. 2.8 lacs, 2.6 lacs, 2.4 lacs, 2.3 lacs till this financial year. As per tax laws, also claimed tax exemption up to a limit of Rs. 1.5 or 2.0 lacs as applicable every year. This year, I have closed the loan and no interest payment made. In this case, can I claim tax exemption of excessively paid interest (on accrual basis) i.e. 2.8 (interest)-1.5(exemption)+2.6-1.5+2.4-2+2.3-2 = 3.1 lacs accrued interest over 5 years. Am I eligible to claim this accrued interest during this financial year?
House property loss can be carried forward to next 7 A.Y. from the A.Y. in which that loss incurred.
Hello Sir,
I applied for the home loan and got pre-approval in Oct-2016 based on salary. But finalizing the flat in February-2017 and loan got disbursed in February-2017 for 25.5 lakhs. After that, i applied home improvement loan for woodwork for 6 lakhs. In last year IT I haven’t submitted any of these things. Can you please suggest what all benefits I can avail with respect to income tax (80C, 80EE, 24b) and PMAJ-MIG2. If I need to show 80EE for last year but my interest amount is only around 29000Rs, I need to show only this amount or is it possible to show for 50k considering this year? Is home improvement loan is eligible to show for IT?
Thanks
Deduction for the interest u/s 24b and principal u/s 80c is allowed only from the year in which construction is completed/possession is taken. deduction of interest for the period prior to the date of construction/possession is allowed in five equal instalments beginning from the year in which construction is completed or possession is taken. but such deduction is not allowed for the principal amount. it will only be allowed from the year in which construction is completed. for claiming deduction under 80EE, specific conditions have to meet. The 80ee deduction is over and above 24b.
This is with reference to the Home Loan on my second flat purchased. Received its possession on 21st November 2017.
Interest on Home Loan paid during Prior Period is as follows:
Financial Year / Interest on Home Loan (Rs.)
FY 2015-16 / Rs 38,546.08
FY 2016-17 / Rs 2,45,162.64
TOTAL – Rs 2,83,708.72
20% OF TOTAL – Rs 56,741.74
Principle and Interest on Home Loan paid during the current financial year in which I got the possession of the second flat is as follows:
Financial Year / Principle on Home Loan (Rs.) / Interest on Home Loan (Rs.)
FY 2017-18 / Rs 1,12,422.81 / Rs 2,33,684.19
If I show this second flat as Let-out House Property, then please advice on:
What should be the Interest amount that I show on Housing Loan?
Is it Rs. 2,33,684.19 (FY 2017-18) + Rs. 56,741.74 (20% of Prior Period) = Rs. 2,90,425.93
Or Is it restricted to Rs 2 lakhs
What should be the Principle amount that I show on Housing Loan?
Is it Rs. 1,12,422.81 (Full FY 2017-18)
Or is it for the period (Dec 2017 – Mar 2018) post possession
Normal rent for a 2 BHK at the complex is Rs. 7,000 to Rs. 7,500. How much out of this amount should I show as notional rent amount per month?
How many months notional rent amount do I need to show?
Is it for the full FY 2017-18
Or is it only for the period (Dec 2017 – Mar 2018) after receiving possession
What is the Property Tax Paid amount that I need to show?
The builder will be giving the money for the property tax of 1 year, which I need to go and pay to the Gram Panchayat. Have not received the money yet.
What is the Repairs amount that I need to show?
Would request you to kindly advise me on the above-mentioned queries.
For F.Y. 2017-18, a deduction for the interest is limited to Rs.2,00,0000 both in case of self-occupied property and let out property. it also includes preconstruction period interest (1/5 of the total amount of interest paid during the pre-construction). so interest deduction will be allowed only up to Rs. 2,00,000 for the F.Y. 2017-18. Also, the deduction for the principal amount is allowed only from the period from which the possession is taken/ construction is completed. so the principal deduction is allowed only for the period after 21st Nov 2017.
Deduction of house tax will be allowed only if paid by the landlord.
Hi Madam,
Is from this year the total interest on the home loan from both self-occupied and let out capped at 2L or it’s separate 2L for self-occupied and 2L for let out.
Thanks,
Shubhojit
From AY 2018-19 the benefit of home loan interest for both self-occupied and let out house will be restricted to 2 lacs only. It is not separate.