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 have sanctioned a home loan in January 2010 on a construction-linked plan. the first disbursement was given in January 2010 itself. From time to time, as per the demand of the builder, the home loan was disbursed in several tranches. The remaining final amount was released in October 2017 and the possession of the house was given in December 2017. Am I eligible for claiming benefits under sec 24 of the IT Act?
The deduction can be claimed in the AY 2018-19 for interest u/s 24 and u/s 80C for the principal amount for payment made after possession of the house. Also, the house must be constructed within 5 years from the date of sanction of loan otherwise the deduction for interest will be restricted to Rs.30000. Interest for the period prior to construction can be claimed in 5 years beginning from the A.Y. in which construction is completed. Prior period principal payment cannot be claimed as a deduction.
Hello Sir, I have taken a home loan in Feb 2018 of 34 Lakhs. The value of the property (residential Independent house) is 58 lakhs. And I am the first time home loan buyer. Can I claim additional 50000/- deduction under 80EE from FY-17-18. But I have paid 48 k as interest. How will be additional 50000 calculations?
Primary conditions for claiming the deduction is that the loan amount should be less than 35 lacs and the value of the property would be less than 50 lacs, as your property value is more than limit, you will not be eligible for deduction u/s 80EE.
VASUDEVAN.D
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January 30, 2018, at 10:07 am
Sir, I have purchased a plot on Apr 17 and the construction is going on, which will be completed in Jun18.Loan sanctioned is Rs.34.75 Lacs.on 25.05.17.
1. I had one property before and sold the same on 05.05.17, well before the sanction of this loan, by fulfilling conditions like not owning a house at the time of buying new property and also less than 34.75 lacs. Will I able to get a deduction of Rs.50000/- under section 80EE this fy 2017-18: ay:2018-19.
2. As said earlier, l will get possession of this property by June’18 only. But, I have started paying EMI from jul17 onwards, which works out to Rs.1,82,975/-. Can I start my 1/5th of construction interest, i.e., Rs.,36,000/- from this AY 2018-19: FY:2017-18.u/s24.”
3. Since I have not occupied and taken only 1/5th of interest, will I be able to take the benefit of HRA for the FY-2017-18
Request your help in reply, please.
Sir, interest paid on more than one housing loan is allowable as the deduction under income tax of an individual. I have three home loans taken from SBI interest paid on three loans can be claimed as a deduction.
You can claim a deduction for each home loan separately, it will not be clubbed and allowed from only one single house property.
Hello,
I have bought a flat on 22/Jul/2015 from LIC for an amount of INR 39,00,000. During the month of Feb-2017, I have repaid the outstanding housing Loan value and have taken a new Loan from Bajaj Finance for INR 46,00,000 [INR 39,00,000 (New Loan)+ INR7,00,000 (Top Up)]. New Housing loan from Bajaj was sanctioned on 28/Feb/2017 for the same house property. I would like to check if I can claim the exemption under Sec 80C & Sec 24 for Interest and Principal.
The reason for my question is, I see a checkbox “I will not transfer any House Property mentioned above before the expiry of five years from the end of the financial year in which possession of such house property is obtained by me.” Would this statement deter me from claiming an exemption for obtaining the exemption under Sec 80C & Sec 24 for Interest and Principal?
As you have not sold the concerned house property before 5 years, you can claim the deductions.