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 had taken a loan for Purchase of Flat in 2014, and claimed the interest deduction of Rs. 2 lacs in 14-15, 15-16, 16-17 and 17-18 (Total Interest paid is more than 14 Lacs in 4 years). The possession is still not taken and is expected in Dec-2019. From the online search, I am now aware that I could not claim this deduction before possession, and it has been taken incorrectly.
My queries:-
1. How many deductions I could have actually claimed? (Is it 30000/- per year)
2. How can I rectify claims already made
3. How to claim the deduction in 19-20(when the possession will be done)
Thank you.
Interest prior to the possession of house property has to be claimed in five equal instalments beginning from the F.Y. in which the property is actually possessed.
You can file rectification u/s 154 for the ITR’s already filed and processed at CPC. From FY 2019-20, ensure to take correct claim of prior period interest in five equal instalments.
Sir,
At the time of giving proof of investment to my employer as per provisional certificate of loan principal loan payment amount is 90,551/- which is reflected in Form No.16. But now as per final certificate, it is Rs.1,10,846. Can I rectify this amount while filing the return of income? Also, can I claim mu HDFC mutual fund investment while filing ITR which is not reflected in my Form No.16? May I upload copies of these investments while filing the return of income.
Thanks
Yes, you can claim additional 80C deductions while filing your ITR. No need to upload proofs of same.
I m salaried employee. In which column of ITR-1, tax exemption of Rs 2 lakh under Rule 24 is to be entered.
Hi,
If you have loss from house property, you should enter Negative figure in the “Income From House Property”.
Regards,
Abhiram M S
CA Student
I have 2 commercial let out property, total interest paid is Rs.450000/- then what will be interesting allowable u/s 24b for FY 2017-18.
As per amendment total interest from each house property can be allowed up to Rs. 200000.
Hi,
I had 2 home loan as below:
First home – Self occupied and I paid home loan interest Rs. 263844 in the Financial year: 2017-18
Second home- Parents occupied and I paid loan interest Rs. 110000 in the Financial year: 2017-18
Can you please tell me which ITR, I have to fill? Also how much loan interest I can claim?
ITR-2 will be filed if you do not have any business income. For self-occupied property, you can claim the maximum interest of Rs. 200000/-. The second home will be deemed to be let out and you can claim the whole of interest on it.