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 took a loan in 2012 and possession in 2016. Can the pre-EMI interest be claimed for next 5 years and if it also has a limit of 2 lakhs? Does this 2 lakh combined with the deduction of interest I am paying for the current financial year?
Yes, you can claim a deduction of the pre-construction period interest. it will be allowed in 5 equal instalments beginning from the year in which construction is completed or possession is taken. If you have not claimed the deduction in the ay 2017-18 for the pre-construction period, then you can claim the remaining balance of 4/5th of the interest amount in the succeeding years. The total deduction that can be claimed as a deduction is limited to Rs. 200000 from AY 2018-19 including the pre-construction period interest.
Hi I have a two-flat in the different location, both the property are under the loan from different banks, I have paid Rs 725844 against one loan and Rs 225000/- against the second loan, both the property are rented out, my query is
Can I claim Total interest paid against both the loan net of Rental Income, I am salaried class and falls under 30% slab
Thanks in Advance
Pankaj
You have to provide details property wise i.e. for each property you have to declare rental income and then can claim interest deduction against that.
I have paid interest on housing during the year 2017-2018, but my employer gave the only rebate for 30000, rest 85000 not rebated, now how and in which column I will put this rest interest amount to get the benefit of interest in ITR 1
Deduction of actual home loan interest paid (subject to a maximum of Rs. 2 lakh) is available if house construction completed within 5 years from the end of the financial year in which loan is taken. If construction of house not completed within five years then Rs. 30,000 is tax exempt. You will get the exemption accordingly.
Housing loan from Dec. 2014 in FY 2017-18
Intrest debited during the year 2017-18 — 1,59,420
Repayment towards Principal——- 19,335
Repayment towards Charges for transfer of loan from base rate to MCLR——- 10,845
Can I claim income tax rebate on the full amount paid against charges in the financial year 2017-18?
Deduction regarding principal and interest only to be eligible.
Question:
Property Offer of Possession Date: Aug 2017
Loan commencement date: 30 Dec 2017
Property Registration Date: 17 Mar 2017
Can I claim income tax rebate on the full amount paid against PreEMI in the financial year 2017-18? Or I will have to claim it in subsequent 5 financial years (1/5 every financial year)?
As pre-construction period starts from the date of loan and end till the end of last FY in which the construction or acquisition takes place, as in your case possession and loan sanction falls in the same year, so there would be no pre-construction period interest. All the amount of interest will be eligible to be deducted in the same FY.
I too had the same understanding but the payroll processor of my company has considered on the 1/5th amount for tax exemption. Before taking it up with them, I wanted to be doubly sure.
Thanks for your reply.
Yes, that will not be considered as pre-construction interest.
Can you please provide me any reference of this rule/act/section from the government/Income Tax website.
You can read section 24(b) of income tax act.